The Coronavirus Message for Climate

Since the coronavirus is at the top of everyone’s consciousness, there has been a lot written about what the coronavirus experience has to say on a great many issues.  After a while you start to get numb.  However for climate change the parallels are so explicit and telling that they need to be understood.  The argument in this piece is not new, but it’s worth spelling out in detail.

The coronavirus shows just how hard it is for us as a country—or as a world—to act ahead of a disaster even when the evidence is clear.  We were unprepared when the crisis came, because we just didn’t want to believe it could happen.  Our reluctance not to believe was of course encouraged by players (foreign and domestic) who felt there was something to be gained by delay.

The result is measured both by the numbers of dead and by the economic consequences of the drastic measures taken to stop the exponential growth of cases and deaths.  In the US that means on the order of 100,000 deaths and the worst job loss since the great Depression.  The weeks of delay made this situation exponentially worse.  You can argue about the details, but there is no question that failure to act early cost us dearly on both counts.  We’ll muddle through, but badly wounded.

The parallels to climate change are explicit—but for climate the muddling through is no sure thing.  There are two primary points:

  1. CO2 in the atmosphere just adds up—which means that whatever problems finally force us to act will keep getting worse until we can manage to stop fossil fuels completely.  In other words from whatever time we recognize a crisis, we will be locked-in for many further years of worsening crisis.
  2. That’s even worse than it sounds because—as with epidemics—there is an exponential growth aspect here too.  To see this we’ll start with the example of hurricanes.  For hurricanes, the damages in the wind-speed categories are such that each step makes the previous look trivial.  In other words, as wind speed grows in a regular, linear way, damage goes up exponentially.

We can go farther.  Added carbon dioxide leads to regular increases in water temperature and corresponding regular increases in wind speed—which leads in turn to exponential increases in damage. So as the amount of carbon dioxide increases in the atmosphere, the impact of each further ton becomes spectacularly worse.

This isn’t just a matter of hurricanes; it’s typical for damage.  For floods you go from marginal areas affected to major cities.  In any category you can think of, damage goes up exponentially.  The bottom line is that for all those years of lock-in, every additional ton of carbon dioxide we add to the atmosphere will pack a wallop.  This is the stuff of nightmares.

In other words, as with the coronavirus, delay makes the problem exponentially worse.  The latest climate report gives us the timescale.  To avoid catastrophic consequences CO2 production needs to drop 45%  by 2030 and reach 0 by 2050.

We couldn’t get ourselves to believe the coronavirus would really happen, and climate disaster is even further from our past experience.  So the tendency to disbelieve is even stronger.  And there are plenty of well-connected, interested players out to convince us to wait.  The oil companies and their allies are doing quite a good job of it.  Pence and Pompeo, for example, are Koch organization soldiers in a Trump organization out to sabotage all efforts to control climate change.  Another indication of oil company power is Harvard University’s recent announcement of a commitment to fight climate change—by making their investment portfolio carbon-neutral starting in 2050, the year when the scientists say we need to be done!

That’s where we are.  Climate change is the coronavirus on a bigger scale.  It’s much more dangerous and with even more powerful forces out to convince us to wait, and wait, until it’s too late to matter anymore.  We’ve been warned.

 

 

Back to Normal from Covid-19

There has been much discussion of how to manage Covid-19 virus infections during the return to normal life.  There are many issues, but one in particular stands out for comment.

That issue comes from the much-noted age dependence of the virus death rate.  By now we’ve had plenty of experience of how this works.  For people under 50, the Covid-19 risk is similar to normal flu.  50-60 means more risk but still relatively small.  Over 60 it starts getting significantly worse, with the death rate more or less doubling for each ten years of age.  Pre-existing conditions make matters worse, but the age effect is still huge.  (There may be other categories of people worthy of attention, but that’s beyond the scope here.)

Overall reducing the death rate is primarily a matter of reducing the death rate for older people.  However, as a practical matter, focusing on the elderly is quite a big job.   If we’re going to protect the elderly from the virus at the very least we need to:  find them all, deliver food and other goods for them, assure fully-competent staff and daily testing at nursing homes.   No one is currently doing that.  On the contrary, death rates at nursing homes are scandalous, and individuals are largely left to manage themselves.  In Massachusetts as of this writing 610 of 1245 deaths were from nursing homes. Our extra hour of food shopping reserved for people over 60 is hardly a solution.

