Welcome to Commonplace’s new newsletter, The Real Economy. It has been more than two years since we first launched Understanding America, and in the more than 100 editions since, its purpose and content drifted into a hybrid between broader social and political commentary on one hand and in-depth coverage of the week’s economic developments on the other. It also kept getting longer and longer… eventually, too long.
So now we have a split. Understanding America will be returning to your inbox in early September as a bi-weekly digest from the whole American Compass team focused on the challenges of reclaiming American citizenship. Weekly on Fridays, you’ll receive this fine product, The Real Economy, covering the stories that matter in, well, the real economy.
YOUR ONE WEEKEND READ is Reforging American Industrial Deterrence and Reclaiming the Common Good, a fantastic new essay from Congressman Riley Moore in the latest issue of American Affairs. He dives deep into the steel industry as a case study in America’s willful abandonment of its own industrial base and the necessity of reindustrialization:
We must implement policies that align commercial incentives with our strategic interests, so that it once again becomes profitable for private firms to build and sustain the capacity our deterrence depends on. And, ultimately, we must reintegrate our national security infrastructure with a strong and independent commercial industrial base.
It won’t be easy. Wall Street’s profit-maximizing logic is opposed to even modest tariffs to protect American industry, and it will fight even harder against the much higher tariffs and direct federal investment required to rebuild once great mills like Weirton. But doing so is necessary, not only for our national security but for our identity as a country that is independent, self-sufficient, and capable of standing on its own two feet.
Moore’s concept of “industrial deterrence” mirrors closely the “industrial depth” that Assistant USTR Mark DiPlacido and I described a couple of years ago in Big Stick Economics:
The big stick of President Theodore Roosevelt’s dictum is not an exorbitantly expensive fighter jet that takes 40 years to develop, is impossibly difficult to maintain, and depletes the munitions stockpile after a few sorties. 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.
Read that one too!
MORE GOOD READS FROM THE WEEK
Wall Street Journal: Europe Chastised Trump’s Climate Rollback. Now It’s Delaying Its Own Green Goals. Developed nations are increasingly balking at the cost of measures to cut down on fossil fuels. In a surprise to no one capable of doing math, the grandiose climate commitments that began a decade ago with the Paris Climate Accord now lie in shambles as the “ambition” of statement-issuing diplomats gives way to the reality of the energy needs of an industrial economy.
New York Times: Private Equity Is Stuck With 33,575 Unsold Businesses. Even amid a booming deal-making environment, private equity firms are unable to exit a growing number of investments at values their investors require. In the past four years, private equity returned 6% annually, trailing the S&P 500 by almost 10 percentage points. This is impossibly bad. The unluckiest monkey throwing darts at a list of stocks would perform far better. At least they’ve ruined companies and degraded services in the process… Great story in today’s Times about the degradation of a once great residential community when the local ownership sold to a private equity firm on the other coast.
One industry they’ve worked hard to ruin is youth sports. You can read more about that in New York Magazine: The Pay-to-Play Childhood. Private leagues have made youth sports expensive, hypercompetitive, and all-consuming. Investors are making a killing. For more on the theme, check out these two Commonplace classics:
Michael Brendan Dougherty, In Defense of Travel Teams. Travel baseball and the dance mom circuit drain the wallets and time of suburban families. But I’m not going to stop taking part.
IMMIGRATION x LABOR
Fresno Bee: Federal judge finds Department of Labor’s effort to cut farmworker wages is unlawful. Sorry farmers, but if so few Americans are willing to work for you at a reasonable wage, leaving you desperately reliant on temporary foreign workers, you can at least pay those workers the going rate.
Politico: Unions sound alarm on last-minute push for robot farm equipment. A draft trailer bill would let unpiloted machines work alongside farmworkers, angering labor groups worried about job loss and safety. Bizarre move by organized labor, but no more bizarre than its general opposition to immigration enforcement or restriction. A union representing the interests of legal American workers would be falling over itself to support investment in farm automation, which would address “labor shortages” not by bringing in temporary foreign labor at low wages but instead by mechanizing processes and rapidly boosting productivity, which would improve job quality and wages. Another term for “job loss” of “jobs Americans won’t do” is “progress for workers.” Help us help you, labor organizers.
