Why, then, is the Trump administration appeasing China on trade, while picking fights with countries like Canada that are friends and allies of the United States? Why is America shaking down allies for cash and risking inflationary pressure at a time when the US economy can hardly afford more of it? The sheer irrationality and refusal to ease up lend President Trump’s trade war with Canada the aspects of a mad compulsion. 

Trade negotiations between Washington and Ottawa have dramatically collapsed in the last week. The industries involved include autos, lumber, plywood, clothing, dairy, and alcohol. There is no reason for the two countries not to be able to reach an accommodation on any of these questions, provided America doesn’t continue to treat friends like enemies.

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The automobile industry is a strategic industry, to be sure, but the issue in the US-Canadian trade diplomacy involves merely the location of supply chains in what is already an integrated North American market. As for the rest, nobody would describe dairy, alcohol, and plywood as sectors essential to American industrial, commercial, and military power.

Meanwhile, by 2023, China’s share of global manufacturing output surged to 28%, up from just 9% in 2004 — making it larger than the combined output of the United States, Japan, and Germany.  

Chinese manufacturing dominance, by the way, isn’t about “plastic trinkets,” free-traders’ shorthand of a generation ago for why we shouldn’t worry about giving up some industry to the Middle Kingdom. Thanks to a relentless and effective state-sponsored industrial- and trade-policy combination, China, once an exporter of low-value-added products like textiles, now leads the world in electronics exports. It enjoys a global market share of 32%, followed by 14% in the case of Taiwan. The American share of global electronic exports? A measly 5%.

China is also now the world’s largest car maker, responsible for a third of global output. And the country’s share of global shipbuilding, another high-tech, strategic-manufacturing industry, is even higher, at a staggering 56%. And while the Chinese lag behind the United States in commercial aviation, they control an estimated 80% to 90% share of global drone manufacturing — an industry with obvious military implications. 

OK, when it comes to the most strategic industries of the 21st century, America should be picking its trade fights with China, not with … Canada. But hey, at least when it comes to plywood, Canada is a bigger player in global markets than China. Oh, wait — China is responsible for more than 54% of global plywood exports and makes up to an estimated 70% of the world’s plywood.

Alcohol? Canada lags behind the leaders in alcohol revenue: the United States, China, and Japan.  Is Canada threatening to engross the world lumber market? Well, at least Canada exports more milk and dairy products (180,000 tons) than China (70,380 tons). And according to 2026 data, Canada exports more lumber than the United States.

America is threatened by a lumber gap!

In all seriousness, there is something perverse afoot here. While cracking down on Canada in trade disputes over non-strategic industries, the second Trump administration has appeased Communist China. The People’s Republic controls 90% of refining in rare earths, essential for advanced technology and manufacturing in many industries, and the Beijing regime hasn’t hesitated to use the leverage it gains from control of this strategic chokepoint. In April 2025, following Trump’s “Liberation Day” tariff announcements, China imposed export controls on a number of rare-earth minerals on which American and allied civilian and defense industries depend. 

Living up to the motto “TACO” — Trump Always Chickens Out — the president in May flew to Beijing to a summit with Chinese supreme leader Xi Jinping. According to the White House news release, “China will address US concerns regarding supply-chain shortages related to rare earths and other critical minerals, including yttrium, scandium, neodymium, and indium.” 

In return for this vague promise, the Trump administration won commitments from the Chinese regime to buy 200 Boeing aircraft — which will undoubtedly help China obtain technology to build its own rival aircraft industry — and promises to buy more US beef and poultry. America may have lost consumer electronics and drone manufacturing to the Chinese, but take solace: America’s chicken feedlots rule!

Those of us who have followed bad US trade deals for decades recognize the trick used by East Asian mercantilist nations, including Japan, South Korea, and Taiwan, as well as China. Knowing the power of America’s farm lobby in Congress, and the political weakness of US manufacturers, the East Asian mercantilists will graciously promise to import more American soybeans, beef, pork, or other agricultural commodities, if Americans agree to stop protesting their state-sponsored, trade-induced deindustrialization of the US economy.

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Team Trump, in short, is doing the exact opposite of what American strategy in the 21st century demands.

Strategy is the art of picking priorities. A rational American trade strategy would focus on a hard decoupling of the United States from market-Leninist China. In addition, to take advantage of economies of scale in manufacturing and increase global market shares, a rational American trade strategy would seek to pool the American manufacturing base with those of allies in Europe, Asia, and elsewhere that share America’s interest in reducing economic and military dependence on China. Even legitimate trade disputes with US trading partners, including Canada, should be kept off the front pages of the news media and subordinated to these two goals of Sino-American decoupling and allied solidarity.

Moreover, in order to work over many years and through changes of party control in Washington, a rational strategic trade policy should be backed by technocratic expertise and should seek to win bipartisan legitimacy. But Trump’s trade policy is personal and whimsical and finally incoherent. 

The worst part: instead of rehabilitating the use of tariffs as a legitimate instrument of American economic statecraft going back to the Founding Fathers, Trump is discrediting them in the eyes of the American people. No wonder the share of the US public that favors global free trade rose to 55% last year, up from 35% percent in 2024, when Trump was re-elected. Even among Republicans, free trade’s popularity rose to 34%, up from 20%, in the same period.

If the Chinese regime had possessed the power to plant a Manchurian Candidate in the White House in 2025, whose goal was to discredit economic nationalism in American public opinion, it could not have chosen a better agent than Donald “Tariff Man” Trump.

At the global level, Cold War II is a struggle between the incumbent superpower, the United States, and a rising challenger, China. And unless Washington adopts a less ambitious global strategy, the United States is doomed to lose Cold War II.

The reason is simple: America’s strategic objective — perpetual US military hegemony in East Asia, Europe, and the Middle East — is far too costly to achieve. In contrast, the goal shared by China and Russia — a multipolar world of great-power spheres of influence — is not only possible but probably inevitable. The Chinese dragon and the Russian bear can patiently wait until Uncle Sam exhausts himself from overextension and then goes home, just as he did when he abandoned Vietnam, Iraq, and Afghanistan. And the major beneficiary of America’s military overextension is likely to be its greatest rival — Beijing.

The sharpest figures in the Trump orbit appreciate this, and see the linkages between the various flashpoints. But the administration as a whole can’t resist the strategic hubris and haphazardness that have characterized many post-Cold War American governments — indeed, with the new Iran War, the Trumpians have displayed this tendency on overdrive. 

At last month’s Munich Security Conference, for example, America’s envoy to NATO, Matthew Whitaker, observed: “China could call Vladimir Putin and end this [Ukraine] war tomorrow and cut off his dual-purpose technologies that they’re selling.… You know, this war is being completely enabled by China.”

Whitaker was right. The People’s Republic has allowed both Russia and Iran to evade American and European sanctions by buying their oil, with the help of “shadow fleets” and transactions denominated in China’s currency, the yuan. In addition, Beijing has supplied the Islamic Republic with components used in its devastatingly effective (and remarkably cheap) Shahed drones. The Chinese are reportedly negotiating to provide Iran with antiship missiles and have likewise transferred dual-use technology, which can be used for both military and civilian purposes, to the Russian defense industry.

More: the Chinese regime has helped Iran to use its Beijing’s encrypted Beidou-3 global satellite navigation system and provided the Islamic Republic with stealth radar systems. For its part, the Kremlin has supplied Tehran with satellite intelligence showing the location of US naval ships and aircraft in the Persian Gulf. The backscratching is mutual. Iran has supplied Russia with thousands of drones used in Ukraine.

In one telling, America’s new war against Iran helps advance its position in Cold War II, by taking out the weakest of the three pillars that uphold the adversary’s Eurasian power. Yet this is a comforting after-the-fact narrative, typically offered by academics and magazine writers. They do it to console Western audiences dismayed by the war’s aimlessness and potentially devastating consequences for American prestige as the Iranian mullahs appear to hold on and even squeeze Washington. 

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In reality, China and its ally Russia benefit from Trump’s foolish diversion of American military resources to the Persian Gulf. To sustain the operation, the United States has stripped South Korea of missile defense systems and dispatched them to the Middle East and has diverted two guided-missile destroyers based in Japan to the Persian Gulf area. According to the Center for Strategic and International Studies, in a war with China over Taiwan, the United States would run out of missiles in less than a week.

The Iran war benefits the Sino-Russian entente in other ways. It has divided NATO, with President Trump denouncing America’s European allies as “cowards” and then calling on them for aid. Having stumbled into a trap, Trump has humiliated himself and the nation by begging Beijing to help in the Persian Gulf. On March 14, in a Truth Social post, Trump desperately called on China along with other countries to send “War Ships, along with the United States of America, to keep the Strait open and safe.” China declined the invitation. 

What incentive does Beijing have to rein in its proxies Russia or Iran? While watching Uncle Sam struggle in the steel traps of Ukraine and the Persian Gulf, China’s leaders can focus on capturing one global industry after another and increasing the dependence on China of other nations — including America’s own allies.

