Oren here. As many of you know, I write an awful lot, but I try to pick one thing each year as the most important thing I really hope you’ll read. Well, this year’s is here, leading the forthcoming issue of Foreign Affairs and out from behind their paywall temporarily:
A Grand Strategy of Reciprocity: How to Build an Economic and Security Order That Works for America
It begins:
The United States has pursued two grand strategies in the 80 years since World War II. One was an extraordinary success: the policy of “containment” that guided American economic investments, foreign relations, and military deployments during the Cold War, which led to the defeat and collapse of the Soviet Union and the emergence of the United States as the world’s lone superpower.
The same cannot be said, unfortunately, about the strategy adopted at the Cold War’s conclusion: an attempt to leverage superpower status to establish a “liberal world order” that Washington would secure and dominate.
The American effort at benevolent hegemony failed, I argue, because it was premised on an absurd hubris and flawed set of assumptions:
In his second inaugural address, President Clinton went further, anointing the United States the world’s “indispensable nation.”
Within a remarkable 12-month period surrounding that speech, a chorus of prominent thinkers cheered on this new credo. Kristol and 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.” The New York Times columnist Thomas Friedman published his observation that “no two countries that both have a McDonald’s have ever fought a war against each other.” And the economist Paul Krugman asserted that “a country serves its own interests by pursuing free trade regardless of what other countries may do.”
Embedded in these declarations were three interlocking assumptions. First, that the United States, standing alone as the world’s sole economic and military superpower, would have the ability and will to dictate global events when and where it chose. Second, that all countries of geopolitical significance would move inexorably toward market capitalism and democratic governance and thus would have interests and systems compatible with a U.S.-led liberal world order. And finally, that free markets would automatically generate prosperity, for the United States most of all, and thus the expansion and integration of markets would reinforce the American position.
The result:
In the twenty-first century, American military leadership and economic forbearance neither achieved an “enlargement” of the community of market democracies nor boosted American security and prosperity. It merely consumed the physical, financial, and social capital that the country had painstakingly accumulated. For global superpowers as much as for families, it turns out, one generation builds the wealth, the second enjoys it, and the third destroys it or sees it squandered.
With hegemony over, the new era offers the opportunity for a better approach:
The relative decline in American power has strengthened Washington’s hand when it comes to negotiating the terms of a new global order. The status quo is predicated on an American commitment to hegemony that precludes the possibility of pulling back. That commitment made sense as long as the United States remained dominant. But owing to the self-enfeeblement of its allies and the ascent of China, the United States can no longer maintain its predominance.
And so it seems plausible that a dramatic retrenchment—pulling back from global economic and military engagement and relying chiefly on the strategic depth and sizable market provided by the North American continent—could produce a better outcome than the ongoing descent into late-imperial exhaustion. Simply put, Washington can now consider walking away from the table if the terms of its relationships do not improve. Allies and partners know this and want to avoid that outcome, because the U.S. market and military remain indispensable to their own prosperity and security. Which means that, for the first time in the lives of contemporary policymakers, the United States is in a position to frame its demands around narrow self-interest, back them with credible consequences, and expect them to be taken seriously. The question that will define the next era of American statecraft is, What should those demands be?
Please read the whole thing! -- Oren
NOBEL PRIZE IN COMMON SENSE
The 2025 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (not to be confused with a Nobel Prize) went to Joel Mokyr, Philippe Aghion, and Peter Howitt for showing “how new technology can drive sustained growth.” Notably, this follows the awarding of last year’s prize to Daron Acemoglu, Simon Johnson, and James Robinson for helping us “understand differences in prosperity between nations.”
This year’s winners delivered the important insight that “if innovations are to succeed one another in a self-generating process, we not only need to know that something works, but we also need to have scientific explanations for why,” while emphasizing “the importance of society being open to new ideas and allowing change.” Apparently, “creative destruction creates conflicts that must be managed in a constructive manner. Otherwise, innovation will be blocked by established companies and interest groups that risk being put at a disadvantage.”
Last year’s breakthroughs centered on “the importance of societal institutions for a country’s prosperity” and showed why “societies with a poor rule of law and institutions that exploit the population do not generate growth or change for the better.” As the prize committee’s chair enthused, “reducing the vast differences in income between countries is one of our time’s greatest challenges. The laureates have demonstrated the importance of societal institutions for achieving this.”
Perhaps the time has come to rename the award the Nobel Prize in Common Sense?
In all seriousness, an emphasis on the real-world operation of markets within the confines of political economy and social institutions is an entirely welcome development in economics. Plenty of models will continue to crank out estimates to the fractional percentage point of exactly how much more economic growth will come from a cut in the capital gains rate. But if we can focus instead on whether our institutional structures instill confidence that gains from innovation will be widely shared, we will make much better policy.