For the first bout with Covid-19 there has been neither the time nor the testing capability for such a strategy.  The countries that originally opted for “herd immunity”—with whatever they could do to protect the elderly—had to back off because of deaths.  The only alternative to catastrophe was to limit the spread of the virus in the population as a whole.  (There is a whole subculture of right-wing columnists claiming there was never a reason for the shutdowns, because it’s just a “simple” problem of isolating the elderly—without any proposals at all for how to do it.  For people who don’t go for that, there’s a different subculture dedicated to the proposition that the Covid-19 virus was never a problem to begin with!)

The point of this note is to recognize that the situation is different for the return to normality.  A focus on the elderly is both an obligation and an opportunity.  The obligation is that we just have to start doing a better job of protecting them.  It may be a logistical nightmare (only 5% of people aged 65+ are in nursing homes), but it’s a well-defined problem to be addressed with time, money, and commitment.  Testing is getting better.  It might even take the National Guard.  But we can certainly make things better if we start now.  We can call the right-wing’s bluff and spend the money to do it.

The opportunity of course is that reducing the elderly death rate will help ride through the ups and downs in new Covid-19 cases as people come back into the workforce.  People will still be getting sick, but children can go to school and parents can go to restaurants without risking anyone’s lives.  Whatever money is spent will be earned back in transition time.

This has to happen, it has to be fully-funded, and it has to start now.  “Flattening the curve” was essential to surviving the first onslaught of the virus.  For the return to normality, it’s “protecting the elderly” that will keep a difficult process going.

Short and Long Term Issues for Climate Change

In addressing climate change, one problem is that short and long term issues are not always the same.  As we’ve noted before, conservation is a legitimate short-term issue but not a primary long-term goal.

You can go a step farther with that:  there is technology we don’t want at all long-term that is still the best we’ve got for now.  That’s not just a matter of saving a little extra carbon dioxide; more importantly it’s buying time.

What the scientists have given us is not so much a schedule as a carbon budget—how much CO2 we can produce without irretrievable harm.  Many of the technologies we need to get off of fossil fuels completely are not 100% up to snuff.  What that means is that we can’t jump immediately into what we see as the right solution—more money won’t help.  That means accepting non-optimal technologies that cut some CO2 now.

Cutting CO2 buys time.  We need that time.

Here’s are a few areas that need work.  It’s too easy to wish them away:

– Electric cars are still too expensive and slow-charging to replace current technology.  This is a little like self-driving cars—the expectations have gotten ahead of the reality.

– Solar and wind may be cheap, but they’re not everywhere and not all the time.  For electric power generation that’s a problem.  In-network power storage is not up to the task of twenty-four hour operation.  With the current US grid, solar power in Arizona is not going to drive the rest of the country.

As an example, California’s aggressive deployment of solar electricity has forced external contracting to handle power peaks.  Currently the peaks are supplied by CO2-intensive fossil fuel plants in nearby states.

Local power generation can displace some residential and commercial demand, but at best that’s only 10% of the picture:

consumption-by-source-and-sector

– For heavy industry—steel and cement for example—CO2 production is not just a matter of power consumption, it’s intrinsic to the industrial processes.  There are no simple solutions to change that.  Flue-based carbon capture just has to get better.  (Direct air capture of CO2—despite much enthusiastic press—is even farther off.)

Prospects for fixing all of this are good, but we’ve got to buy time to get there.  That means taking steps with what we’ve got now.  Here are a few examples:

– We should think more about hybrid cars.  That’s increasingly cheaper technology, it saves considerable gas, and recent plug-in hybrids save more (perhaps leading even to upgradeable batteries).   The biggest problem with the technology is that, despite improving sales, we’re still not selling enough of it.  Initial carbon pricing should be aimed at universal hybrid penetration.  Tesla is great, but it’s not going to have a big enough impact now.

