An Earthquake in Conservative Family Policy

And more from the last few weeks…

Happy new year! Hopefully, you’re rested, refreshed, and ready to understand America, because we’ve got a triple-wide edition for you.

Obviously, there has been no shortage of news over the past few weeks, but we’ll try to focus here on what might otherwise have escaped your attention, starting with a sudden shift of the tectonic plates in conservative economic orthodoxy.

Oren explains the significance of the new Heritage Foundation report, Saving America by Saving the Family:

The question of whether and how to provide support for working-class families has been a central fault line in conservatism for the past decade. A number of economic forces have heightened the need for such support, and a number of political forces have heightened the Republican Party’s interest in providing it, but the legacy of the 1996 welfare reform has always pushed in the other direction.

Welfare reform was perhaps modern conservatism’s signal policy victory, correctly diagnosing the failures of the Great Society’s antipoverty strategy, which targeted the greatest support to the greatest dysfunction and thus created strong incentives that shattered families and pushed people away from working to support themselves. With welfare reform, conservatives rejected that model in favor of one that tied support to work and immediately delivered better outcomes for program participants. Unfortunately, rather than conclude that incentives matter and good antipoverty policy promotes connection to the workforce, many conservatives took the lesson to be that all cash assistance is “welfare” and all welfare is bad. Any policy that gave a family back a dollar it had paid in income tax would be embraced as a conservative tax cut; any policy that gave a family a dollar beyond what they had paid in taxes would be condemned as liberal welfare.

But working-class families don’t tend to owe much in federal income taxes, which left the Republican Party designing policy that mostly left them out. The child tax credit, especially, was aimed at helping families raising children, but if it could only reduce taxes owed, efforts to make it more generous would primarily help an upper-middle class that owed enough in taxes to claim the credit. When then-Senator Marco Rubio led the charge to double the CTCin the 2017 tax bill, he had to attract Republican support by creating a complex and kludgey design that pretended to give families back the payroll taxes both they and their employers had paid.

Five years ago, in our seminal paper on conservative family policy, American Compass proposed a new way to approach the issue and a new structure for a generous family benefit worth roughly $5,000 per young child per year, which we called the Family Income Supplemental Credit, or the Fisc. It envisioned that benefit as the core of a new social compact, targeted directly to working families and tied to work based on prior year’s earnings. That framework became the basis for the Parent Tax Credit proposed by Senator Josh Hawley in 2021, and the Family Security Act proposed by Senators Mitt Romney, Richard Burr, and Steve Daines in 2022, and was reflected as well in the CTC expansion proposed by House Ways & Means Committee Chairman Jason Smith in 2024. Later in 2024, shortly after becoming the nominee for vice president, then-Senator J.D. Vance likewise endorsed a $5,000-per-child credit, noting, “I think you want it to apply to all American families. I don’t think that you want this massive cut off for lower-income families, which you have right now.”

As I wrote at the time for Understanding America: “It’s worth noting how sharply anything along these lines rejects the position of the Old Right’s legacy institutions, which hold that letting people keep their own money is a ‘tax cut’ but sending them money beyond what they might have paid in taxes is ‘welfare.’” The usual suspects at the Wall Street Journal, the Heritage Foundation, the American Enterprise Institute, and Advancing American Freedom were all steadfastly opposed to anything along these lines, trotting out generic objections to “welfare” and “dependence.” Discussing objections to Chairman Smith’s proposal, I elaborated:

It’s unfortunate that a small segment of the American right-of-center, like the former high school quarterback who hasn’t done much since, can’t stop talking about the welfare reform of 1996. Every policy fight is that policy fight. The problem is always that people are not working enough; the primary measuring stick for every policy is whether it will get people working more.