YOUR WEEKEND READS
At Compact, a provocative essay by Helen Andrews on “The Great Feminization,” adapted from her remarks at this year’s National Conservatism conference. “Wokeness is not a new ideology, an outgrowth of Marxism, or a result of post-Obama disillusionment,” she argues. “It is simply feminine patterns of behavior applied to institutions where women were few in number until recently.”
At Pirate Wires, “Heather Cox Richardson’s Revisionist History” offers an in-depth illustration of how Defenders of Democracy(tm) seem increasingly committed to fighting the purported onset of authoritarianism with absurd lies and alternative realities of their own.
At the New York Times, Louise Perry writes, “It’s Not Normal to Raise Children Like This,” grappling with the tradeoffs between the independence and autonomy that are so appealing at some points in life, the communities of mutual dependence that are so vital at others, and the impossibility of having both.
And right here at Commonplace, in case you missed it, you do have to read Chris Griswold’s fantastic essay, “I, Sharpie,” celebrating the policy environment, market forces, and business decisions that reshored production of a wonderful little marker. He and I also discussed all that, and much more, on this week’s American Compass Podcast.
SAME OLD RIGHT, SAME OLD LEFT
Are things changing on the Right? One good place to check is the Wall Street Journal editorial page. Former editorial board member and Club for Growth founder Stephen Moore discovered this week that free traders had abandoned U.S. control of critical minerals to China and demanded, “someone explain why we source them from communist China instead of Montana and Colorado.” Better late than never!
Also of note, a former House Speaker, failed SPAC investor, and cryptocurrency advocate took to the pages of said Journal this week to endorse a new tax proposal that would seek to replace Trump’s tariffs with an equivalent source of revenue. Acknowledging that “Treasury Secretary Scott Bessent is correct to be concerned about losing revenue while the federal government already faces mounting debt and deficits” is an extraordinary and welcome bout of fiscal conservatism from the usually reckless tax cutter.
But for comic relief, there’s also columnist Joseph Sternberg’s remarkable “Britain’s Conservative Party Finally Has Some Good Ideas,” by which he means the “bold new economic plan” of… welfare reform and tax cuts. How “pleasingly Thatcherite.” Will the conservatives fall to fourth place in national polling sooner than the next head of lettuce rots? We shall see.
Meanwhile, on the Left, what is to become of the Democrats, whose shutdown about nothing wraps up yet another uninspiring week with nothing to show. In the New York Times, Nate Cohn observes:
Not even this government shutdown is really about health care. The Democratic Party’s activist base demanded a shutdown because it wanted Democrats to do something to oppose Mr. Trump, not because of particular concerns about expiring health care subsidies. Only 1 percent of Democrats said health care was the most important issue facing the country in last week’s Times/Siena poll. This shutdown is “about” health care only because congressional Democrats redirected the energies of the party’s base onto an issue they deemed electorally fruitful.
The broader problem, says Cohn, is that health care “is the kind of political fight that the Democratic Party was built to fight and win. But in some fundamental sense, this is not what American politics is about anymore, and that’s been to the Democrats’ detriment.”
Ruy Teixeira picks up the same theme at The Liberal Patriot, contemplating Democrats’ problem with “The Vision Thing” and highlighting, in particular, new polling on what voters believe each party wants for their lives. “One of the only ‘advantages’ Democrats have on the chart is that respondents are more likely to say Democrats want none of these attainments for their life. Other than a modest three point advantage on ‘feeling stable in your personal life,’ Democrats are behind the GOP on every other life attainment.”
The polling comes from a new progressive group called “Searchlight,” which seems a perfect metaphor for a left-of-center swiveling aimlessly in hopes of landing upon an answer, and a stark contrast with the “Compass” we’re using here on the Right to navigate confidently by reference to a true north.
IT’S A LABOR MARKET
Everything from the Wall Street Journal’s Te-Ping Chen is a must-read. Just bookmark her author page. This week, she brings the story of an industry responding to hiring challenges not by running around screaming about “labor shortages” and demanding cheap immigrant labor, but by recognizing a business imperative and investing in new programs to solve it by creating good jobs for American workers. “To Find Workers, Hospitals Are Training Teenagers.”
Students get attractive career pathways that engage them in more meaningful learning while still in high school. They graduate into stable, well-paying jobs that support further education that they might want to pursue. Employers get an expanded, skilled workforce.
Sadly, not everyone understands how this works. And some of them are in the Trump administration, still pushing for lax immigration and more temporary visas to relieve employers from the obligation of actually solving problems by creating better jobs. The Labor Department has issued a warning that “the near total cessation of the inflow of illegal aliens” threatens “the stability of domestic food production and prices for U.S. consumers.”