– Replacement of coal by gas saves 50% of CO2 production.  There aren’t always alternatives, for the reasons listed above.  Furthermore, lumping all fossil fuels together makes it easy to excuse coal.  When Germany and Japan closed nuclear plants, they didn’t go to gas, they went to coal.

While we’re currently seeing more growth of CO2 emissions with gas than with coal, it’s easy to draw the wrong conclusion.  Coal and oil still represent the vast part of CO2 production, and any replacement is a win.

s20_2019_Coal_Oil_Gas_Cement

– Carbon capture is unavoidable.  The first focus is on flue-based technologies, even if direct air capture is sexier.  This needs real money, because the industrial sector is huge worldwide.

To those items we should add one more difficult bit of reality:  the US needs a vastly improved national electric power network as a near-term prerequisite for much future work.  That means more high-voltage power interconnections.  That in turn means dealing with environmental issues and protection for the poorer neighborhoods that normally bear the brunt of such things.  One way or another this has to be made to happen, even though it involves competing concerns.

All of this underlines the need for a real plan—with both domestic and international aspects.  That needs to be a step-by-step prescription for what we should do about climate change.  That is what money needs to be spent on what technologies when and where.  For all their strengths, neither the Green New Deal nor the CCL’s carbon pricing is anything like a comprehensive plan.

Carbon pricing in particular remains a source of considerable confusion.  Since it is a critical component, we end with a few comments to avoid misunderstanding.

– Carbon pricing has to be a clear signal to industry of where the world is going.  It may start relatively low (as we’ve just discussed), but planned increases must send the message that the fossil fuel world is ending.  We need to get to at least $100 a ton in 5-10 years.  As such, proposals of $40 a ton with only nominal increases (coming from oil industry sources among others) are dead on arrival.  Carbon pricing is not good or bad in the abstract; it’s good or bad based on the numbers.

– Carbon pricing is not a tax, it’s killing a silent subsidy.  Carbon in the atmosphere costs all of us money in current and future climate change disasters.  Keeping it free represents an annual subsidy to the fossil fuel industry in the US of approximately $1T yearly (lower numbers are based on flawed cost models and just plain wrong).  That huge perversion of the economy has to end.  The money belongs to the public; it’s not there for the taking.  It needs to be given back in a way that mitigates the regressive effect of higher oil prices.  If we need more money for climate change or anything else, that needs to be done through the tax and budgeting system.  That’s where we make decisions about who pays.

– Carbon pricing will not solve all problems.  Government has many active roles to play, for example in putting together the new national electric power infrastructure that will be critical for progress.  Also government will need to address the enormous social consequences of remaking the economy.  We need to have carbon pricing to prevent perversion of the economy, but it’s only one element in a comprehensive plan.

 

The True Cost of CO2

It seems perfectly reasonable.  Each ton of CO2 added to the atmosphere causes damage.  We can estimate that damage by looking at what’s happening.

The Obama administration went through that exercise in some detail to justify environmental protection measures—and came up with $42 per ton.  The Trump administration people reduced that number to less than $7 and increased the future discounting factor from 3% to 7%.  That’s certainly a problem.

However the $42 figure is also wrong, and the whole notion of a dollar cost of CO2 undermines much of the discussion of the costs of climate change.

One way to see that is to look at the language we use to talk about hurricanes.  For starters I’m going to reference the usual storm class definitions:

hurricanes

As the wind speed increases, the damage rises by orders of magnitude.   At each stage the damage rises to such a degree that damage at the previous level becomes negligible.  There is no single number that tells you how much extra damage you’re going to get from a 5 mph increase in wind speed—it gets dramatically worse with each stage.  This is basically an exponential model; it is certainly not multiplication of windspeed by a number appropriate for category 1.

You can see how this argument plays with climate.  Starting with hurricanes, we have a basically linear relation of CO2 concentration and water surface temperature:

sea-surface-temp-download1-2016

And essentially the same is true for water surface temperature and maximum windspeeds. To that gets added the exponential relation of windspeed with damage.  Put it all that together and you get an exponential relationship between added CO2 and hurricane damage.

