At least five interesting things for the middle of your week (#5)
The world loves America, Twitter's self-destruction, the "richcession" continues, more decoupling, permitting reform in California, and backtracking on patent reform
Howdy, folks! This week started with the Fourth of July, so we have “five interesting things” post in the middle of the week. As always, paid subscribers should feel free to drop links in the comments that you’d like me to think about, or include in next week’s roundup!
1. America is still popular all over the world
There’s a narrative out there, floating around on social media, that the United States is deeply unpopular among the nations of the world, especially in the Global South. Although I’m sure the foreign ministries of China and Russia would dearly love to believe this, it just isn’t true. The U.S. remains remarkably popular worldwide.
A new Pew survey has the data. America’s image among the developing countries surveyed — Nigeria, Brazil, Kenya, Mexico, South Africa, etc. — is very strong. Opinion in Europe is a bit more divided, but still solidly favorable.
Happy 4th of July, Americans!
Digging into this data gives us some important clues about how the U.S. can continue to improve its global image and solidify its global leadership. Strong majorities around the world enjoy America’s entertainment products and admire its technological innovation, and are happy to get U.S. investment and export demand. Those things all provide a strong foundation for American leadership, but they’re also pretty constant. What seems to change is countries’ perception of how America contributes to their security and considers their interests.
The three most strongly pro-American countries surveyed are Poland, Israel, and South Korea. It’s not hard to see why. America is the guarantor of these countries’ security against powerful, threatening neighbors — Russia, Iran, and China and North Korea, respectively. People like America when they feel that it protects them.
People around the world have also become more likely to say that America considers their interests:
Historically, people in most countries tended to say that the U.S. didn’t consider their interests, even under Obama. The U.S. built up a reputation as an inconsiderate, self-absorbed superpower, throwing its weight around carelessly without considering the interests of its smaller allies or of poorer, weaker countries. That bad reputation is rapidly eroding under Biden. Chastened by its misadventure in Iraq and its internal unrest under Trump, America is shifting from a swaggering hegemon to a helpful offshore balancer. The Ukraine War is probably key to this perception — instead of launching invasions, the U.S. is helping stop one.
The lessons for U.S. foreign policy seem very clear. America should refrain from trying to act like an empire, and instead commit itself to being the spoiler of empires. And it should seek maximum input from allies and potential friends alike, and make it clear that it cares about their own interests and concerns. In a multipolar world, that is how we can retain leadership, relevance, and prestige.
2. Decoupling rolls along
As regular readers of this blog know, I view some degree of economic decoupling between China and the developed democracies to simply be inevitable. A lot of people think that decoupling is being driven entirely or mostly by U.S. policy choices, but this was never really true, even in the Trump era. The truth is that Chinese policy choices are a major driver of decoupling.
For example, China is now lashing out at other countries with export controls. It recently announced curbs on the export of the minerals germanium and gallium, which are important for making chips. China is responsible for most of the world supply of both minerals, and while they’re not that hard to replace, doing so will require building up processing capacity in other countries — a capital-intensive, low-margin business that most nations had been happy to outsource to China. This move will probably do more to speed the rapid reshoring of critical supply chain bottlenecks than any Biden administration incentives.
The controls on gallium and germanium are in reaction to the U.S.’ own chip export controls. But in a less well-publicized move, China is also restricting graphite exports to Sweden. Graphite is important for building batteries. China dominates the global battery industry, but Sweden’s Northvolt is one of the best battery makers outside China. So China is restricting the sale of battery minerals to Sweden in order to strangle a potential competitor and retain its dominance in batteries.
What this shows is that unlike the U.S., Xi’s China uses export controls not just to maintain or gain a military edge, but to gain a purely commercial edge for domestic companies. No one had tried to kill the Chinese battery industry, but China is trying to kill the Swedish battery industry nonetheless. This isn’t geostrategic competition; this is pure mercantilism.
In other words, companies around the world now have to realize that whenever they compete with Chinese industry, even if there’s no military angle at all, they can expect China to leverage the power of the state against them. That understanding will speed decoupling, as companies everywhere look to protect themselves from this kind of mercantilist supply chain attack.
In any case, this is far from the only thing China is doing to speed decoupling along. It has onshored the manufacturing of intermediate goods (chips, displays, industrial machinery, auto parts, and so on) to such a degree that South Korea, which boomed in the 2000s and 2010s from selling these goods to China, now exports more to America. The less that companies from advanced economies like South Korea can sell to China, the less reason they have to stay invested in China.
Anyway, what all this means is that Chinese policy is driving a flood of investment out of China. Robin Brooks of the Institute of International Finance writes:
The one place where decoupling from China is definitely happening is capital flows. Our high frequency tracking of flows shows a huge inflow into non-China EM, even as flows to China are near zero.
And Matthew C. Klein has an excellent chart documenting the decrease:
I’m telling you, folks…decoupling is happening.
3. Twitter’s decline — slowly, then all at once?
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