Long ago, Chinese leaders viewed American over-extension abroad as a means for diminishing US power. In a 1958 speech, Mao Zedong told his fellow Chinese Communists that US military bases in Taiwan, Lebanon, and elsewhere were “nooses”: “The nooses have been fashioned by the Americans themselves and by nobody else, and it is they themselves who have put these nooses around their own necks…. The longer the US aggressors remain in those places, the tighter the nooses round their necks will become.” Then as now, China benefits when the United States wastes its resources on wars in peripheral countries. 

The military realm is not the only area in which Washington is losing Cold War II. Whether in the form of hot wars or cold wars, modern great power struggles ultimately are wars of economic attrition. As in the two World Wars and the first Cold War, the side with superior industrial resources tends to prevail. It matters, therefore, that in the words of economist Richard Baldwin, China is “the world’s sole manufacturing superpower.”

In 2025, China manufactured more goods than the next eight largest manufacturing countries combined. In addition to being the workshop of the world, the Middle Kingdom dominates global trade. Today, only 30% of the world’s countries trade more with the United States than with China, down from 80% at the turn of the millennium.

During the first Cold War, the United States and the Soviet Union competed for global influence in part by competing to finance projects like Egypt’s Aswan Dam. In today’s Cold War II, China has far outpaced America as the world’s leading source of development finance, providing $68 billion to developing countries, compared to only $39 billion from the United States in the first two decades of the 21st century. Indeed, the United States spent a paltry $76 billion on infrastructure in other countries over the past decade or so, compared to China’s $679 billion.

With the help of unpatriotic American corporations and investors, moreover, China has made the US defense and civilian economies dependent on Chinese factories. In 2023, China was the largest supplier in critical US military supply chains — ahead of Britain, India, and Japan.

China controls 80% percent of global graphite, necessary for batteries, 62% of fluorspar used in nuclear fuel and semiconductors, and a majority of the world’s magnesium, necessary for aircraft and missiles. Raytheon, a major US defense contractor, has declared that it is so dependent on Chinese suppliers that decoupling its supply chains from China is impossible. And while the Biden and Trump administrations have sought to boost US rare earth mining and processing, the American military may be dependent on China for at least a decade.

But surely America is far ahead in tech research? Wrong. According to the Australian Strategic Policy Institute, China leads global research in 90 critical technologies, the United States in 74. In quantum computing, a frontier technology, China is ahead of the United States, according to the Information Technology and Innovation Foundation.

What, then, is America’s comparative advantage over China as a great power? China has surpassed us in manufacturing, but we Americans lead the world in militarism — in lashing out here and there without a sense of deep strategic purpose or an appreciation for the problems associated with scarcity.

Since Trump’s second term began in January 2025, the United States has bombed governments or nonstate actors in seven countries — Iran, Venezuela, Nigeria, Iraq, Syria, Yemen, and Somalia. The Trump administration has illegally engaged in the extrajudicial murder of around 100 alleged drug smugglers on the high seas in the Caribbean and Pacific, even though drug smuggling doesn’t carry the death penalty in the United States. Likewise, the United States has kidnapped the president of Venezuela and allowed Israel to assassinate most of Iran’s leadership in a Pearl Harbor-style sneak attack, before unleashing an American military campaign of massive bombing of Iran with no evident plan to counter Iran’s violent response — or even a cogent definition of victory.

In the same period, China, while quietly enabling its Russian and Iranian proxies, hasn’t bombed any countries or killed any foreign nationals. Indeed, while the United States for decades has been almost constantly killing suspected terrorists, bombing and invading multiple countries, and piling up foreign civilian corpses all over the world, China has grown rich and influential without firing a shot.

Since 1979, when it fought a brief war with Vietnam, China hasn’t fought any wars, although it has engaged in border skirmishes with India and has bullied other countries with shows of force in the South China Sea. By avoiding military quagmires and concentrating on internal development and strategic trade, China in the last three decades has become the dominant manufacturing power on earth. 

And here is the absurd result. Even though the United States gets less than 10% of its oil from the Persian Gulf, American soldiers must die or be maimed for life and American taxpayers must spend hundreds of billions of dollars to prevent Iran, whose largest customer is China, from blocking oil shipments to China by Saudi Arabia, Kuwait, Qatar, the United Arab Emirates, and Iraq — all of whose largest trading partner is also China.

Meanwhile, American taxpayers must also spend money on European bases and fund the war in Ukraine to protect the European Union, which imports one and a half times as much from China as it does from the United States, from a hypothetical invasion by Russia, whose largest trading partner is… also China. In East Asia, Washington spends a fortune to defend Japan, South Korea, and Taiwan — all of which trade more with China than with America — from a hypothetical attack by China. Why China would want to attack its trading partners is never made clear.

In short, America’s global grand strategy consists of using the US military, reliant for weapons on Chinese supply chains, to protect China’s trading partners from China or other Chinese trading partners, at the expense of American soldiers and American taxpayers.

Cold War II is also fought in the arena of legitimacy or “soft power.” Does the claim that America fights other people’s wars for them so they don’t have to defend themselves result in gratitude to the United States? According to a poll this month, citizens of Canada, Britain, Germany, and France now regard China as a more reliable partner than America. In the United States itself, according to the Chicago Council on Foreign Affairs, public opinion has shifted under Trump, away from confrontation with China to “friendly cooperation and engagement with China,” rising to 53% of respondents last year, up from 40% percent in 2024.

Why wouldn’t people in nations all over the world have a more favorable view of a repressive but unwarlike state like China, which makes first-rate consumer products and offers trade and investment opportunities, than they would of the United States, which, under any president of any party at any given time tends to be killing people in multiple foreign countries while boasting that it is the greatest country ever?

While the People’s Republic has risen to global industrial and commercial supremacy by following former Chinese leader Hu Jintao’s slogan “peaceful rise,” the arc of the United States since the 1990s can be described as “violent decline.” Post-Cold War America has repeated the strategic mistake of leaders in London in the three decades after 1945, when Britain imagined that it was still a major power because its troops were still machine-gunning natives in places like Kenya and Oman, even as it lost its manufacturing leadership to Germany, Japan, South Korea, and Taiwan; Uncle Sam is the new Colonel Blimp. 

America’s bungling militarists in both parties can’t even tell us what they imagine a US “victory” in Cold War II would look like. In the world wars, the strategic goal was stripping Germany and Japan of their foreign empires, without which they would be nothing more than medium powers. In the Cold War, the similar goal of the United States and its allies was achieved when the Soviet Union gave up its essential Eastern European empire, even before the USSR disintegrated along lines of nationality, leaving the Russian core smaller than it has been in centuries.

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But China’s power, like that of the United States, is based on its own internal population, workforce, and markets, augmented by peaceful, civilian trade and investment. Outside of Tibet and Xinjiang, China is an empire of commerce, not conquest. Absent total collapse, China is likely to be a superpower, and Russia a regional great power, for centuries or millennia, under regimes of any kind. If it survives the current American-Israeli onslaught, which is likely, Iran will likewise endure as a civilizational state, albeit as a client of Moscow and Beijing rather than a fully coequal partner in their Eurasian bloc.

China, especially, is well-poised to inherit the outcome of Cold War II. If East Asia is defined as China, Taiwan, Mongolia, North Korea, South Korea, and Japan, then China accounts for around 90% of the East Asian population. If Germany had made up 90% of the population of Europe in 1914 or 1939, it would have been the European hegemon without any need to augment its strength by conquering its neighbors. 

Even if China and Russia were to adopt multiparty liberal democracy tomorrow, national pride, expressed through free and fair elections, would prevent their new democratic leaders from accepting humiliating, permanent subordination to US military power in their own neighborhoods. The same would be true of a proud and patriotic Iranian democracy freed of the mullahs. Somehow, the Trump administration, which promotes nationalism and sovereigntism for the United States, hasn’t figured out that other nations may feel strongly about their sovereignty, too, and be willing to die for it.

Sadly, we know how today’s Cold War II will end: in the eventual abandonment by the United States of its attempt at permanent US global hegemony, and the adoption by default of the Chinese and Russian alternative, a multipolar world characterized by spheres of military influence and trade blocs based on a handful of regional great powers. One need not have any sympathy for Putin’s gangster regime or China’s Communist dictatorship to recognize that their vision of world order is likely to be achieved, while the delusory post-1989 goal of American global hegemony can never be realized.

A multipolar world order is inevitable, because American voters since the fall of the Berlin Wall have never been willing to pay the costs, in American taxes and American blood, that would be required for the United States to be “the sole superpower” in every region on Earth for generations or centuries to come. American voters thought they were getting less unnecessary foreign military intervention in 2008 with Obama, who then launched new wars of regime change in Libya and Syria, and in 2016 with Trump, who has now begun an unnecessary and disastrous third Persian Gulf War. But sooner or later, the war-weariness of the American people will bring an end to the fantasy of a global Pax Americana built on drones and bombs. Perhaps we Americans in the 2030s or 2040s will finally get the kind of patriotic statesman we did not get after the Cold War — an American de Gaulle, who will liquidate too-costly overseas commitments and focus, at long last, on nation-building at home.