The same kind of relationship holds for almost any kind of climate damage you can think of.  Sea level rise first affects marginal districts but then more and more of mainstream society.  Droughts first affect marginal areas and gradually more and more of the breadbasket.  Health threats first affect the most vulnerable but eventually everyone.   Accelerating costs are the rule, not the exception.

How does this affect how we think about costs of climate change?  In fact we’re missing most of the damage.  The cost of a ton of carbon today has two components:  the costs that we measure today and the extra damage incurred by raising the CO2 level for all subsequent tons of CO2.  That second part is what you won’t get with any fixed value for the cost of CO2.  It may be harder to calculate, but it’s ultimately the main thing—because it’s adding CO2 that gets us to catastrophe.  We’re missing the step-ups in the hurricane example.

There’s a weird dichotomy between the science and the cost models.  On one hand we have scientific studies about truly catastrophic consequences of going beyond a global temperature increase of 1.5 degree C—even to 2.0 degrees C—and on the other hand we have the fixed value of $42 per ton.  In the second case we’re not charged for contributing to glacial melting that can’t be stopped before inundating both Bangladesh and Manhattan.  It’s beyond ludicrous that we’re applying discounting factors to future costs but not charging for the long-term consequences of that ton of CO2 that remains in the atmosphere!

For now the only viable number for the cost of a ton of CO2 in the atmosphere is actually how much it will cost to take it back out.  That number is currently about $1000 a ton. There are many people trying to do better; the current (undoubtedly overoptimistic) estimate is about $150 per ton.  That’s the lower bound.

Believe the scientists.  A catastrophe is a catastrophe.  You can’t make it go away with cost models that sweep it all under the rug.

The Coronavirus and the Limits of Capitalism

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“Lankenau Hospital” by Montgomery County Planning Commission licensed under CC BY-SA 2.0

It’s easy to look at the coronavirus as a one of a kind.  After all, who expected this cataclysm that came from nowhere?   How could anyone have predicted it?

In fact the world is full of low-probability events that you have to care about.   The coronavirus is on a par with airplane crashes and oil-rig explosions.  Capitalism is not good at dealing with any of them.

There’s a myth about that sort of thing.  Of course we don’t need airline or aircraft regulation, because the companies in question know what a disaster would mean and will take care that such things don’t happen.  That’s a nice story, but it’s false.   People don’t get promoted because of events that didn’t happen.  They do get promoted by saving money wasted on something that’s never going to occur.

If you’re going to stop that sort of thing from happening, you need a different mindset.  Government has to spend money on regulation and public health and safe, comprehensive infrastructure.   No one else is going to do it.  We now know unequivocally that we decided we didn’t have to care about the CDC.  It has come back to haunt us.  There’s more where that came from.

In fact there’s a whole bunch of other things we’ve decided we don’t have to care about.  After all, “I don’t have to care” has been the liberating elixir of our age.  Many of these we’ve talked about before, but it’s worth recalling some here:

Climate change

Avoiding a depression (clearly relevant now)

Nuclear proliferation

Losing our edge in science and technology

We’ve washed our hands of all of this, blithely punting to a private sector that is no more prepared than for the coronavirus.

The message from the coronavirus is that bad things really can happen, no matter how much we may want to avoid thinking about them.

The coronavirus is the canary in the mine.   We’ll get over it somehow, but we’ve had our warning.

The Next 5G

31577675717_2d0712397d_b

The scandal of the mobile 5G affair is not that the Europeans refused to give in to Trump administration pressure to cease all purchases from Huawei.  Who knows how bad the security issue is—the Trump people have no specific examples—but the main point is that we have no alternatives to propose.  We dropped the ball.  That’s the scandal.

The scandal is real.  Not only are there no 5G infrastructure products to recommend, but deployment of 5G equipment in our own networks is well-behind other countries.  (The TV ads for 5G are for limited and pre-standard implementations.)  That means we will be similarly late with the 5G applications that should be our bread and butter.  That’s an infrastructure problem.  Government is not doing its job.

This is happening all over the place.  Climate change is an obvious example.  The US has singularly low gasoline prices and no thought of carbon pricing.  For the auto industry we’re even rolling back fuel efficiency standards.  We’ve created an environment where US companies cannot use the US market to achieve world status.  Tesla—our shining light in this area—is the exception that proves the rule:  created with Obama seed capital and almost forced out of business.  The Chevy Bolt is a South Korean technology product.  China is already building a 21st century electrical backbone.  It’s all a great big 5G.