But it is not 1995 anymore. Back then, a truly perverse safety net paid parents cash not to work at all and withdrew the cash if they did. That is a recipe for trapping people in poverty and creating a permanent underclass; that is a program to be fought against. Conversely, if a policy provides benefits only to families that do work and provides the same or higher benefits to families that work more, the welfare reform playbook is inapt. Conservatives should oppose a move back toward the pre-1996 model. But they should support policy that gets the most resources to the working families most in need, that makes joining the labor force and earning income generally more attractive, and that also affords a parent greater flexibility to take time off after giving birth, or to spend fewer hours in the labor market and more hours at home with a young child. If any of those outcomes strike you as a problem, you may be the problem.

Well, the Heritage Foundation has come around. In its massive new report, it proposes several new programs that would provide support to working families far in excess of their tax liability. Most notably, its Family and Marriage Tax Credit would be worth roughly $5,000 per young child per year and would be payable in full to working-class families, regardless of income taxes owed. This should sound familiar. Two years ago, Heritage’s senior scholar Robert Rector condemned Chairman Smith’s far more modest proposal because:

Although the bill claims its aim is to provide “tax relief” to families with children, there is little “tax relief” in it for working families. Instead, over 90% of the “family benefits” would be new cash welfare payments to families who pay no federal income taxes and little or no Social Security tax. Nearly all family benefits in the bill are overt cash welfare payments, not “tax relief.”

…

The welfare portion of the bill directly and explicitly repudiates the principles of successful welfare reform, which have governed the welfare system since the mid-1990s.

…

Overall, the welfare portion of the bill would overturn the principles that conservatives have stood for in welfare and family policy for three decades.

If enacted into law, it would be a major victory for the Left and a heavy blow for American families. It also would be a big step backward on the road to reform of America’s broken welfare system.

Rector is a co-author of the new Heritage paper and proposals, which, under Heritage’s “One Voice” policy, now represent the entire institution’s official position.

In their specifics, the Heritage proposals leave much to be desired. Rather than replacing existing programs and creating a simple, broadly available benefit, they layer new programs atop existing ones, each with different eligibility, rationales, and uses. Under the Heritage model, a family would receive one credit only for the first four years of the child’s life unless the child is adopted in which case a different credit applies, another for providing home-based care, different from the one received if using paid childcare, and an investment account that children could access decades later with tax treatment differing depending on the age at which they marry. Notwithstanding the convert’s admirable zeal, this level of social engineering and faith in the bureaucracy is a bit much.

But that’s OK. To repurpose the old joke, we’ve agreed on the appropriate role for government, now we’re just haggling about the price. As conservatives coalesce around a commitment to providing a generous benefit to working families, we can draw on plenty of good work already done about the form it should take. The transformation of intransigent opposition into enthusiastic support is the process by which political and, then, policy change occurs, and in this instance it is cause for genuine optimism. As a mentor of mine once advised, never overestimate what you can accomplish in two years, or underestimate what you can accomplish in ten. — Oren

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MORE GOOD TIDINGS FOR THE NEW YEAR

Why stop with family policy? Positive economic news has been rolling in as 2025 wound down and 2026 got rolling. The “blowout” Q3 GDP report (Wall Street Journal) showed strong and higher-than-expected economic growth. Productivity also surged higher (Barron’s), and the Bureau of Labor Statistics data shows consecutive quarters of encouraging gains, especially in manufacturing, with output, productivity, and real wages all rising. Yesterday, we learned the “U.S. Trade Deficit Fell to Lowest Level Since 2009 as Tariffs Reshape Trade” (New York Times), and today delivered another healthy employment report, with 50,000 jobs created and the unemployment rate ticking down to 4.4%. The Wall Street Journal headlines this as “Job Gains Cooled in December, Capping Year of Weak Hiring,” but Understanding America readers are accustomed by now to parsing the confusion over low net job growth in the face of unprecedented immigration enforcement.

Speaking of confusion, what happened to all the tariff “inflation”? Yet another study, this one from Northwestern University, tries to recover from the foolish claims made last year by economists that tariffs would translate straightforwardly to higher prices. The Wall Street Journal reports:

When President Trump announced sweeping tariffs last spring, economists widely predicted surging inflation, a stronger dollar and a significant slowdown in economic growth. That largely hasn’t come to pass. Inflation has picked up since April and remains well above the Fed’s 2% target, frustrating voters, but it hasn’t surged. Hiring is down and unemployment inching up, but the economy is chugging along. At the same time, the Trump administration’s predictions of a manufacturing renaissance also haven’t materialized.