In December 1979, a perfect storm of global competition, outmoded factories, and recession slammed into America’s industrial heartland. US Steel, for a century the jewel in Pittsburgh, Pennsylvania’s crown, shuttered 15 plants. Seemingly overnight, the 27,000 steel mill jobs across the city’s Monongahela Valley vanished with them. By 1980, one-in-five Pittsburghers was jobless, and they weren’t alone. In 1950, the industrial Midwest, a seven-state region stretching from Appalachia to Wisconsin, was home to 43% of all American jobs. Starting in the Seventies, steel shed 350,000 jobs, carmakers 500,000; 1.2 million blue-collar jobs disappeared, and Cleveland, Detroit, Buffalo, Pittsburgh lost nearly half of their populations. 

The “Steel City” of the Thirties forged the Empire State Building and Golden Gate Bridge. But by the Eighties, Pittsburgh’s once-tidy working-class neighborhoods were shooting-dens of bullets and heroin. Prostitutes walked the streets. Patrons queued outside bars at 10 in the morning. “I was watching my city die,” Peduto says again. “I mean, right before my eyes.” But family is family, and Peduto, a big man with a booming voice, saved his kin and kiln. The longtime councilman and city mayor from 2014 to 2022, he engineered America’s gold standard in urban revitalization, with Pittsburgh now widely regarded as the country’s “most livable city”.

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Pittsburgh now teems with the creative types who drive startups and young firms. Nearly half of local Zoomers hold college degrees. Their ingenuity pushed city GDP from $79 billion in 2012 to $109 billion by 2021, a 37% jump. On a warm autumn evening, I walk the streets of downtown and can almost taste the wealth. Forty-somethings crowd the August Wilson theater. Twenty-somethings sip cocktails in the dusk. The Steel City is now the Smart City, a center of new tech boasting three billion-dollar AI firms. Pittsburgh’s legacy companies have come back too: the gleaming offices of Heinz, PPG and even US Steel dominate what locals call the “Golden Triangle” of the downtown, squeezed into the spit of land where the Allegheny, Monongahela and Ohio rivers all meet. The rivers mean bridges, 446 of them, many of which are painted black and gold: in Pittsburgh, even the infrastructure roots for hometown teams. 

Through all this, Pittsburgh hasn’t become some bougie theme park. Instead, it is the most affordable city across the US, Australia, Canada, and the UK. That, of course, still leaves one more question: how did Peduto’s dead city come roaring back to life? For Ken Heineman, the answer starts with history. As far back as the 19th century, explains the author of a book on the city, Pittsburgh’s early industrialists lent a “special flavor” to the local elite. Andrew Carnegie and Andrew Mellon, Scots-Irish Presbyterians both, practiced a civic stewardship that defined the Pittsburgh’s establishment, a code that meshed with the social responsibility of the Catholic working class. Pursuit of the common good became the steel running down the city’s spine, creating social cohesion — and, if you like, a Pittsburgh family. 

To educate his kin, Carnegie built 19 libraries across Pittsburgh. Nor did he stop at the city limits. Over 1,600 architectural masterpieces, together known as the Carnegie Libraries, dot the region and the nation. Following suit, the Catholic Church brokered deals between its laborer parishioners and Protestant industrialists. This cooperative, do-gooding impulse helped forge an economic miracle. Blessed with three rivers of water and peace between unions and management, Pittsburgh became the steel capital of the world. By 1944, it was forging more steel than all America’s Axis enemies put together. 

Yet the Steel City nearly choked on its success. A thick smog blanketed the city. Streetlights were illuminated by noon. In October 1948, a “death smog” killed 20. Today’s Golden Triangle was a filthy goulash of pollution and decay. At a crossroads, Pittsburgh, as families do, came together. Mayor David Lawrence, the son of Irish immigrants, worked with the scion of the Mellon fortune, Richard King Mellon. The result was the Pittsburgh Renaissance. A $600 million master plan, underwritten by $400 million of Mellon’s fortune, built today’s gleaming Golden Triangle. Colleges and banks dominate what was once an industrial trash heap; all that remains of the area’s rough-hewn past is the Iron City Beer headquarters.

Working-class, Catholic, immigrant America — Poles, Slovaks, Italians — also joined with a WASP aristocracy to set the stage for Pittsburgh’s contemporary revival. A “meeting of the minds” is how Heineman puts it, one that cut across class and religious lines and developed a distinct civic tradition focused on growth for the commonweal. 

Like in Carnegie’s time, this ethos began with elites rubbing shoulders with the hoi polloi. By the 2000s, Peduto was a powerful city councilman. And rather than “manage decline”, he saw his city’s promise in the diverse East End neighborhood. “I not only represented that area,” he says, “I lived it.” As in the past, proximity mattered. Drinking buddies with Richard Florida, an urbanist and Carnegie Mellon University professor, Peduto frequented a grubby East End dive. Downing beers next to him were working stiffs, but also Johannes Bonatti, a scientist who developed micro-robots for open-heart surgeries. Across the bar was Luis von Ahn, who invented the programming language for Duolingo. 

Aware of the “crazy potential” in this single dive, Peduto reinvigorated Pittsburgh’s family links. City Hall, foundations, universities, and the private sector all collaborated. A memorandum of understanding between the city and Carnegie Mellon, the first ever between a municipality and university, meant Mayor Peduto had world-class R&D just a text message away. This is how Pittsburgh became home to the planet’s smartest traffic signals, with a task force devoting itself to connecting entrepreneurs to resources, then marketing their services to Silicon Valley. When Uber needed a city to test driverless cars, it was Pittsburgh that grabbed the billion-dollar investment. Soon enough, the city became an urban laboratory for tech, jobs and investment. Just like in 1979, Pittsburgh was “famalee” — albeit with slightly less disco. 

Pittsburgh, of course, is far from the only city to experience economic trauma. Yet if the family here rallied and recovered, not everyone was so lucky. To understand what I mean, drive 130 miles up the I-76 to Cleveland, Ohio, which, in a way, lived Pittsburgh’s experience without the family twist. 

Both cities were deeply defined by waves of immigration. In 1910, 25% of Pittsburghers were born in Southern or Eastern Europe. By 1920, a jaw-dropping three-quarters of Clevelanders had come from overseas. There are other similarities too, especially in how both cities became defined by belching factories. Just as Heinz became synonymous with Pittsburgh, for instance, Cleveland enjoyed a long relationship with General Motors. Yet where Peduto and his city slumped but then revived, Cleveland took a different path, and is now the second poorest large city in the nation. 

How did Cleveland become what Heineman calls “the un-Pittsburgh”? One way of understanding this is by comparing the cities’ moguls. For if Carnegie and Mellon set the tone by the Ohio, John D. Rockefeller long dominated life by Lake Erie. Dr Jon Wlasiuk, a Michigan State University professor who authored An Alternative History of Cleveland, says that Rockefeller’s Standard Oil helped make Cleveland “the engine that drove the American economy”. From 1900 to 1930, the city’s population nearly tripled, making it the nation’s sixth most populous. Shaker Heights, a suburb east of downtown, enjoyed the nation’s highest per capita income. Its manicured leafy, tree-lined streets and mock-Tudor houses were all designed to evoke the cozy feel of a European village.

In the postwar era, US Steel, General Electric, Ford, Chevy, and even NASA came to Cleveland, making the city, in the words of civic boosters, “The Best Location in the Nation”. You get a sense of this past grandeur in the art deco and Beaux Arts buildings that ring Playhouse Square, the nation’s second-largest theater district, or by gazing up at the Superman Statue on Ontario Street. Clevelanders Jerry Siegel and Joe Schuster created the superhero in 1938, a reflection of the city’s brawny optimism.

Yet in the end, the Cleveland family fell apart. Whereas Carnegie and Mellon invested in education alongside their factories, founding institutions that would eventually become Carnegie Mellon University, Rockefeller largely ignored civic Cleveland. Rather than gifting his adopted city with a college of its own, he instead endowed the University of Chicago, before promptly bolting for Manhattan. In 1913, the city got its revenge by filing suit against Rockefeller for unpaid residential taxes, with a judge issuing a subpoena preventing the magnate from even entering the state. 

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Civic incompetence has stalked Cleveland ever since. For Michael DeAloia, the city’s former tech tsar, one good example is the ominous report civic fathers received in 1959, predicting an imminent end to the long industrial boom. Aware of “1979” two decades in advance, officials founded the Cuyahoga Community College to train young Clevelanders for the white-collar future — but the curriculum, maddeningly, remained focused on manufacturing. DeAloia, who read the 1959 study while writing the college’s official history, was astounded. “I sat there slack-jawed reading this damn thing!” 

City leaders were warned. But the 306,000 Clevelanders who worked in manufacturing enjoyed no such notice. By all appearances, it was all blue skies and puppy dogs. Through the Sixties, their wages surged by 22%. Cleveland placed in the top 10% of US cities by per capita income. But, as predicted, it wasn’t to last. By the late Eighties, 40% of Cleveland’s factory jobs had vanished. Median income fell by nearly a third. Strife enveloped the city. Mafia bombings became so common that a Cleveland Plain Dealer headline quipped “Bombing Business Booming Here”. In 1978, Cleveland became the first American city to default on its debt since the Great Depression. The “Best Location in the Nation” was now the “Mistake on the Lake”. 

