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Of note: Fred De Frossard of the Legatum Institute wrote an article for us on why British farmers are rebelling against their government (and whether that could happen in the US).
Also of note: Your correspondent wrote an op-ed for the Washington Examiner on the logic behind President Trump's appointments.
The voluminous (>700 pages) annual report of the bipartisan US-China Economic and Security Review Commission came out last week. It's taking us a while to digest. The recommendation that made the most headlines, and understandably so given how striking it is, is the recommendation for the DoD to create a Manhattan Institute-like program to race China to AGI, or artificial general intelligence.
But what we thought was the most important and most underrated part was that the commission has found that economic decoupling between China and the US is accelerating, and that they recommend it should accelerate further.
Notably, the report recommends that "Congress repeal Permanent Normal Trade Relations (PNTR) for China." The authors argue, very cogently, that "PNTR status allows China to benefit from the same trade terms as U.S. allies, despite engaging in practices such as intellectual property theft and market manipulation" and that "repealing PNTR could reintroduce annual reviews of China’s trade practices, giving the United States more leverage to address unfair trade behaviors" and "would signal a shift toward a more assertive trade policy aimed at protecting U.S. industries and workers from economic coercion." Quite so!
What was even more interesting to us was the review's findings on decoupling: though the report notes that the actual extent of economic separation is difficult to measure due to continued Chinese content in products routed through third countries, complex supply chain relationships, and data limitations, they find that China's share of U.S. imports has declined significantly, falling from 20.9% in 2017 to 13.1% in 2024, with countries like Mexico and Vietnam emerging as alternative suppliers. Investment flows have also diminished substantially, with Chinese FDI into the U.S. plummeting from $27.4 billion in 2016 to just $621 million in 2023, while U.S. investment into China is also declining. Yes, just $621 million, according to US Bureau of Economic Analysis data: that's not a typo, we checked. The report is careful to point out that private sector estimators have different data, and that the data is hard to come by because of "companies’ usage of holding companies, offshore vehicles, and other complex ownership structures to take advantage of favorable tax policies." That said, the trend is unmistakable.
The report also calls for the creation of an Outbound Investment Office within the executive branch to oversee investments into countries of concern, including China. This office would prohibit U.S. investment in certain strategic sectors and require notifications for others, helping prevent U.S. capital and expertise from supporting China's technological advancement. The Commission also recommends eliminating federal tax expenditures for investments in Chinese companies on various security-related restriction lists. For certain key technologies, the Commission recommends outright import bans.
The report is at pains to emphasize selective rather than complete decoupling, focusing on strategic sectors while acknowledging that the US and Chinese economies remain deeply intertwined. Be that as it may, it's not hard to tell in which direction the wind is blowing. Decoupling has a momentum of its own now, and policy—on both sides—will only accelerate it. At which point the US and China may be in a real, not just quasi, cold war.
Policy News You Need To Know
#DOGE — Very interesting confluence of tribes and/or coalition management within the broad Republican tent: Elon Musk and Vivek Ramaswamy have said that one of the parts of government funding that might get the ax from DOGE is Planned Parenthood. It's always been a mystery to us why Elon Musk's strong belief (both political and personal!) that more babies are good and that the decline in birth rates is a catastrophic threat to civilization hasn't led him to embrace the pro-life cause, but maybe he is being Straussian.
#Loneliness — Economists Clifford Winston and Vikram Maheshri have an op-ed at RealClearMarkets on what they call, confusingly, "the Second Great Depression," which doesn't refer to economics, but to the mental health crisis. ("Depression." Get it?) Apart from the title, the article is very good in highlighting the facts of the matter: "The reported depression rate for adults reached a new high of 29% in 2023, up from 19.6% in 2015. Roughly half of Americans reported having three or fewer close friends in 2021, with a startling 12% reporting zero close friends. In 1990, the figures were 27% and 3%, respectively. The high rate of depression and lack of close friends are reflected in a notable decline in intimacy. For instance, 26% of Americans in 2021 reported not having sex during the past 12 months compared with 17.7% in 1990. The share of young men not having sex, 28%, has nearly tripled since 2008. Finally, isolation and drug use are on the rise as 27.6% of American households in 2020 were comprised of one person, up from 24.6% in 1990, and 16.5% of Americans age 12 and older in 2021 met the criteria for having a substance use disorder, up from 9.4% in 2002." Many are aware of these facts, and yet it's always worth repeating them as they are a tragedy, one that doesn't show up in economic figures the way a banking crisis does, but one which is nonetheless a very, very serious problem.
#TaxPolicy — Speaking of loneliness: American Action Forum President Douglas Holtz-Eakin wonders about President Trump's proposal to create "a tax credit for family caregivers who take care of a parent or a loved one." Great idea in theory, but many questions arise: "who would be eligible? What constitutes being a family caregiver for these purposes? Is it merely providing financial support? Or, would one have to actually donate time to hands-on support of the family member or loved one? How much time? (Most important, does me watching the Steelers while sitting next to my wife count?) How would it be documented?" But wait! There's more! "how much would it cost? A credit of $1,000 for 34.2 million people adds up to $342 billion over 10 years. And while $1,000 doesn’t seem like much of an acknowledgement of either the time or cost of caregiving, in the aggregate, it looks like something that could get very expensive, very fast." Elder care is one of the sleeper issues of American politics: it's going to be enormously expensive and nobody knows how to pay for it. Holtz-Eakin is right to ask these questions.