“Mainstream economics has something to answer for on this,” said Jonathan Ostry, an economist at the University of Toronto.

Many people are saying!

• Bonus Quote: “There’s the exporter, there’s the importer, and there’s the consumer. And so far the consumer is carrying the least of the burden.” — Mohamed El-Erian, Chief Economic Adviser, Allianz

For a better explanation of what is happening in our economy than you’ll get from most economists, read these two end-of-year commentaries from senior Trump officials, which offer some of the clearest articulations yet from the administration:

Peter Navarro: Tariffs Are a Discipline, Not a Press Release (Wall Street Journal)

The tariff debate remains distorted by two opposing misconceptions: that tariffs would instantly resurrect American industry, that they would immediately crash the economy and ignite runaway inflation.

The experience of 2025 has disproved both. The economy didn’t collapse, but neither did a manufacturing renaissance appear on demand. These outcomes should surprise no one who understands how industrial capacity is built.

Tariffs aren’t a press release. They’re an instrument that reshapes bargaining leverage, investment math, and supply-chain location decisions. Their success can be measured only using the right metrics and the right timeline. Capital needs time to respond. But when supported by stable policymaking, tariffs can powerfully and positively address trade deficits.

Jamieson Greer: The Year of the Tariff (Financial Times)

There are three ways I measure the success of this new trade policy. In addition to boosting overall economic growth (3.8 per cent in the second quarter), it should reduce the trade deficit, raise wages for American workers and increase manufacturing’s share of our economy.

The outlook is good. The core inflation rate, 2.7 per cent, is the lowest in five years. Since August, our global trade deficit in goods is down, including an approximately 25 per cent year-on-year decrease in our goods deficit with China. Inflation-adjusted wages are up. And manufacturing is coming back.

This last piece is admittedly difficult — it took decades to lose our industrial primacy; rebuilding it won’t happen overnight. But this autumn, the first rare earth magnets made in North America in 25 years rolled off the line in South Carolina. The Philadelphia Shipyard has orders for a dozen commercial vessels, including two liquefied natural gas carriers — the first to be built here in nearly 50 years. Foundries and forges are being rekindled, and concrete has been poured for the foundations of new pharmaceutical facilities. Auto production lines are returning to America.

If some want to criticise that as a rocky start, I’ll take it. They should consider the counterfactual: if tariffs came off, would this new production be happening at all?

Our re-industrialisation requires more than just smart trade policy. We need better technology, workforce, regulatory, tax and energy policies — all priorities for the Trump administration. Looking at it from the trade portfolio, I’m glad to see the plan is working.

WHAT ELSE SHOULD YOU BE READING?

The $160,000 Mechanic Job That Ford Can’t Fill (Wall Street Journal)

Fascinating to compare, at each stage in the pipeline, the value proposition of a high-skilled and essential blue-collar career like transmission repair to that of, say, a business consultant. Seems like we need to start treating the former more like the latter, which would be a good thing.

The Return of the Jewish Question (David Azerrad in Compact)

“All conspiracy theories are appealing and most contain at least some element of truth. But they also contain many falsehoods and, just as importantly, they conveniently ignore all the facts that contradict their worldview. Even more so than outright lying, selective noticing is the hallmark of the JQ.”

Goodbye Gentle Parenting, Hello ‘F—Around and Find Out’ (Wall Street Journal)

An interesting map of cultural onto political trends, featuring cringe-inducing quotes like, “People feel weird about creating a generation of soft kids and my opinion is, would that be so bad?” (Don’t worry too much… that one’s a Canadian.)