We ourselves have proved over and over again that government needs to lead—before there’s profit to be had.  Sure we’re now funding AI, but that’s late in the game.  By contrast the Energy Department research budget is nowhere near what’s needed:  next year—for the first time—we are funding work on in-network electrical power storage.  Research universities were specifically hit by Trump’s 2017 tax plan.

Dominant countries have a tendency to believe their position was given by God.  (My favorite example is the 17th century Brits who wasted fortunes looking for gold in South America, because they couldn’t believe God would have given it all to the Spanish!)  It’s all too easy to get complacent, and with the ever-more-powerful Evangelicals it’s even doctrine.  In the current technology environment, our ascendance could disappear in a heartbeat.  We’ve got to stop believing in our divine anointment (and also stop counting our aircraft carriers on defense).

Our business-minded leaders need a business metaphor.  As a country we’ve gotten ourselves stuck in a harvesting strategy—with all the benefits flowing (literally!) straight to the investors.   We’d better get back to reinvesting for growth.

 

The Crisis of our State of the Union

Trump’s State of the Union deserves a full response.

It was bad enough to sit through the deceptions and lies in the description of the national economy—where very small actual gains (smallest annual reduction in unemployment in any three-year period since the 2008 crash; worst real wage growth at low unemployment in at least 40 years) were bought at enormously high cost (1.4T tax cut that went directly to Wall Street through artificial earnings and stock buybacks; nothing for infrastructure, education, opioid epidemic, etc.).

unemployment_and_wages

However, all of that is just the beginning.  Many commentators have made that point (although many talking-head economists have done the country a disservice by exaggerating the benefits and ignoring the costs).

The real issue is that you would never guess that we live in crucial times for this country and the world.  You might expect that now I’m going to talk about climate change.   But even that is only a piece of it.  Only in the “I don’t have to care” world of today’s Republican Party is the State of the Union grounds for applause.

We are presiding over the demise of America’s promise in irresponsibility, incompetence, and simple vanity.  Let’s go down a list.

  1. Climate change

On climate change there can be no question of the urgency and magnitude of the challenge.  Science has given us a carbon budget we have to meet. The administration denies all of it and works systematically to undermine world progress.  As we’ve noted before, if we act today we have the elements of victory—but we also have ample evidence it’s a near thing.

Inaction on this subject is a grave risk to ourselves, our children, and the rest of humanity.

  1. World economic order

The elephant hiding in plain sight is the growth of the Chinese economy.  We are in the process of being supplanted as the world’s largest economy, and the room for growth there is enormous—China is already our equal by some measures, but their per-capita income still ranks only as 108th!  The world is preparing a new international order, and we’re in danger of missing the boat.

We have a chance to define notions of trade that open markets everywhere and embrace standards for wages and working conditions, environmental concerns (including climate change), and human rights.  In some sense this is a necessary complement to what’s needed for climate change.  However we are losing leverage for that enterprise every day.

We’ve taken the position (without exaggeration) that God has chosen us to rule, so we should abolish all international norms that might constrain our behavior.  With the growth of China that’s a losing game.  Even today we were unable to dictate to China in our trade war, and it’s China—not us—that’s the biggest foreign market for European cars.  We’re not going to be calling the shots forever, and without rules it’s their game.  In this Trump is not defending the US interest against the Chinese, he’s defending his personal dictatorial power against the interest of the country.  We have a very limited window to take back the promise.

  1. Technology

There will always be changes in technology, but the pace of change has reached the point where we have to keep up or lose.  This affects all aspects of our success as a country:  our national income, the jobs of our workers, the strength of our military.

Instead of recognizing that reality we’ve got our head in the sand.  Some examples:

– We’ve done everything possible to discredit scientists and science generally, and for climate change and environment protection in particular.

– We’ve disbanded scientific advisory councils in government.

– We’ve had multiple State of the Union addresses where the only mention of education was vocational.