OH, CANADA!
Shortly after Liberation Day, the commentariat made copious amounts of hay about how the United States was no longer a trustworthy trade partner, its demands were unreasonable, allies would retaliate… and then the opposite happened. Virtually every American ally came to the table and reached a reasonable agreement.
This left Canada in a rather awkward position. Hard to complain the United States is being unreasonable when everyone else managed to get along just fine. And sure enough, the sticking point in the latest Mountie Meltdown appears to be the entirely reasonable and necessary American demand that Canada hold hands with the U.S. and Mexico in keeping Chinese distortions out of the North American market.
As Michael Froman, president of the Council on Foreign Relations and U.S. Trade Representative in during the Obama administration, explained on CNN:
I think the new issue is that the Trump administration is pressing Canada, as well as other countries, to adopt a common approach vis a vis China, whether it’s a common external tariff or export controls, or ensuring that Chinese products, inputs don’t get inserted into products in Canada, that will then be imported into the United States. And that’s a new set of trade issues and Prime Minister Carney has noted that that goes against their sovereign right to establish relationships with other countries. So that’s going to be an issue of contention that the administration is going to continue to have to have dialogue with Canada and with other countries over time.
Prime Minister Mark Carney has acknowledged the same, saying, “the U.S. introduced in the last hours, efforts to restrict our ability to have other trade deals. We’re the partner of choice in many respects for countries around the world, and the Americans wanted to restrict that. Unacceptable.”
But with due respect to Carney, this is not something the U.S. introduced in the last hours. It has been the core issue for more than a year. I wrote this in March 2025: “The third requirement of participation in a U.S.-led economic and security alliance should be the maintenance of a collective perimeter that excludes China. Partners should agree on common tariff barriers, investment restrictions, export controls, and immigration policies.” You should try reading Understanding America, Mr. Prime Minister, if you need help understanding America.
With somewhat less respect, Canada is “the partner of choice”? No, you’re not. The U.S. is the partner of choice. And that’s why Canada has none of the cards, and will inevitably have to make the sorts of commitments on China that the U.S. is reasonably seeking and most other trading partners have already made. While the roughly $900 billion in bilateral trade between the U.S. and Canada represents less than 3% of U.S. GDP, it represents about 40% of Canadian GDP. How much pain Canadians wish to suffer to prove their toughness, before reaching a trade deal on the access they need to our market, is their decision to make.
Last but not least, watch U.S. Trade Representative Jamieson Greer’s interview on the CBC.
THAT’S FINE IN PRACTICE, BUT WHAT DOES THE THEORY SAY?
A couple of interesting papers from highly credentialed academic economists are worth a look:
Caroline Freund, former global director of Trade, Investment and Competitiveness at the World Bank, finds that Foreign Exporters Absorbed Nearly Half of the 2025 US Tariff Shock. Huh. Say more. “Most economic forecasters predicted a sharp rise in consumer prices and significant import disruption.” Yes, that’s true. “Instead, retail prices rose modestly and import-dependent sectors held up. This column uses data for the 50 largest US trading partners to show that foreign exporters absorbed roughly 40–50% of the 2025 US tariff increases through lower export prices–much more than earlier studies suggested.” Interesting.
This is my favorite part: “The aggregate result vindicates optimal tariff theory. It does not mean the tariffs made America better off.” If an economist could cross her arms and stomp her foot in prose, that’s how it would sound. For more on the vindication of optimal tariff theory, be sure to check out today’s American Compass Podcast discussion with Stephen Miran, who chaired the White House Council of Economic Advisers last year.
And at the Federal Reserve Bank of Boston, How Much Did Labor Productivity Gains Offset the Inflationary Impact of the 2025 Tariffs? “We provide evidence that industries in which tariffs induced higher costs in 2025 also experienced greater labor productivity growth, which helped them mitigate those higher costs.” That wasn’t in the models. Strange.
WE CAN JUST BUILD THINGS
Speaking of manufacturing data, The Kobeissi Letter highlights:
US manufacturing activity is rapidly expanding: The Philadelphia Fed Manufacturing Index of current business conditions rose +6.0 points in August, to 47.4, its highest since April 2021.