Deindustrialization caused Cleveland’s demise. But a historic lack of social solidarity made its fall all the worse. Class conflict defined the relationship between elites and the working class, typified by Elliot Ness, the city’s director of public safety. Ness viewed organized labor and the unemployed as he did Al Capone: a threat to be beaten. In a 1937 steel strike, Ness sent his goons to smash the union. But Cleveland’s labor movement, infused with communist organizers, responded in kind, and indeed had been shipped out of Pittsburgh to more fertile revolutionary turf. 

Without these bonds of solidarity, race became ever more divisive: especially once the civil rights movement arrived. Because Cleveland enjoyed an earlier and heartier industrial boom, the city attracted more African-American migrants than Pittsburgh; by 1970, nearly four-in-ten locals were black. And though racial turmoil also roiled Pittsburgh through the postwar period, it was nothing compared to Cleveland’s 1966 Hough Riots, or the 1968 Glenville Shootout, a deadly gunfight between the police and a cell of Black Nationalists. For Heineman, meanwhile, even geography can explain the cities’ varied fates. Divided by three rivers, deep ravines, and steep foothills, he suggests Pittsburgh is really a series of “small towns with communities with a great deal of social cohesion”. Cleveland, by contrast, was built on a flat plane, meaning its different ethnic neighborhoods were always “running up against each other”. 

Whatever the cause, the consequences are starkly clear in Cleveland today. Between islands of architectural wonders lies a sea of empty streets and half-occupied buildings. For many Rust Belt residents, such urban blight can become almost pathological, with Heineman witnessing the drug-spurred aimlessness that enveloped his working-class generation. “Symbolically,” he says, “I went to high school with Eminem’s mother and JD Vance’s mom.” Vince Guerrieri, another Rust Belt native who has lived in both cities, makes a similar point. “People will tell you that it’s not healthy to derive your identity from what you do for a living,” he concedes, “but there are a lot of people who became unmoored because they weren’t working at the auto plant or the steel mill. And now they’ve got to figure out what this all means.” If elections in the Rust Belt show any pattern, certainly, they reveal a people dazed by capitalism’s creative destruction. Like a boxer woozy from upper cuts, they bobble from Ronald Reagan and Barack Obama to Donald Trump. 

Pittsburgh is the exception. The lone Rust Belt city to rise from deindustrialization’s ashes, it is also the only one to remain as solidly Democratic as it was in the Sixties. Yet as the Golden Triangle gleams, and the downtown bars are packed, and the Steelers record their 23rd straight winning season, Pittsburgh’s second renaissance isn’t quite perfect. Born to a Rust Belt coal miner, Allen Dieterich-Ward now studies his native region. And if the city’s lost industrial world could be brutal, it did at least offer vast opportunities across the region. Miners dug the coal. Labor smelted the iron and forged the steel. And Pittsburgh’s elites counted the money, with at least one eye on the little guy. For Deiterich-Ward, however, that world of a democratic capitalism is gone. 

The numbers prove him right. Today, 34 of the 100 Pennsylvania towns with the highest per-capita poverty are in the state’s western portion: in other words the Pittsburgh hinterland. One survey of 18-29-year-old rural southwest Pennsylvanians revealed 70% planned to leave. The Ohio Valley, a region anchored by Pittsburgh and Cleveland, leads the nation in deaths of despair. Rural counties that were once the backbone of Pennsylvania’s Democratic Party have swung hard to Trump, not out of racism but despair. “The postindustrial city just does not achieve that level of integration,” Dieterich-Ward adds. “There are pockets of wealth. There are pockets of renewal.” Pittsburgh is just such a pocket — but if the city family thrives, its cousins and uncles seem broken and forgotten. Perhaps, then, modern America can learn from 1979 Pittsburgh: we are family, so let’s act like it.

Tariffs are hardly a MAGA invention, of course. On the contrary, the United States has levied protective tariffs almost from its origins as a nation. Tariffs and import substitution formed one of the central pillars of Alexander Hamilton’s political economy. 

Today, Europe screams about Trumpian tariffs, but the Continent has been reluctant to lower its own historically high protective barriers, most of them based on non-tariff regulatory policies. Canada, too, has been very protectionist and for a long time. Now, after decades in which Washington put global integration over its own workers and industry, America is playing the same game. 

The benefits of Trump’s tariffs will take time to become apparent. Already, they have spurred  companies like Eli Lilly to recommit to domestic production, forced Honda to scrap plans for shifting production of new models to Mexico in favor of Indiana, and prompted chipmaker Taiwan Semiconductor and Samsung to build new plants in Arizona and Texas, respectively.  Likewise, Nvidia, a company that long offshored its production to Taiwan, has committed to multibillion-dollar development projects. 

Still, job recovery is gradual. US manufacturing revival has been a bipartisan goal, pursued in fits and starts, since the Great Recession. As the Reshoring Initiative notes, the country has managed to claw back approximately 1.7 million jobs in an effort to bring manufacturing to or nearer the US homeland. This could just be the beginning. By some estimates, as China rises up the value chain and production costs there increase, up to a third of all Chinese capacity will move away from the Middle Kingdom in the near future. 

This shift gets an unintended boost from the increasingly hostile atmosphere in China, which confronts even big, established firms like the appliance giant Whirlpool, General Electric,   Caterpillar, Goodyear, General Motors, and Polaris. Most recently, Chinese exports to America dropped to the lowest level since the pandemic, driving the trade deficit to $280 billion this year, down from $500 billion under President Joe Biden.

Yet the road from here is by no means easy. One key concern is that firms will merely shift production from China to other third countries. This would be a plus in terms of weakening Beijing as a rival, but only domestic production in key industries can guarantee US economic preeminence and, with it, US geopolitical primacy.

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Like any trend that enriches some, reshoring faces strong opposition from those who benefit from the offshoring trend. You can start with the greens, whose anti-growth ideology and embrace of “net zero” are simply incompatible with industry-led economic growth. Their view boils down to letting the Chinese and their satraps do the dirty work, while America and the West purchase the products from the world’s No. 1 polluter. 

Traditional liberals also find tariffs distasteful, as reflected in most of the business press: The Wall Street Journal, the Financial Times, The Economist, and the like. Most of their favorite pundits detest tariffs and focus on the ill effects on companies and consumers, while largely embracing the current trading regime, as long as financial markets thrive. Libertarians, especially, rail against the very idea of having national policies to encourage manufacturers.

Many mainstream Democrats naturally disdain industry, reflecting the prejudices of their party’s elite professional base. Factories, a Northwestern University economics professor claims, “aren’t the future,” and we can count on our service and tech economies to generate wealth. Christina Romer, who served as chairwoman of the Council of Economic Advisors under President Barack Obama, claimed concerns that building stuff was more important than getting haircuts reflected merely “sentiment and history,” not modern reality.

Then there’s the Democratic Party’s increasingly powerful socialist left — which along with many Silicon Valley oligarchs — prefer welfarism over growth and who have abandoned higher-wage jobs in energy, logistics, and manufacturing as a means to grow family incomes. Many embrace a  universal basic income as a means to palliate a populace made redundant by globalization — in effect, offering handouts, porn, and weed to the jobless children of a once-proud working class.

Of course, China benefited the most from the status quo ante. Since its entry into the World Trade Organization in 2000, the People’s Republic has grown so much that it boasts as many factory exports as the United States, Japan, and Germany combined. 

In contrast, between 2004 and 2017, US reliance on Chinese inputs doubled, a barrage that, notes an Economic Policy Institute study, cost as many as 3.7 million jobs since 2000. Europe’s industrial sector also declined, losing a million manufacturing jobs just between 2019 and 2023. Germany is projected to lose as many 400,000 auto jobs by 2030 through competition with Chinese EVs. Britain, once the world’s industrial leader, has lost 200,000 manufacturing jobs since 2010 and is now only the world’s 12th largest manufacturing power.   

Mass deindustrialization’s effects are not hard to see. Just travel to northern England, the outer suburbs of Paris, the American Midwest, or Germany’s “Rust belt on the Rhine.” All these areas suffer reduced  economic mobility, high degrees of welfare dependence, and mass out-migration. For millions, the loss of such jobs has meant that, as an MIT report put it, the traditional “job escalator” has shut down.

The digital revolution, and the creation of mega-companies in places like Silicon Valley has done little to make up the difference in terms of productivity or social mobility. Nor can services by themselves solve deep-seated social or trade woes. Overall US service exports, including those that go to tech firms, represents less than a third of the country’s overseas sales.  

Needless to say, Chinese manufacturing supremacy under the former neoliberal regime also threatened to bring about Chinese defense and geopolitical supremacy. 

But here, too, a reversal is underway, with new signs of life in the US defense industry. This comes not from the corporate dinosaurs, but a whole wave of new companies. “Innovation starts in the small shops,” notes the Dallas-based venture capitalist Bryan Chambers. Upstart “defense-tech” firms are feeding off a huge surge in investment, including the Army’s current $36 billion procurement overhaul.