• Bonus Bad-Parenting Read: Parents Are Going Broke From Their Kids’ Sushi Obsession (Wall Street Journal)

Minnesota’s Fraud Should Be a Wake-Up Call for Democrats (Ruy Teixeira in the New York Times)

“Mr. Walz admitted that some fraud happened on his watch but deflected, saying that Republicans are appealing to racism and xenophobia. Mr. Walz’s departure indicates this is no more effective than Democrats’ response to welfare fraud accusations in the Reagan era. Americans detest people getting something for nothing — the very essence of fraud. As the party that typically wants more and more generous social programs, Democrats have a special responsibility to ensure that these programs are clean as a whistle and reward only those who ‘work hard and play by the rules.’”

What Social Science Knows About the Value of Diversity (Arthur Brooks in The Atlantic)

A masterclass in presenting progressive dysfunction as some sort of general social trend. “In aggregate,” writes Brooks, “people’s resistance to accepting political differences is growing.”

According to the polling firm YouGov, back in 2016, only 10 percent of both Republicans and Democrats said they had no friends with whom they significantly differed politically; by 2020, this figure had risen to 12 percent for Republicans and 24 percent for Democrats. This trend was corroborated by the research firm Generation Lab and the publication Axios, which found in 2021 that 71 percent of college students who are Democrats said they wouldn’t go on a date with a Republican, while 31 percent of Republican college students said they wouldn’t date a Democrat. Similarly, 41 percent of Democratic college students would not support a Republican-run business, 37 percent would not be friends with a Republican, and 30 percent would not work for one. (The Republican numbers regarding Democrats were 7, 5, and 7 percent.) You probably have your own ideas about how to account for this. Unfortunately, though, I am not aware of any differential studies of the amygdala response of progressives and conservatives.

So, not in aggregate, just with the Left. And yes, we have some thoughts.

YIKES, THIS IS ALREADY GETTING LONG, AND WE HAD SO MUCH MORE TO TELL YOU ABOUT…

So we’ll pick up the pace.

On Healthcare

Even the New York Times has discovered that Obamacare has become the Unaffordable Care Act: “With Obamacare’s Higher Premiums Come Difficult Decisions”: “As enhanced subsidies expire, many Americans covered under the Affordable Care Act are having trouble paying for insurance.”

A recent entry from its “Ethicist” is a fascinating glimpse into the cognitive dissonance, and the ship abandonment that is upcoming from the professional-managerial class. “Should I Feel Bad About Joining a Concierge Medical Practice?” One sympathizes with the problem of this 69-year-old New York Times reader from Massachusetts, which is the obvious consequence of an effort at healthcare reform that we’ll go out on a limb and guess she enthusiastically supported, expanding “affordable” “access” by trying to crowd everyone into a uniform system at mandated prices:

The large medical practice I have been going to for more years than I can count is struggling to recruit and retain primary-care doctors and is short-staffed in general. Wait times for appointments have grown longer, the nurse practitioner I’ve seen most regularly will be retiring soon and I just don’t feel confident that I will receive the attention and care I will want, if and when my health takes a turn. No one at the practice besides this nurse even knows me.

Should she switch to a concierge practice that takes her insurance but charges an annual fee to keep out the riff-raff?

On the one hand, it obviously excludes most people, and it further strains the larger clinics (like the one I want to leave) as they try to absorb the patients whose doctors are adopting the concierge model. On the other hand, settling for care I don’t fully trust in order to stand on principle will do nothing to fix the horribly broken health care system in our country, and going with the new doctor could bring me great peace of mind.

Ethicist says: Yes! Go for the concierge medicine! After all, “plenty of goods in our society are available only to the minority that can afford them… The general idea is that, as long as everyone’s getting what they’re entitled to, it’s OK to distribute other goods by price.” And anyway, “one fewer patient won’t affect a big clinic’s financials; if it had any marginal impact on the other patients, it might be in slightly reducing their wait times.” (Comically, the questioner has a better grasp on the actual problem here, diverting those who provide the care away from the accessible institutions, but maybe that’s why we shouldn’t ask ethicists about health care policy.)