At the same time, the index of future business conditions jumped +39.2 points, to 73.6, its highest level since the 1980s and its largest monthly increase on record.
Meanwhile, the index of future new orders soared +30.9 points, to 66.0, its highest since June 2021.
All while the 6-month forecast for capital expenditures surged +18.1 points, to 48.2, its highest since the 1970s.
The US manufacturing sector is gaining momentum.
One place momentum is growing? The Hyundai plant in Georgia that faced a massive immigration enforcement raid last year. Now, “the South Korean automaker could increase the planned production capacity of its Hyundai Motor Group Metaplant America from 500,000 units to between 700,000 and 800,000 units by 2028. … The potential capacity increase would be part of Hyundai’s plan to invest $26 billion in the U.S. through 2028, he said. The company aims to launch dozens of new products and has a goal to produce at least 80% of the vehicles it sells in the U.S. domestically by the end of this decade, up from roughly 40% in 2024.”
“For us, the USA is the most important market in the world besides Korea, which is our headquarters,” Hyundai’s CEO told CNBC. Maybe Canada just slipped his mind?
WOMP WOMP
Sad trumpet for Chinese firms, though, whose momentum isn’t growing so well.
Financial Times: How Shein’s IPO lost its shine. Once high-flying fast-fashion retailer is listing in Hong Kong at quarter of peak value after years of false starts.
Wall Street Journal: EV-Maker Polestar Says Trump Administration Strung It Along Before U.S. Ban. The Chinese-owned automaker told dealers it is still trying to understand why it is being barred from the U.S. market. Looks like they, too, could benefit from an Understanding America subscription. Maybe they can commiserate with the Canadians at their next strategic summit.
TURNING TO TECH
New York Times: Meta to Pay Up to $17.1 Billion in Landmark Settlement Over Social Media Addiction Claims. The social media giant settled with 47 states, the District of Columbia and U.S. territories, and agreed to make major changes to its products over claims its platforms endangered children. Stay tuned for more on this at Commonplace shortly.
New York Times: How Big Tech Captured American Schools. Companies like Google and Microsoft have used their money, their might and their massive reach to influence nearly every step of the education supply chain. The atrocious conduct by purveyors of social media has become common knowledge. The parallel playbook run by many of these same companies to cash in on public education and corrupt it in the process is only beginning to come into public view. The fallout is going to be similarly severe.
AND ARTIFICIAL INTELLIGENCE IN PARTICULAR
Quite the comment from Sam Altman:
I thought when we got to GPT-4, which was back in 2023, that very quickly after that there was going to be much more disruption, software businesses up for grabs right away, than it turned out to be. I think I was wrong about a few things, but one in terms of the speed: the economy just has so much inertia. People keep doing the same things, buying from the same company, wanting to use their tools the same way. I think this is actually a positive in many ways, and it’s going to make this big transition go smoother and slower. I’m grateful for it. But it means we’ve all been too ambitious on timelines. Even with this incredible technology, society and the economy will adapt more slowly.
Sounds like maybe his choice between curing cancer and educating the world for free is getting pushed out a few years? Of course, we haven’t all been too ambitious on timelines. Some people with experience in the real world and a preference for analysis over carnival-barking have been making these points for years. But we welcome Sam aboard.
Wall Street Journal: What Problems Should AI Be Solving? Some of the biggest fortunes may be hiding in markets and solutions that Silicon Valley is ignoring.
FINALLY, ON THE LIGHTER SIDE
Enjoy the weekend!
Carney is nominally Canadian but really he is a stateless globalist. Central banker in two different countries says it all. He was electorally successful because Canada isn't a real country. Their defining principle is "not the US".
If oil is taken out of the equation, the U.S. runs a significant trade surplus with Canada. The policy intent of the tariffs is clear and President Trump freely admits that the intent is to de-industrialize Canada (autos, for example). Fair enough to target countries that are in unfair trade relationships with the U.S. Canada is not one of them. The U.S. trade policies are strengthening China and alienating its allies.