#TaxPolicy — Speaking of tax policy, the National Taxpayers Unions has published, especially for the lame duck, their "no brainers list," a list of 10 tax policy proposal that meet the following criteria: "It has support from both Democrats and Republicans, it has not appeared on a previous NTU “No Brainers” list," and "it is a sensible way to address a real problem that taxpayers face." It's good stuff.
#Trade — Scott Lincicome at Cato is one of the best trade and economic policy experts out there, but his new proposal is frankly bizarre. He believes President Biden should use his last days in office to unilaterally terminate tariffs through executive action. This is good because "full termination would mean that reinstituting the tariffs next year — or adding even more on top of them as Trump has promised — would require the next administration to undertake lengthy bureaucratic investigations. In the meantime, freer trade would flow." His article goes on with unilateral executive actions Biden should take, all in the way of reducing trade barriers. This reminds us of Peter Thiel's line that if you support free trade, the last person you should have negotiate your trade deals is a free-trader. What would be the point of such actions two months before a new administration, if not to gratuitously hobble the new administration? And for what? Some very marginal consumer surplus?
#K12 — AEI's Andrew Biggs, whose remit is economic policy, was so displeased with his school district's math curriculum that he did a study on math curricula. He and his colleague John Mantus used PISA data to investigate the effectiveness of teacher-directed vs student-oriented instruction in math. The bottomline? Unsurprisingly to a conservative, "on average, teacher-directed instruction is associated with higher PISA math exam scores than student-oriented instruction. (…) differences in math instruction are associated with differences in math proficiency scores that aren’t just statistically significant (although they are) but also big enough to matter." Biggs doesn't forget to mention that, as is to be expected, his study "included controls for socioeconomic status, family structure, use of the test language at home and immigrant status, along with controls for all other teaching practices." He adds: "Our results help resolve the so-called 'Asian enigma,' in which Asian students score well on international exams despite, it’s claimed, Asian schools’ reliance on traditional instruction, including teacher-directed instruction, memorization and so on. What our results show is, first, within countries students who receive teacher-directed instruction exhibit higher math proficiency and, second, Asian countries appear to utilize more teacher-directed and less student-oriented instruction than lower-scoring countries." (We were not aware that people thought it was an "enigma" that countries where you actually teach the material score better than countries where you don't. Amazing.) The point about how the distinction holds within countries as well as between them is important for those who believe test score differences are almost entirely due to demographics. Biggs goes on to discuss whether evidence on better math curricula will help change things, and the answer is: outlook not great.
#MAHA — Here's an interesting proposal, from R Street's Caroline Melear, on how to realistically MAHA: end farm subsidies for ultra-processed foods.
#FinReg — R Street's Caroline Melear also has the case against the currently-pending Credit Card Competition Act. The basic outline is this: the CCCA wants to increase competition in the credit card space and reduce swipe fees; this is good; but it would do so by handing regulatory authority to the Fed, and this is bad.
#Antitrust — More good work from R Street: an outline of the changes to antitrust under the Biden Administration, with (naturally) a focus on Lina Khan's actions. R Street's Josh Withrow thinks Khan went too far and the Trump Administration is not poised to continue with a "Khanservative" direction, and instead should retrench.
Friday Essays
Louise Perry is one of the bravest writers honing her craft today, and always worth reading. She believes that in the wake of the Trump victory, Democratic elites have decided to jettison transgenderism. Your correspondent certainly agrees that some Democratic elites believe that they should do this, and they should do this for a specific reason, which is to keep the other highly-unpopular parts of their agenda, such as open borders. Whether that's how the Democratic Party shakes out over the next few years, or with some other mix of issues and targeted voter groups, remains an open question.
Speaking of how Democrats are dealing with the aftermath of the election, at New York Magazine, Sam Adler-Bell has a reflection on how his fellow liberal activists greeted these results with more exhaustion and fatalism than the energy that 2016 gave them. Put one pebble in the "woke is over" jar. They're too tired to do the Summer of 2020 again. Maybe.
In the wake of RFK, Jr.'s selection as HHS Secretary, there's been a great agitation around the topic of seed oils. If you've been following the sun-tanned bodybuilder bro science, you'll know they regard seed oils as perhaps the greatest evil known to mankind, the source of countless ills. The contrary view is that there's actually very little hard evidence for this, and the link between seed oils and bad health is due to the fact that most junk food is fried in seed oil, but the problem is the junk food, not the seed oil. Here's a long article going over this debate and looking at all the evidence.
L0m3z, now better known as Jonathan Keeperman, founder of the avant-garde right-wing publishing house Passage Press, has been one of the great voices of the online right. He now has a Substack, which he opens with a long and very good essay on the figure of Trump as compared to the great men of classical antiquity.
Steven Glinert runs a defense tech company, he thinks industrial policy is a good idea Republicans should embrace, and he has very good suggestions on how the Trump Administration can fix the CHIPS Act.
Not a new essay but fascinating nonetheless: at Mercator, Louis T. March writes about Japan’s 'miracle town' where the birth rate is twice the national average.
The far-left magazine Jacobin is waking up to something Christian conservatives have been warning the left about (unsuccessfully, as usual): if you didn't like the Christian Right, you really won't like the post-Christian Right.
Chart of the Day
How many illegal aliens ARE there in the US? By definition, it's impossible to know with any precision, and poorly-sourced numbers get thrown out with abandon in the public debate. A Yale study by Mohammad Fazel Zarandi, Jonathan Feinstein and Edward Kaplan tried to come up with some estimates, and it does look like the number is very likely much higher than most commonly accepted estimates.