Ultimately, says our ethicist, “the consequences of an individual consumer’s specific choice are so hard to calculate, this is a problem best addressed on the level of public policy. If you do want to try to do something about it, get involved in the politics of health care, or at least bear it in mind when you vote.” Vote for… what exactly?

On Immigration

Republican Congresswoman Monica De La Cruz wants action “after South Texas builders voiced frustration with how immigration arrests at construction sites were negatively impacting their industry,” reports the Associated Press. Following the law is indeed a bummer. But she has a solution: “a special visa program for construction workers, similar to the H-2A visa program that allows foreign nationals to work in the agriculture sector.” We need a temporary worker program for seasonal jobs that Americans won’t do, so we should create one also for permanent jobs that Americans often do, because the real goal is just wage suppression.

And speaking of special visas that have become dumpster fires, check out the O-1B arts visa! The Financial Times reports, “Influencers and OnlyFans models dominate US ‘extraordinary’ artist visas. Work permits increasingly being awarded on basis of online reach, favouring content creators.”

But now a growing number of those contacting him to seek visas are social media influencers and models on OnlyFans, the streaming platform for sex workers and celebrities.

“I knew the days of representing iconic names like Boy George and Sinéad O’Connor were over,” Wildes said, as he described the shift towards what he called “scroll kings and queens”.

The number of influencers who have successfully applied for an O-1B visa, reserved for “exceptional” creatives, has exploded since the Covid-19 pandemic, according to immigration lawyers like Wildes, talent managers and creators.

Which is as good a segue as any to your weekly helping of dystopia…

On Dystopia

Elon Musk managed to find some limit on the AI-fueled drek that American society is willing to tolerate, as his apparent decision to further relax controls on xAI’s Grok led quickly to a deluge of sexualized deepfakes flooding the X platform. The backlash was sufficiently strong and swift that, as of last night, Musk has paywalled those features, but the question remains what the appropriate regulatory response should be.

The recently passed TAKE IT DOWN Act requires platforms to remove illicit images at the request of victims, but imposes no obligation to prevent the initial posting, and if anything, insulates them from liability so long as they comply with requests. For the tech moguls to prioritize basic human decency in developing their platforms, they will have to face massive and immediate liability for getting it wrong. xAI announced this week that it had raised another $20 billion from Nvidia, Cisco, and Fidelity, among others. If they had to pay $100 million every time the model generated deepfake pornography, they’d probably solve the problem pretty quickly.

• Bonus Embarrassment: Podcaster: “What’s one invention that’s made us worse, not better?” Elon Musk: “Maybe short form video. It’s rotting people’s brains.”

For serious thinking from serious people, the new issue of National Affairs has two excellent essays.

• John Ehrett and Brad Littlejohn: The Post-Human First Amendment

  “On TikTok’s view, it is not merely speech, but an automated speech-selection algorithm that enjoys First Amendment protections. In the formulation of this argument, all three free-speech revolutions converge. TikTok, as a business corporation, is not a human being. It has no “natural right” to free speech in any sense recognizable to the founders. TikTok’s algorithm is plainly not “speech” in the standard sense, but complex computer code. And TikTok’s algorithm is a product deployed in service of its business activities, not speech directed to any public interest or expressing any content about the world. And yet TikTok claimed a free-speech right to do business as usual. Would the founders have agreed?”

• Charles Fain Lehmann: The Case for Prohibiting Vice

  “As Americans become increasingly wary of this new wave of vice proliferation, opponents of it should look elsewhere for a way to frame their attacks. Talk about harm, yes. But those concerns should also be grounded in a comprehensive and coherent account of why vice is incompatible with human freedom — an account that, if framed correctly, can appeal to Americans on both sides of the political spectrum.”

THIS WEEK’S GOOD, BAD, AND UGLY FROM 1600 PENN

The Good: “Trump Orders Crackdown on Defense Industry Stock Buybacks” (Wall Street Journal). “President Trump lashed out at U.S. weapons manufacturers Wednesday, announcing new restrictions on executive pay and stock buybacks while also threatening to cancel contracts with one of the country’s largest defense contractors.” (Read the executive order.)