Some of these companies, like Denver’s Palantir and Orange County-based Anduril have seized on a change in military affairs resulting from experiences with drone and missile attacks in Palestine, Yemen, Russia, and Ukraine. Equally important, we now see a shift among entrepreneurs toward “hard tech,” essentially AI-assisted hardware, as the best bets for the future.

Likely, the bulk of America’s reindustrialization won’t take place in blue areas like California, due to their high taxes, prohibitive regulations, and high housing prices. The fastest industrial GDP growth is taking place in Texas, Michigan, Florida, Kentucky, Tennessee, Arizona, Ohio, Minnesota, and North Dakota. These are also the states that, according to Supply Chain Digest, offer the best conditions for manufacturers.

If the industrial boom gains velocity, it could mark a massive reversal of fortune not only for the newly industrializing South, but especially for the Midwest, a region that, between 2000 and 2005, accounted for nearly 40 percent of all US industrial job losses. 

Contributing to the production comeback is the renaissance of the US fossil-fuel industry, now producing at a record level. The Permian Basin in west Texas, which by itself is the world’s fifth largest producer of oil, and new production sites in places like Ohio and Pennsylvania provide a critical raw material, cheap energy, for reindustrialization. For example, Shell in 2022 installed a $6 billion methane cracker in Monaca, Pa., to convert the region’s abundant natural gas into plastics.

Antoine van Agtmael and Fred Bakker, authors of The Smartest Places on Earth: Why Rustbelts are the Emerging Hotspots of Global Innovation, see the old industrial belt as the primary beneficiary of a growing interface between manufacturing and technology. Self-driving cars, wearable devices, smart grids, and smart farming all benefit from harvesting a legacy of industrial expertise. For example, Akron, Ohio, successfully reinvented itself from an auto and tire center to a hotbed for polymer research. Other parts of the heartland seem poised to do the same.

Tariffs alone will not bring industry back. After all, Europe and Canada have extensive tariff regimes but continue to lose industrial market share. A concerted drive to reshore requires basic preconditions: the use of new technologies and a better-trained workforce.

New technology and the spread of affordable digital manufacturing tools like 3-D printers enable domestic firms to design, produce, and sell locally, reducing reliance on long supply chains.  These technologies allow American firms to produce better and often cheaper products. In many of these dimensions, the United States is leading or regaining the edge.

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Finding competent workers will likely prove a more uphill battle. President Joe Biden talked about having factory workers and oil riggers “learn to code” but now artificial intelligence, backed by a huge infusion of Wall Street cash, threatens to wipe out many software jobs. But there is a most pressing need for skilled, dependable workers such as drivers, machine-tool operators, and welders who can do basic industrial tasks. The American Welding Society estimates the shortage of skilled welders exceeds 400,000 nationwide.

Pushing all students into four-year programs is one source of the crisis. Schools made a terrible mistake by no longer offering shop classes. Few were encouraged to learn industrial arts. Now many of the most competent industrial workers are over age 45.

Fortunately, an incipient sea change is slowly lowering the age of skilled workers. Shop classes are making something of a comeback, and some states are investing more in skills education, something that engages less than half as many US workers than in Germany. Much of this is occurring in red states in the Midwest and South. One US senator, Tom Cotton of Arkansas, has even suggested taxing ultra-rich universities, once favored for their production of elite professionals, and using the proceeds to fund an expanded apprenticeship program.

Attitudes are changing. One recent survey found that roughly 83% of Gen Z feel that learning a skilled trade can be a better pathway to economic security than college. That includes 90% of those already holding college degrees. Indeed, as college enrollment dropped between 2020 and 2023, trade schools grew by 10 percent.    

To a large extent, these shortages will likely be filled by working-class whites, but also increasingly immigrants and minorities. Today, barely 58% of all working-class Americans are non-Hispanic whites; according to a 2016 Economic Policy Institute study, people of color will constitute the majority of the working class by 2032.     

Even in the rural Midwest, long plagued by shrinking workforces, refugees from places like Bhutan and East Africa have become a critical source of workers. In Fargo, ND, employers routinely call resettlement director Dan Hannaher to inquire about new families moving to the region. Seventy percent of one local manufacturer’s staff is composed of first-or second-generation workers from immigrant families, hailing from more than 30 countries. In Texas, according to a number of recent studies, as many as half of all manufacturing workers are foreign-born.  

The challenge facing these companies will be to turn these newcomers, and the increasingly detached native-born working class, into effective workers, able to employ the new technologies. Today, the West needs these companies, and workers, to be well-compensated, restoring upward mobility as well as productive growth. These people will prove far more critical to the future of the West than social-media influencers or Wall Street wizards. In the 21st century, reindustrialization offers the best hope for economic renewal and revival of a real social democracy.

The stock markets have currently put a high price on these tech companies. But AI is also commanding a high price from America’s foreign and security policy community: it will change the nature of warfare more profoundly than any other innovation we have experienced in our lifetimes. Ronald Reagan’s infamous Strategic Defense Initiative, also known as Star Wars, failed because the old technology could not deliver the precision that was needed. But AI could make it a reality and America’s concern is that China might get there first.

But America also worries that they are leading the charge with AI-powered drones. We think of drones as modern, but those used in the Russia-Ukraine war still need an operator. Imagine, then, if one side had AI-powered drones at their disposal? The West and NATO may be comfortable in their current — swiftly dating — military capabilities. But AI warfare is a completely new game.

And China is already forging ahead in the two areas that will prove critical. The first is the supply of energy — which is vital to power large AI data centers. The West should be concerned by the sheer scale of the expansion of China’s energy capacity. China has a renewable capacity target of 2,461 gigawatts by 2030. The corresponding numbers for the EU and US are respectively 1,100 and 500 gigawatts. For the Chinese, the heavy lifting will come from renewable sources, such as the  world’s largest hydropower plant in Tibet, which will have an energy capacity roughly the size of Germany’s capacity today. Just from one single dam. This dam is not even included in China’s target number.

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AI is furiously energy-hungry. As the car industry has only recently found out, the electric car is not just an evolution — it is a different product. The same applies to anything reliant on AI. Germany’s Rheinmetall is a formidable producer of ammunition and tanks. They make the best tanks in the world. But they are old-school — the heavy-metal version of defense manufacturing. You don’t want to be in one of them when being attacked by a swarm of AI-powered drones.

And so, as China marches ahead, Europe’s absurd data protection regulations and AI regulation effectively criminalize the 21st century’s most important evolving business sector. The Financial Times reported that British soldiers were prevented from using signal jamming on the grounds that it violated GDPR. Europeans have, in general, no idea what damage they are inflicting upon themselves with their absurd data protection obsession. And no clue what it does to their security. In the gilded foreign policy salons of Europe’s capitals, you will not hear much about AI-drones, or satellite-based AI-missiles systems. It is as though AI has yet to be invented in the Western foreign policy universe.

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China, meanwhile, has more energy than we do, puts serious money into AI, and is not regulating itself to death. Take 5G. While we Europeans struggle with it, the Chinese are already developing 6G — the technology which is needed to handle the communications for next generation manufacturing.

This is the second critical area in which China is excelling: high-tech manufacturing. In the US and the UK, the prevailing view is that sophisticated countries should move into services and leave the shop-floor economy to upstarts like China. This is a story we have been telling ourselves for too long. And it is one that economists, in particular, don’t understand. They think it is more efficient to let China do all the manufacturing, for the US to specialize in high tech and finance, and to let Europe be a museum. They are simultaneously oblivious to those voters who want real jobs, to the nature of 21st-century manufacturing, and to security concerns.

The irony here is that the US understands the AI-service economy like no one else. And it still just about leads the world in research. But China has been able to catch up because all the new technology is open-source. As an anonymous employee at Google candidly admitted: “We have no moat, and neither does OpenAI.” Nor does the US. This is not a world of secret algorithms, or of industrial patents. The costs of entry are low — all you need is a bunch of desktop computers with a good graphics card. Anyone can join in. In the old world, the technology leadership meant that the US was years ahead of the competition. No more.

But the threat from China is more sophisticated than just copying our homework. They are better at producing and deploying at scale. Tim Cook, the CEO of Apple, said years ago that his company picked China for its manufacturing not because it was cheap, but because they were good at it. Similarly, Elon Musk built his main European car plant in Germany because they know a thing or two about manufacturing. But there are also downsides — which he has recently discovered — but he still respects the skills. And while Germany’s mid-tech manufacturing economic model is no longer working, there are still skills in Germany and other European countries that may be tapped for a US keen on reinventing manufacturing.

While the US is keen for manufacturing to return to its shores, we must be clear that this doesn’t mean the reanimation of those old blue-collar jobs that were lost in the Rust Belt. This industry will be run by robots, not men, and serviced by robots. This isn’t about jobs. This is about capability.

For the US to acquire these capabilities, it needs allies. The Biden administration did manage to lure Europeans into relocating to the US through the Inflation Reduction Act. And Trump is trying to do the same through his much cruder policy of tariffs. The means are different, but the goal is ultimately the same — to get European companies to invest in the US.