Farmers face “unreasonably high price floors on labor,” the Department says, which is a rather peculiar euphemism for offering bad jobs at unattractive wages that no one wants to take. One option is to bail them out, ensuring that jobs remain unskilled, wages remain low, and the industry remains reliant on illegal and exploitable labor. The other option is to tell them to figure it out, like the hospitals are doing, like every employer in every industry has always had to do to succeed in a capitalist economy. You can be for one model or the other, but you can’t have both.
Automation is a worker’s best friend. Back in China, a story from The Telegraph (UK) about rapid automation makes an important point along the way:
Counter-intuitively, Whitton says countries which had more automation during the first “China shock” of the 2000s – which flooded the world with cheap goods – managed to hold on to a greater share of industrial jobs. “People talk a lot about how automation will lead to job losses,” he adds. “But actually, the job losses are going to be disproportionately in the countries that don’t automate.” In other words, failing to modernise will almost certainly lead to more dark factories in the West. But the kind where no work at all is happening.
This isn’t counterintuitive at all—it is precisely the path by which technological innovation, economic growth, and better outcomes for workers have historically gone hand in hand. Only in the recent era of waving away the disaster of globalization has it become fashionable to claim that automation is somehow to blame for industrial decline and the return of highly automated factories would not be an enormous win for workers. Fashionable, but foolish.
IT’S A GLOBAL TRADE WAR
The trade war’s global scale and stakes came into sharper relief this week, as China’s attempt to leverage its control over rare earths backfired and yet more data underscored the threat posed by its export surpluses.
“EU urges G7 response to China’s rare-earth export curbs,” reports Politico, while “US warns world will ‘decouple’ from China if it imposes new export controls,” per the Financial Times. China now insists, “fhe U.S. interpretation seriously misinterprets and exaggerates China’s measures, deliberately causing unnecessary misunderstanding and panic.” Mmhmm.
Not subject to misinterpretation and exaggeration is the ongoing China Shock 2.0. The Wall Street Journal reports, “China’s exports rose at the fastest pace in six months in September, beating market expectations and underscoring the sector’s continued role as a key growth driver for the world’s second-largest economy.” Of particular importance, “Exports to the U.S. fell 27.0% on year, extending a slide that began in April when the Trump administration’s ‘Liberation Day’ tariffs on Chinese goods took effect…Meanwhile, exports to other major trading partners continued to post double-digit gains.”
This is the key dynamic since April that the Washington Blob continues to get wrong, as it worries that disruptive U.S. actions will drive allies away, or even into China’s arms. China’s abuses were only tolerable elsewhere in the world while the United States absorbed them. As China loses access to the U.S. market, the pain shifts to other trading partners—particularly the EU—putting them to the same choice.
“There is no doubt that the +30% bilateral tariff of Trump 2 is having a big impact on bilateral trade patterns (see the US v EU divergence in China’s exports, which is more extreme than in Trump 1),” notes CFR’s Brad Setser.
“For China, the EU’s export share is 15% and rising again but the EU’s import share is less than 10% and declining. Hence a growing importance of the EU for China’s growth at the expense of EU growth. The same dynamic is playing out globally. The essence of the new China shock,” notes Oxford Economics’ Daniel Kral.
“Chinese goods that would’ve gone to the US prior to tariffs are flooding the EU. There’s no such rise for Chinese exports to Japan, so the EU holds special status as collateral damage due to tariffs. The EU should follow Trump’s suggestion and put secondary tariffs on China,” concludes Brookings’ Robin Brooks.
What’s the alternative? Just look at the automotive market. Michael Dunne’s must-read newsletter explains “How China Is Gutting Western Automakers”:
If China’s goal is total domination of the global auto industry, the master plan might look something like this: 1. Scale Up: Build enough capacity to supply more than half of the world’s annual demand for vehicles. 2. Flood In: Launch a frenzied push of exports into markets worldwide and, with aggressive pricing, take large chunks of market share. 3. Starve Out: Restrict competitors access to key material and manufacturing inputs, thereby limiting their ability to build competitive products. For maximum impact, you would take these actions at hyper speed, crunching a decade of effort into the space of just a few years. This is precisely what the PRC has been doing since 2021. Just look at the numbers. China today has enough annual capacity—50 million—to supply 55% of global demand for vehicles. By comparison, the world’s next largest automotive manufacturing nation, America, builds just 10 million cars a year….The pain for Western automakers is real. As a group, they are selling eight million fewer vehicles in China than they did five years ago. Eight million. Now they are under siege at home, especially in Europe. German automakers this year will produce the fewest number of vehicles (outside of the 2008 financial crisis and Covid shock) since 2000.
How does that feel in Germany? The Financial Times reports that “German industrial output falls to 2005 levels as auto sector craters.”