– We’ve killed net neutrality, thereby sacrificing new enterprises to the interests of the phone companies.

– On 5G and AI the government has come late to the party, without real plans.  For 5G in particular we’re actually asking our allies just to wait until we’ve figured out some alternative to Huawei.  This is worse than a failure of planning—5G applications are what’s most important, and waiting is punting that stage of technology back to the Chinese.

– More generally there’s simply no understanding of the importance of government in funding exploratory research—for technologies before the stage where private companies can run with them.  The tax cuts included a targeted punishment for major research universities.

– Finally the current rampant xenophobia flies in the face of the past and current contributions of foreigners to our technological strength.  We must continue to be the destination of choice for entrepreneurs looking to realize their visions.

We are simply ignoring the technological challenges and what has made us successful.  God only helps those who help themselves.

  1. Nuclear proliferation

This may seem a more limited issue, but that’s only because it hasn’t hit yet.  There are still only a limited number of players, largely under control.  But we’re doing everything possible to change that.

We’ve not only presented the world with the contrast in our treatments of North Korea and Iran, we’ve argued specifically for nations to do what it takes for their own defense.  We’ve eschewed the sort of international cooperation necessary to prevent new entrants.  And we’ve given Saudi Arabia nuclear material and technology without asking any questions at all.

The only reason we were less worried about this in the past was that world leaders had all recognized the nature of the threat.   We’re no longer keeping our eyes on the ball.  Nuclear technology gets ever easier.  As more entrants join the nuclear club, it gets harder to control their behavior and prevent the further sale of nuclear technology to third-parties of whatever ilk.  The North Koreans have done it before.

The clock is ticking.

  1. National ideals

It’s shocking how shallow the support for democracy has turned out to be.  In Sinclair Lewis’ “It Can’t Happen Here” many people had to die for the dictators to take over.  The reality was much easier.

Democracy is not a luxury.  It is key to what made this country what it is.  We were never perfect, but we were much more a country “of the people, by the people, for the people” than had ever existed before.

We’re losing all of that right down the line:

– We’ve reversed our progress in expanding suffrage, and are now looking for reasons to block people from voting.  The Citizens United ruling put rich people and corporations in control of elections.  Deliberate voter suppression by state governments is stated Republican policy.

– Support for public education is declining, and funding is still below 2008 levels.

– Upward mobility is now below that of most other developed countries.

– The religious right is in charge of what happens to women’s bodies.

– We’ve lost the social cohesion needed for big national efforts.  The President no longer even pretends to represent the nation—he’s a warlord who delivers spoils for his supporters.

There are plenty of historical examples of how hard it is to reclaim democracy once it’s gone.  If we’re going to have the strength of a country by and for the people, things had better change fast.

 

We live in a crucial time.  On one hand we could even see massive destruction of humanity; on the other we could see an unprecedented level of international cooperation as a precursor to a very prosperous and peaceful world.

One thing we can’t do is ignore the reality of our time.  We can’t afford the “I don’t have to care” puffery of this criminally fictitious State of the Union.

We Just Lost the Trade War with China

With all the carefully-hedged language around Trump’s Phase 1 deal with China, it’s not surprising people are unclear about what it means.  Even in this blog we haven’t been explicit enough.  It’s time to remedy that.  There is no ambiguity about what happened.  We just lost the trade war with China.

We start with the agreement itself.   There are two parts:

  1.  The $200 B plan to buy US products is the more publicized but murkier part.  The purchases are spread over two years and are allowed only in specific, politically-advantageous sectors.  Since there is no notion of market reform, it is unclear who is doing the buying, or how the sector targets can work.  What’s more, given the arbitrary level of the targets and the fact that either party to the agreement can just opt out, there is little actual skin in the game.  In fact, as has been noted, it gives the Chinese new leverage over the US in that they can threaten to terminate the now-vaunted purchases any time they want.  Nothing will be known about real progress until after the election. Overall the $200B figure is highly inflated at best; at worst this is an electoral stunt for Trump voters in the designated sectors.
  2. The rest is a collection of statements of principle with no language for enforcement. Whether the Chinese will or won’t comply will be on their terms not ours.  This is entirely parallel to what we got on denuclearization from the North Koreans.  There is no substantive progress on any of the issues targeted by the trade war.