I doubt, though, that Trump’s tariffs will turn the US into an Industry 4.0 manufacturing powerhouse, capable of competing with China. It has taken Beijing 30 years to get from a position of a pre-industrial economy to where they are now. Energy and manufacturing are what matters in this 21st-century arms race. China is streets ahead on both. The only chance the US has in this race is to build a clever alliance. The Riyadh meetings are useful. I still have not heard a plausible plan that tells us where the manufacturing know-how will come from.

Yet over recent years, the details of how this global system works have become opaque. Much of this lack of visibility is a result of physical distance. As wealthy economies became more dominated by services, factory-based activities went overseas, with firms eager to access specialized labor, or avoid tariffs, or to be close to emerging markets. In the UK, and other wealthy economies, we literally and figuratively lost sight of manufacturing.

With this distance came downsides. As manufacturing dissolved into the background of our lives, we became unaware of how fragile our systems for making and transporting things often are, and how environmentally harmful they can be to the planet. If we want to reverse this situation, which we must, the first step is to rebuild our collective awareness of the importance of manufacturing — and our own roles as consumers within this complex, vital web.

Modern manufacturing is extraordinary. Over the past 300 years, we’ve gone through three industrial revolutions and developed the ability to create previously unimaginable volumes and varieties of products: all at high quality and low cost. We’ve also developed ways to ensure that this treasure trove of goods is readily available to a huge proportion of the world’s population with astonishing speed and reliability.

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Our manufacturing systems ensure that medicines are available even in the most remote of communities. It also means we produce enough food to (in theory) feed everyone on the planet, even as we have the ability to transport billions of people by land, sea and air, safely and at low cost. Since the dawn of the internet, it also enables almost instant communication between almost everyone on earth. We can produce all the things needed to keep us sheltered, clothed, fed, healed, educated and safe.

Yet as these systems have grown, they have developed problems. These exquisitely intricate networks of production, connecting thousands of factories from the tiniest job shop to the mightiest mass production plant, have developed some rather alarming “emergent properties”. These are things that were not anticipated, but which have emerged from operating this mind-bogglingly complex system over many years. Fragility is one such emergent property. Think back to 2021, when that 200,000-ton ship, the Ever Given, got itself wedged across the Suez Canal. One error by one person on the bridge of one ship — and 10% of global manufactured goods ground to a halt for a week.

Yet this was nothing compared to the pandemic. We were shocked enough to see supermarket shelves emptying: where did all the toilet rolls go? But then our Amazon orders started getting delayed; then waiting times for new cars started stretching into the following year; then things just kind of — stopped arriving. But while this was inconvenient and annoying, it usually wasn’t life-threatening. For hospitals, though, there were much more serious consequences. We just couldn’t make enough protective equipment, nor could we scale up the production of specialized medical devices needed to keep Covid patients alive. The now-evident fragility of our manufacturing systems had deadly consequences.

Another emergent feature of our complex manufacturing systems is that they are helping to wreck the planet. Building schools, hospitals and homes requires millions of tons of cement each year, and that results in one of the largest single sources of CO2 emissions of any industrial activity. The cement industry produces four times more than all of global aviation. Our manufacturing systems can produce enough food to feed more than everyone on the planet, yet 40% of what we produce never gets eaten.

Huge amounts of resources are used to grow, harvest, process, and transport food that just gets thrown away. The clothing industry is massive, employing over 300 million people worldwide. But this industry’s emissions are greater than all international flights plus all maritime shipping. One third of all raw materials in the textile supply chain end up as waste, and are never used to make actual products. One truck’s worth of clothing per second goes to landfill or is incinerated.

Despite these challenges, however, manufacturing is transforming for the better: and we, as individuals, are at the heart of this change. What do I mean? In an odd way, we’re gradually returning to our pre-industrial past. Over the past three centuries, we’ve moved from “tell me what you want and I’ll make it” localized craftsmanship to mass manufacturing. Thanks to the development of machine tools, interchangeable parts, the assembly line, and automation technologies, companies learned how to make huge quantities of products. The challenge became one of persuading the consumer to want to buy them. This led to the emergence of marketing, advertising, planned obsolescence, consumerism — and, ultimately, unsustainable levels of waste.

But that is now changing. The pervasiveness and rapid advancements in digital technologies allow us to capture and process eye-wateringly large amounts of data on so many aspects of our lives. Thanks to this, and coupled with new technologies such as 3D printers, we are now moving from the era of mass production to one of mass customization — where manufacturers can produce unique products, each designed for the specific needs of millions of individual consumers.

We can already see one extreme example of the future of manufacturing in the way we can treat some types of cancer. Rather than making generic treatments designed for the average patient, CAR-T treatments take cells from individual patients, “re-program” them through some nifty manufacturing processes, then re-inject that unique product back into the patient. It is the ultimate form of bespoke manufacturing, where the consumer is an integral part of the process and product itself.

Mass customization could soon prove useful elsewhere too. By only making a single product for a single consumer, you inevitably end up with less waste. By tightening the link between producer and consumer, it may also make sense to link production and consumption closer together. Shorter, simpler supply chains have the added advantage of reduced pollution and increased resilience. The CAR-T example above illustrates that second benefit. Shipping delicate live human cells over long distances to specialized processing facilities comes with a degree of risk. Much better for the “factory” to be close to the hospital.

Before we reach this nirvana, though, we need to address some fundamental problems with manufacturing here in the UK. Since the Eighties, the number of things that are made here has fallen sharply. As factories were closed, and production moved overseas, we slowly lost much of our national manufacturing infrastructure — the “industrial commons” of skilled workers, local suppliers and investors. As a result, entrepreneurs seeking to grow manufacturing businesses based on the outputs of our robust science base face real challenges.

If you want to scale up a new biotech, or energy system or quantum technology business, you will need specialized technicians and suppliers: not only of components but also specialized services. Then there is the availability of appropriate physical infrastructure: spaces where you can actually run your business with access to the utilities and services needed to make and ship things. In many parts of the UK, accessing those resources and people can be really challenging. Even in science-obsessed Cambridge, lab vacancy rates stand at just 1%; in the “Golden Triangle” between London and Oxbridge, firms are short some two million square feet of research space.

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Yet once again, change is afoot. As a result of Covid — to say nothing of the current geopolitical tumult — we now have a growing appreciation of the value of having stronger national manufacturing capabilities.

It helps, too, that manufacturing is back in the public eye. Especially in our age of roiling change, the economic and social value of having world-leading firms, such as Rolls-Royce or GSK, is increasingly clear. At the same time, we have pockets of excellence that show how we might develop new manufacturing ideas. In South Yorkshire, for instance, there is the Advanced Manufacturing Research Centre (AMRC), where academia and industry are co-located to support the acceleration of new manufacturing ideas. The AMRC is just one of many similar such schemes across the UK.

To ensure that manufacturing has a real impact on supporting national growth, resilience and sustainability, we need more coordination. To deliver that at a national level, meanwhile, the Government will soon release its new industrial strategy, one highlighting advanced manufacturing as a key driver of growth. By making manufacturing more visible, at any rate, we are rediscovering something fundamental: the ability to make things is a vital capability for any national economy and local community that wishes to be resilient, secure and sustainable. And with that restored visibility, hopefully we won’t again forget how vital it is to all our lives.

***

Life Is Manufactured: How We Make Things, Why It Matters and How We Can Do It Better is published by Faber and Faber

Pannebecker represents a key part of Trump’s coalition, and his observation of the death of industry is entirely correct. Where he goes wrong is the idea that Trump will fix the problem. Trump’s policies will surely attract companies back to the US. Yet these won’t be companies United Auto Workers members will work in, or will want to work in. Manufacturing will return — but not Pannebecker’s kind of manufacturing.

What happened in places like Detroit is the consequence of one of the most powerful ideas of economics going horribly wrong: David Ricardo’s theory of comparative competitive advantage. The simplified version of his idea is that countries should voluntarily give up doing things they are good at for things they are better at. This is how the US and the UK got out of manufacturing. It is how Detroit lost car plants, and how China and Germany gained them.

There is one big problem with this idea. It is people like Pannebecker. Ricardo was right in aggregate: the winners of globalization won more than the losers lost. But what matters for politics is that there are more losers than winners. In the language of statistics: economists care about average incomes, or total incomes. Politics cares about median incomes. It is the median voter who swings elections.

While the diagnosis of what went wrong with hyper-globalization is not difficult to make, it is harder to think about what comes next. We live in a world created by a nine-year period of trade agreements that began with the North American Free Trade Agreement between the US, Canada and Mexico in 1992; continued with creation of the World Trade Organization in 1995; and was concluded by China’s accession to the WTO in 2001. Worldwide, these changes brought a massive expansion of global trade. In the US, they triggered industrial off-shoring. This was over 20 years ago, and the world of industry has since changed beyond recognition.