Europe has no choice but to join the United States in its confrontation with China, which in turn will mean Chinese exports flood toward Japan and India, which will have no choice… and so on. Now is the time for the United States to establish clearly the conditions for joining the U.S.-led bloc. Anyone preferring domination by China is of course welcome to go that route as well.
BUT WHAT WILL EUROPE CHOOSE?
Whether Europe has the civilizational wherewithal to make the right choice remains an open question. Checking in on Britain, one member of parliament just called for taking down British flags because they are “unwelcoming” and make people “uncomfortable in their own community.”
For every encouraging story like, “Dutch government takes control of Chinese-owned chipmaker Nexperia” (Financial Times), there’s also a “German Chemical Makers Say Carbon Costs Damage Europe’s Edge” (Bloomberg):
German chemical companies said high costs for carbon allowances are damaging Europe’s competitiveness, adding to a cacophony of sectors pushing for climate measures to be eased to help ailing industries. Leading firms including BASF SE and ammonia producer SKW Stickstoffwerke Piesteritz GmbH are calling for carve-outs in Europe’s flagship emissions trading system, under which costs are set to rise as of next year when a free allocation of certificates will start to be phased out. ‘We are paying carbon prices five times higher than anywhere else in the world — and that is killing us,’ said Petr Cingr, chairman of SKW Piesteritz. To Cingr, the issue poses a bigger threat to the industry’s survival than gas prices, which have retreated substantially from records three years ago.”
The latest EU scheme, welcoming foreign direct investment from China so long as it shares technology with now-lagging European firms, is a sure loser that would leave European industry under CCP control. Which, again, underscores the need for the United States to reach agreement with allies now on parameters for keeping China out.
IN SUNNIER NEWS
The flood of reshoring investments continues, and conventional wisdom is beginning to shift in response to reality. Read CNBC’s Sara Eisen in the Washington Post yesterday:
Though many recent Trump administration policies and economic measures have become partisan issues, the facts are clear: We’re experiencing an American investment boom that’s substantive, probably durable and unlike anything the country has experienced in a generation. … The Trump administration deserves plenty of credit. Policies such as the highly controversial tariff program encourage foreign and domestic companies to build plants and manufacture products in the U.S. to avoid paying tariffs when selling to American consumers and businesses.
Whirlpool just announced a $300 million investment to expand U.S. appliance production. Stellantis just announced $13 billion to increase U.S. production by over 50%. It will shift Jeep Compass production from Canada to the United States, which Canadian Prime Minister Mark Carney called “a direct consequence of current U.S. tariffs.” Who would have thought that tariffs could work in the common sense way you’d expect?
J.P. Morgan committed $1.5 trillion to reindustrialization: “It has become painfully clear that the United States has allowed itself to become too reliant on unreliable sources of critical minerals, products and manufacturing—all of which are essential for our national security,” said chief executive Jamie Dimon. “We need to act now.” Actually, sir, this has been painfully clear for a very long time. But we may finally be reaching the policy environment that induces capitalists pursuing their private interest to respond.
Tip of the hat, though, to one capitalist that is re-learning how to do its job. “GM’s Rare-Earth Gamble Pays Off as China Tightens Magnet Exports,” reports the Wall Street Journal: “In 2021, GM made the bold bet of investing in rare-earth magnet production in the U.S., as part of a broader effort to cut its reliance on China for parts, components and materials. As a result, in the coming months, GM is now set to be the only U.S. automaker with a large direct supply of American-made rare-earth magnets from multiple factories.” May it earn a generous return on its investment.
Enjoy the weekend!
Sigh. Even if one grants all the points in the piece cited by Oren, is it his point that the logical response is to elect an ignorant game show host? It's easy to blithely criticize Kristol and Kagan for views of long ago, but doesn't today matter just a smidge more?
Maybe a comment on the economic consequences of what is happening right now would be in order: the military leadership purge, the massive crypto corruption, the attacks on the rule of law, the blatant racism, unleashing masked federal agents to terrorize our neighbors instead of criminals, the attacks on science/universities/centers of independent thought, the use of tariffs as a personal grift, the hollowing out of the civil service, the appointment of unqualified loyalists to head the power ministries...I could go on.
The founder and intellectual lodestar of Oren's "new" right is Don, along with his shapeshifter sidekick JD. Don, JD, and the "new" right control the entire federal government. All of it. What the "new" right says and does is infinitely more relevant to the future of our economy than what long gone neocons said decades ago. Yet all we hear is grievance and complaint about times past. It's time to man up and defend your leaders Oren, tell us what his actions mean for the future of our economy. Give us examples from history of how the actions above, common in the history of so many nations (but not the US), have led to their economic success. No more grievance and looking backward, man up.
I am telling everyone I know, including my family, to buy Sharpies. Let's go!!! YAY SHARPIES!!!!