These conclusions have appeared in the press, but they tend to get drowned out in the general relief that accompanies a truce.  So it’s easy to think something important has happened.  In fact Trump needed a deal for the election, so he declared victory—by dialing down his own hostilities.  And the Chinese were happy to punt all substantive trade questions at least a year or two down the road (more on that in a minute).  That’s all that has happened with Phase 1.

But the main scam is the term “Phase 1” itself.

“Phase 1” implies we’re in a continuing process to get to our objectives in the trade wars.   That is out-and-out false.  We took a shot at winning a trade war, and we didn’t win it.  Our leverage is diminishing with each passing day.

The premise of the trade war, as Trump himself said, was that we had the power to destroy the Chinese economy, so we could dictate the terms of the peace.  That’s why the trade war was going to be “easy”.  In fact we represented 18% of Chinese exports, and exports represented 20% of Chinese GDP (see chart below).  We don’t own them.  This is just one more example of the danger in our blind belief in overwhelming US power.  It didn’t work.

What’s more both of those percentage numbers are going the wrong way.  Chinese exports are recovering overall since the hit at the start of our tariffs—but with the US now a smaller part.

china_balance

Further the Chinese have been working systematically to increase domestic consumption and thereby reduce the dependence on exports.  Here is the picture (2019 figures are down further but not finalized yet):

chart1580153332151

The Phase 1 deal demonstrates that we don’t have the leverage to win today.  For the future we’ve just seen the decreasing financial leverage.  To that gets added the decreased dependence on US technology, fueled in part by the threats to deny it. (It’s hard to imagine anything less productive than making them mistrust our operating systems.)  The trade war has ended constraints on what it takes to fight back.  Chinese hardliners have taken control of the relationship, and the uptick in intellectual property theft is one result.  Despite the rhetoric, prospects will not be better next year.  There’s no Phase 2 triumph coming for this trade war.

 

When you start a war there are consequences, even if you quit.  Your opponent is going to continue to treat you as an enemy unless something pretty dramatic changes.  The Chinese have made it clear that they want to be as insulated from the US as possible. Since they are rapidly becoming both the world’s largest market and the world’s largest proving ground for new ideas, that’s not a great situation.  There are other possible consequences as well:  a new cold war, lower world economic growth, an uncontrolled and expensive arms race, no leverage on Chinese behavior, even increased chance of war.

The rejoinder to all this is of course “We have to do it.  We have to get tough.  We can’t just cave in as in the past.”  On that subject the press has done us all a great disservice.  There are several points:

  1. We didn’t get tough, we got weak. We abandoned our allies to get ourselves an exclusive deal. We lost half our leverage, and suffered the consequences.  That’s what happens when you just assume overwhelming power.
  2. We didn’t cave in before, we got results instead of pain and bluster. Under Obama both the balance of payments deficit and intellectual property theft were reduced significantly—instead of the opposite. We also made important progress (some since reversed) with climate change.  The job wasn’t finished, but for all the chest-beating, we’ve gone backward since.   It should also be noted that essentially 100% of the job loss from Chinese competition occurred under George Bush or as a direct result of his 2008 crash.   Nothing prevented action on currency manipulation other than the distraction of our then-current war.

mfg_job_loss

  1. The rise of China is not something in our power to stop. They’re not just cheating; they’re doing a number of things right, some of which we’ve forgotten how to do. It is counterproductive to think we can make it all go away.  You can’t win just by being a bully; you have to play the game.
  2. Finally, we had every opportunity to make real progress with the Chinese. They expected to renegotiate China’s status as a developing country for the WTO, and they certainly expected to face a unified front in the West. There is actually a common interest in intellectual property—especially when it’s not used as a weapon against them.  It’s also worth noting that government subsidies to private companies aren’t so black and white here either.  There was an agreement to be had for labor, environment, and world-wide prosperity.  We lost it by going gung-ho for our very own holy war.

There may still be opportunities for full leverage and common interest, but considerable damage has already been done.

The result of the trade war can be summarized in very few words:  we botched it, got nothing, and hurt ourselves badly in the process.