What old industry used to do is take delivery of raw materials like steel or plastics — the “product” referred to by Pannebecker — and work them into a finished product. Plants employed thousands, sometimes tens of thousands of workers. If you live in Scunthorpe, in north-eastern England, chances are that you are a steelworker, or that you have a steelworker in your family. If you lived in Detroit in the Sixties, you were either in the auto business or into music.

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Globalization did not only push companies out of the US and the UK. It changed the way industrial companies work. Modern manufacturing companies are quite unlike those industrial plants of old. It is best to think of them as global supply chain networks rather than companies with a plant and a workers’ canteen. West European manufacturers get their raw materials from China, and recently also from Russia. They get their intermediate goods, which are used in the production process, from eastern Europe and other parts of the Eurasian continent. Many of the plants you see in Germany are final assembly plants. The main job of these plants is to put the Made-in-Germany stamp on the finished product.

Where, after that press conference in the Rose Garden, does that leave European car makers, such as Jaguar, Land Rover, Audi, and Porsche, that sell cars in the US but do not have production plants there? To nullify the tariffs, they would have to build factories in the US, thus reinventing their entire supply chain. Some will do this, but many will not.

The supply chain revolution was the big event in industry in the last 30 years. But there will be another big industrial revolution soon: Industry 4.0. Version number one was the industrial revolution in the late 18th century. Number two was the invention of mass production. Then came the digital revolution. Industry 4.0 is about the digitalization of industry, and it will be epitomized by smart factories.

To understand the concept of the smart factory, recall the Internet of Things. That is the term for the bringing together of physical items into a digital network. Think about the refrigerator that knows the sell-by date of everything that’s inside it. Now apply this idea to a factory. Smart factories will be operated by robots, and they will be full of sensors that will be in constant communication. They will still need raw materials to make stuff, but they will be less reliant on complex global supply chains. This is why everybody in the world, not just Trump, is focused on securing supplies of critical raw materials like lithium and rare earth metals.

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But what really distinguishes Industry 4.0 from its predecessor is the reliance on massive volumes of data, which will be stored and processed in energy-hungry data centers of the kind only China and the US currently have the capacity to develop at scale. It will take another generation of mobile communications, 6G, to be able to transmit the data from the factory sensors to the data centers. The data centers will be powered by cheap energy and supervised by a digitally literate workforce. These factories will still employ people, but these employees will have an educational background closer to that of tech workers in Silicon Valley than that of Pannebecker and his former co-workers.

Of all countries in the world, none is better placed for Industry 4.0 than China. The US might get there too. But we Europeans are hopelessly behind. While we struggle with our rollout of 5G mobile communications, the Chinese are already developing 6G. The Chinese government has just approved the construction of a massive hydropower dam on the Yarlung Tsangpo River in Tibet. The expected output of this dam will be 60 gigawatts, which is about the average annual electricity consumption of Germany. The output will be roughly three times that of the Three Gorges Dam, hitherto the biggest of its kind. The construction of the dam will affect local populations, displace entire villages and submerge ancient monasteries. It will also impinge on the livelihoods of communities that live downstream in Bangladesh and India. But its biggest impact will be on how industry works.

There is no way that a Net Zero focused Europe can compete with this. Germany, for example, was one of the big winners of the global supply chain revolution. But it does not have cheap energy, especially after the closure of its nuclear power stations and the stoppering of its supply of cheap gas from Russia. Nuclear fusion could change the picture, but this is still decades away. Industry 4.0 is not going to wait that long. It will come soon, and it will be powered by dams, American fracking, nuclear power, and gas. If there is one Western country capable of exploiting the commercial advantage of Industry 4.0, it is Trump’s America.

I see a lot of wishful thinking among the macroeconomists and other commentators who keep telling us that Trump’s policies are bound to fail. The German poet Christian Morgenstern once wrote: “For, he reasons pointedly / That which must not, can not be.” I keep an open mind on whether Trump will fail or succeed. But if he succeeds, I am absolutely certain it will come as a total shock.

The most likely avenue for Trump to succeed is through Industry 4.0. It is a scenario that few of his critics have on their radar. This goes especially for economists who are primarily focused on the effect of tariffs on GDP. Their focus might lead us into drawing the wrong conclusions. I myself understood the economics of Brexit when I saw an obscure statistic, published by the Department of Work and Pensions in the UK, according to which the median British voter had suffered a fall of real disposable income in the 10 years leading up to the 2016 referendum. If you stared only at GDP, unemployment and the usual official metrics, you would not have seen this. The Ricardo-indoctrinated economics fraternity did not see Brexit coming, nor did it see the backlash to globalization.

Trump may well underestimate the difficulty of disentangling global supply chains. His tariffs are crude. But I think he is onto something. So was Joe Biden with his misleadingly-named Inflation Reduction Act, a large subsidy program to lure global industries to relocate to the US. Some companies will relocate to the US. Apple has already announced that it will step up production in the US. So has TSCM, the world’s largest manufacturer of semiconductors, based in Taiwan, and Eli Lilly, the pharmaceutical company. What will not come back is old industry, with its unionized shop-floor workers.

One of the 20 ex-colleagues Pannebecker took with him to Trump’s Liberation Day jamboree was Chris Vitale, a third-generation auto worker. He told the Detroit News that de-industrialization had hollowed out his community. This is why Trump got elected. But even if he succeeds in bringing industry back, I fear Vitale’s community may remain hollowed out.

Just after Xi Jinping came to power, the 2013 Third Plenum provided an ambitious programme of economic and policy reforms, but much was diluted or ignored. Xi largely paid lip-service to market-related reforms, but was more interested in Party discipline, greater centralisation of political power, and cracking down on dissent and the free spirits of entrepreneurs and private firms. 

But last month’s Plenum came at a time when China’s economic bliss had started to wane. In recent months and years, even allowing for Covid, the nation’s economic growth has slowed significantly, productivity growth has stalled, and the country has experienced the adverse effects of rising misallocation of capital, over-investment in infrastructure and housing, and a rising burden of debt. The property market boom, which lasted for a couple of decades, is over, and youth unemployment has dramatically soared. Despite calls from economists, including some in China, for measures to strengthen household income and consumption, the government has preferred to prioritise industrial policy and national security. In short, even as previously successful companies like Huawei, Alibaba, Tencent, and now electric vehicle and battery firms such as BYD and CATL, have risen to global prominence, a macroeconomic malaise has descended over the economy. 

Last month’s gathering was, therefore, awaited eagerly. What would the Party say about the trenchant and inter-related issues concerning its faltering economic development model at home, rising trade tensions with the US, the EU and other countries, and the ubiquitous significance of national security and geopolitics?

As usual, the Third Plenum documents, which have since been released, heap praise on the Party for its successes and guidance over the last several years. They proposed 300 or so measures, which the Party hopes to have completed by 2029, and which will help to steer China to become a “high-level socialist market economy” by 2035, en route to becoming the dominant global power by 2049 — to coincide with the centenary of the founding of the People’s Republic. 

One could imagine that great ambition would focus the minds of the leadership on addressing many of the most pressing economic problems, such as job creation for young people or a financial package to stabilise the real estate market and encourage home-buying optimism. In practice, though, the government doesn’t see things this way. At the Plenum, as before, its central message was that national security is as, if not more, important as economic policy, and that the two are inseparable. In one document, Xi expanded on the Plenum’s deliberations by saying that “higher priority to national security provides a pivotal foundation for ensuring steady and sustained progress in Chinese modernisation”, and that China’s industrial system, which is already such a large part of the Chinese economy and global manufacturing, suffers from “over-reliance on key and core technologies controlled by others”. 

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The re-emphasis of this linkage between national security and the economy means that the fundamental tenets of economic policy are not going to change. Reforms will be implemented not to change course, but to underscore existing commitments to the Party’s focus on industrial policy and underpin investment, rather than bolster the consumption share of national income. 

Does this mean it is oblivious to the needs of the Chinese people, or the very serious economic challenges it faces? The CCP certainly wants to improve people’s livelihoods, paying attention to the quality of growth, if not the quantity, and to lowering inequality, improving income distribution, and providing some relief to soaring healthcare costs. There may be other nods to what Xi has called “Common Prosperity”, such as a rise in pension benefits, reforms to the hukou residency permit system that would give social benefits to more of China’s 290 million or so migrant workers, and allowing migrant workers with urban permits to sell their rural land rights. 

However, such initiatives, some of which are already in place, are unlikely to be transformational, and it is noteworthy that there was almost nothing new as far as the beleaguered real estate sector is concerned. Instead, the government insists that collective economic and spiritual prosperity will flow from successful industrial policies, compliant domestic firms, and greater self-reliance. 

Chinese leaders also want to improve efficiency and governance as they continue to develop “socialism with Chinese characteristics”, in which market forces and mechanisms also strengthen the primacy of the public sector and state firms. To this end, one proposal is to pass a “private sector promotion” law. Yet, while this and other initiatives to assure private firms and entrepreneurs might be designed to win back their commitment and enthusiasm, the Party does not mince its words. It wants to bolster state enterprise efficiencies and organisational capacities, insisting on “unswervingly developing the public economy” and a total commitment to Marxism, the CCP and its political goals.