Daniel wrote about this just before the break, in “You Can’t Spell ‘Defense Industrial Base’ Without ‘Industrial Base.’” An important point:

The same problem extends far beyond the defense sector. In all the places where the United States needs more capital investment—energy infrastructure, shipbuilding, advanced manufacturing, critical minerals, residential housing—financial engineering can pull in the opposite direction. If Washington is willing to say that buybacks and dividends in the defense sector are inconsistent with the national interest, it should apply the same analysis to other industries that require greater capital investment. No principle of economics would limit the disconnect between shareholder return, industrial capacity, and economic progress to tanks and missiles.

The Bad: “Defense stocks surge after Trump calls for $1.5 trillion military budget in 2027” (CNBC). Respectfully, Mr. President, the country does not have an extra $500 billion per year to spend on the military, and that was the case before the One Big Beautiful Bill’s $5 trillion in tax cuts. To the contrary, your budget director, Russ Vought, before joining the administration, published a blueprint for bringing the federal budget back toward balance that required substantial cuts to defense spending, bringing the total down to roughly half of what you are now proposing.

An expansive vision of a new American empire may be fun to contemplate in the abstract, but actually pursuing it would require abandoning virtually all of the administration’s other fiscal priorities and certainly those of most American voters.

The Ugly: Are Chinese automakers headed to America? The White House still refuses to signal any opposition. One such producer, Geely, is now indicating plans to enter the market in the next few years.

Meanwhile, Waymo appears to be preparing to build out its autonomous fleet with Geely vehicles.

Senator Bernie Moreno has been an outspoken opponent of these developments. It would be good to see more conservative leaders, and the president, join him.

MORE OF THE GOOD

But hey, we’re kicking off the year on a positive note, and there’s more good to celebrate on the policy front.

• The FCC has taken important action barring Chinese drones from the American market. Peter Harrell notes, “this should boost demand for domestic and allied drone-makers, so also an industrial policy measure,” while Chirs Miller writes in the Financial Times, “by adding all foreign-made drones and key components to its ‘Covered List’ of equipment that poses an unacceptable national security risk, the commission de facto banned China’s DJI, the industry leader in drones. This opens the market to US drone companies. It may also mark a shift towards greater use of import restrictions in Washington’s tech competition.”

• Fund the trade police! Yesterday, the House passed a bipartisan appropriations bill that would increase funding for the U.S. Trade Representative’s office and the Commerce Department’s bureau for export controls.

• In an interview with The Harvard Political Review, President Biden’s USTR Katherine Tai praises the Trump administration’s continued use of USCMA’s Rapid Response Mechanism:

  I really give my successor credit for this. In the first Trump administration, one of the biggest initiatives on trade, separate from the tariffs, was the renegotiation of NAFTA and the creation of the U.S.-Mexico-Canada agreement. That came into being, and it required congressional ratification, through a partnership and renegotiation between the first Trump administration and congressional Democrats. As part of that renegotiation, we together created an enforcement mechanism that’s specific to workers and worker power.

  …it is absolutely revolutionary when it comes to trade practice in America and worldwide. We call it the rapid response mechanism. The current administration and the current trade representative have continued our practice of using that mechanism. The cases that I started are concluding successfully. Cases that I saw coming in the pipeline, I see them starting because they have continued to work on those cases and launch them. I think that that’s quite remarkable, but nobody’s reporting on it.

  Bonus Link: Last year in Compact, Daniel wrote about the importance of the Rapid Response Mechanism and the need to expand it.

• Outbound investment restrictions bite—in a good way. Meta’s $2 billion acquisition of Manus, an AI startup with Chinese origins, provides a fascinating case study. Manus relocated itself to Singapore and, as a condition of the deal, will have no Chinese ownership and will cease operations in China. “Manus’s moves to avoid violating U.S. rules that restrict outbound investments in key technologies,” reports the Wall Street Journal, “eased concern about its China ties.” Officials in Beijing are not pleased. They “believed that the sale would give the U.S. access to technology developed by Chinese engineers and encourage other startups to pursue a similar funding path, the people said. Beijing appears to have few tools to influence the deal given Manus’s foothold in Singapore.”

• Peter Harrell says, “when I worked on developing the outbound investment control regime that the government set up several years ago, Meta’s acquisition of Manus is precisely one of the types of impacts we were hoping for. Top Chinese AI talent decides to decamp from China in order to get access to western capital, avoid potential export controls, and keep access to western markets.”

• And now, per South China Morning Post, “China to probe Meta’s purchase of Manus over export controls, tech outflow concerns. Probe comes amid concerns the US$2.5 billion acquisition could breach tech export controls and encourage more start-ups to relocate offshore.” Womp, womp.

AS FOR THE GLOBAL TRADE WAR

Why China is Doubling Down on Its Export-Led Growth Model (Financial Times)

“‘They’re telling other countries, don’t mess with us, don’t compete with us, you can’t beat us,’ he says. But even as China touts its domination of global manufacturing — trade figures released in December show it is set for its first surplus in goods of more than $1tn in 2025 — vulnerabilities are building in its domestic economy.”

The Pentagon and A.I. Giants Have a Weakness. Both Need China’s Batteries, Badly. (New York Times)

Notable mostly for your regular reminder that this is precisely what long-time Intel CEO Andy Grove predicted, 15 years ago, would happen as a result of America forsaking manufacturing. “The U.S. lost its lead in batteries 30 years ago when it stopped making consumer electronics devices. Whoever made batteries then gained the exposure and relationships needed to learn to supply batteries for the more demanding laptop PC market, and after that, for the even more demanding automobile market. U.S. companies did not participate in the first phase and consequently were not in the running for all that followed. I doubt they will ever catch up.”

A good thread from Michael Pettis on Paul Krugman’s recent commentary on persistent trade imbalances. “Trade deficits are self-correcting” is no longer the most important thing Krugman wants to teach undergraduates!

And more people continue to discover that America’s trade problem is now the world’s:

• In his Financial Times Big Read on “Top 10 trends to watch for 2026,” Ruchir Sharma predicts: “‘China Dumping’ Becomes Target.” He writes, “signs of a backlash are building. The number of trade investigations into Chinese dumping has more than doubled since 2023 to 120, worldwide. From Japan and Canada to Mexico and Thailand, nations are beginning to hit China with retaliatory tariffs. The EU is considering ‘made in Europe’ rules. French President Emmanuel Macron recently warned — in Beijing — of ‘unbearable’ trade imbalances. Given its economic troubles at home, however, Beijing is not likely to listen. In 2026 ‘China dumping’ could come to rival ‘Trump tariffs’ as a target of global anger.”

• “Europe Becomes Main Battleground for Chinese Exporters as US Tariffs Bite” (Yicai)

  “Chinese exporters have shifted focus to the European market this year as they face pressure from US tariffs. While many have seen strong results, the move has also ramped up competition across the region.”

• “German Exporters Face Prolonged Slump in Key U.S., China Markets” (Reuters) “German exporters should prepare for continued weakness in 2026 in their two largest markets, the United States and China, with little prospect of recovery.”

• “China Readies Its Favorite Trade War Weapon For Japan Feud” (Bloomberg)

  “China’s warning to Japan that it could choke off supplies of rare earths, its favorite weapon in trade conflicts, targets a persistent vulnerability among Japanese manufacturers after more than a decade of Tokyo trying to reduce reliance on its rival.”

And finally, a great big clown emoji for Canadian Prime Minister Mark Carney:

• “Carney to Visit China to Talk Trade With Xi as US Tariffs Hit Growth” (Bloomberg)

  “Carney said he has a longer-term goal of opening up ‘a much bigger set of opportunities for a broader range of Canadian businesses’ in China.”

Best of luck to you, sir. As for everyone else, enjoy the weekend!