As it makes clear, the CCP is determined to modernise China by pursuing “high-quality development”. This is code for industrial policy, and specifically for allocating state capital towards new technologies and advanced science, especially those deemed key to national security, and defined as strategic emerging industries, such as information, industrial machinery and biotechnology. State-owned enterprises will be in the vanguard of these efforts, while there will be increased state investment, funding and “guidance” over private firms. 

Here, efficiency and profitability are subordinate objectives, if they figure at all. The primary goal is to build up domestic capacity and become less reliant on the United States and its allies, and to develop dominance in science and technology. By so doing, Xi thinks China can also fulfil essential geopolitical ambition, namely to lead what he calls the fourth industrial revolution, and terminate America’s leadership role in the global system. 

The confluence of economic and technological progress on the one hand, and geopolitical advantage on the other is not accidental. The CCP insists that China’s failure to keep up with the pioneers of the Industrial Revolution was due to what it calls the “century of humiliation” — in which foreign imperial powers, such as Britain, Japan, France, Germany and the US, carved up China and imposed damaging treaties and financial hardship. According to this (incomplete) narrative, history will not be repeated and the CCP intends for China to emerge well from what Xi reflects today as “great changes, unseen in over a century”.

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Yet, even though China is the world’s leading manufacturing nation, accounting for about a third of the global total, this high-quality development strategy is not certain, or likely, to deliver the type of economic surge China needs and expects. Aside from persistent questions about the efficiencies, commercial viability, and innovative depth in targeted industries, its rigid political structure, controlling governance, and closely state-run institutions certainly appear to present constraints. It is also running into push-back from other countries — not just the US and EU but also Turkey, Brazil and Indonesia — against the mercantilist trade consequences of its industrial policies. In other words, given China’s already strong export status, it can only bolster its manufacturing and exports by imposing significant trade and economic costs on those to whom it wants to export more. 

And perhaps most damningly, even on the scale on which it is likely to be implemented, China cannot guarantee that it will do two important things. First, its focus on national champions and top-down industrial initiatives are no substitute for a properly integrated technology ecosystem that reaches all parts of the economy, including all the “boring” bits such as wholesaling, retailing and distribution. Second, this type of industrial policy is no panacea for an economy that still needs much macroeconomic care and attention. 

After all, it is not exceptional, historically, for countries to excel in various forms of industrial and scientific endeavour but to be undone eventually by macroeconomic imbalances, debt capacity constraints and inflexible institutions. The USSR in the Sixties and Seventies, and Japan in and after the Eighties, both examples in their own ways. China is shaping up, over time, to probably follow suit. 

A few years after Winn’s excavations, the first furnaces were built, and the Domesday hamlet of Scunthorpe started producing pig-iron. The borough’s old crest features a blast furnace belching flames, with the redolent motto: “The Heavens Reflect Our Labours.” Soon, the county’s companies started turning the iron into steel. By the end of the First World War, Scunthorpe produced 3% of the UK’s steel, some of it armouring the first military tanks, invented in Lincoln; by the start of the Second, it was producing 10%, some of it used in D-Day landing craft.

Since then, Scunthorpe metal has gone into everything from Sydney Harbour Bridge to the London Eye. But this elemental industry is rusting away. British Steel has recurred in the last decade’s headlines, almost always linked to job losses. Now, up to 800 of its remaining 3,200 steel jobs are at risk — a painful reversal for Lincolnshire.

Scunthorpe’s steel was for many years a magnet, attracting workers from all over Britain, and sometimes overseas — Germans before the Second World War, Eastern Europeans afterwards, Asians in the Seventies. In 1960, almost a third of Scunthonians (around 20,000) were directly employed in steel. A BBC documentary from that year, Scunthorpe is Booming, shows a town of bustling streets, with optimistic interviewees talking about all the things they could buy thanks, directly or indirectly, to steel — cars and foreign holidays and “tellies” — although a few did express reservations about the social effects of all this dynamism. Industries sprang up to cater to steel’s ever-lengthening supply chains, and all these new consumers — including Golden Wonder crisps. (Some locals claim the cheese and onion flavour was invented in the town.)

It was Steve Cook who cast Scunthorpe’s last ingots, in 2000. He started at British Steel in 1968 with just four O-levels, and retired in 2007, having risen to the rank of Quality Manager. Sitting in his immaculate house within earshot of the furnaces, he exudes quiet pride: “Scunthorpe was renowned for making one of the best steels in the world, and the name British Steel was synonymous with quality.” He recalls an avuncular employer, which sponsored his studies in metallurgy, then provided a job for life. The town, he remembers fondly, largely revolved around shift-times, with hooters announcing shift-changes. Streets would fill with men on bicycles and then as suddenly empty again, an almost instinctive mass movement of those who were busily forging the future. Now the town’s commuters, faces fixed to their phones, are living in worlds of their own.

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Not everyone enjoyed their time working in Scunthorpe steel. Conditions were hazardous in the early days. In the 19th and early 20th centuries, steelworkers would work 12-hour weekday shifts, and 24-hour shifts on alternate Sundays, with no extra pay even on Christmas Day. Veterans of the Twenties recalled their lunches being layered with fine iron grit. There were frequent accidents: on the worst day, in 1975, 11 workers died when one of the town’s iconic “Four Queens” furnaces blew up. As recently as 2021, a fireball erupted unexpectedly at the British Steel works, although luckily no-one was hurt. Last year, a 27-year-old worker was killed falling from a crane.

And not all the social impacts of the works were positive. Influxes of large numbers of young single men, and the Tartarean thirstiness of their work, resulted in problems with public drunkenness; as early as 1860, extra constables had to be drafted in. Employers took a zero-tolerance approach, with workers liable to be sacked if they had any alcohol on their breath — except for one steelworks, which ran what must have been a highly lucrative “wet canteen” into the Seventies.

A community spirit nevertheless emerged, grounded in shared experience and Methodist morality (nearby Epworth was John Wesley’s birthplace), and reinforced by institutions. Technical colleges and grammar schools, a hospital, a theatre, and an array of social and sporting clubs all began to appear, most famously Scunthorpe United, founded in 1899, and nicknamed “The Iron”. Workers wistfully recall a steely solidarity, with its own vocabulary — casters, feedstocks, gangue, sinter, trunnion — and a confidence borne of mastering dangerous elements for their own and everyone’s benefit. Steelworkers took on an almost mythic quality at times in the popular imagination, brilliantly skilled men silhouetted against incandescent orange, controlling leviathan cranes that swung 130-tonne ladles filled with 280 more tonnes of molten menace. Today’s call-centres, industrial parks, and offices are pallid by comparison.

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When British Steel was born, in 1967, as the British Steel Corporation (BSC), there was much excitement about “the white heat of technology”. Innovations would, it was argued, remould the tired old post-imperial country. BSC emphasised quality over quantity, investing constantly in technical research. Britain had always been a world-leader in steel — but the pace of change had sped up. Some of the cars snapped up by Scunthorpe’s happy Sixties shoppers would have weighed a ton and a half of mostly British-made steel, but cars were becoming steadily lighter and smaller. There was less and less demand for Scunthorpe’s product, even before the whole motor industry went into the doldrums, along with British shipbuilding.

Then as now, successive governments failed to capitalise on British technical ingenuity. Ted Heath hoped that the new local authority of “Humberside”, into which Scunthorpe was lumped in 1974, might be an English Ruhr. But BSC always found itself fighting, often unavailingly, against cheaper Asian imports and other countries’ tariffs. The would-be Ruhr sometimes seemed at risk of becoming more of an American-style rust belt.

Enter: the Iron Lady. In the first two years of her reign, Margaret Thatcher appointed the uncompromising Ian MacGregor as chairman of BSC. Two of Scunthorpe’s four ironworks were closed. A December 1979 announcement of swingeing cuts at Scunthorpe was dubbed “Mr MacGregor’s sick Christmas card” by the town’s mayor, and led to a 13-week strike. But MacGregor was up for a fight, and ultimately, he won. In 1980, BSC had employed 166,000 nationwide, and lost £1.8 billion every year; by the time MacGregor left in 1983, it employed 71,000, and annual losses had been cut to £256m. In 1985, it recorded its best results since the Sixties. Scunthorpe was a crucible of a new economic order, melted and remade by monetarism — but there was a human cost, as in the mining communities of the North. Unemployment nationwide was almost three times what it is now.

Meanwhile, the nation was losing its grip on the industries that built it. Now a profitable company, BSC was privatised, before being absorbed into the British-Dutch Corus Group — the biggest steelmaker in Europe and the third-largest in the world. Corus was itself taken over, just in time for the financial crash, by the Indian firm Tata, which ended up selling it in 2016 to a venture capital firm for £1. After reintroducing the nostalgic name, the firm sold the plant on in 2019 to China’s Jingye Group, which now operates as British Steel. With every takeover, hundreds of jobs were lost; since 2007, Scunthorpe’s annual steel production has halved from 5m to 2.5m tonnes. This most substantial of great British industries is now forced to trust in overseas investors with no stake in the borough, and its rooted community relies on boardroom decisions in Beijing. Britain’s steel production is, after all, something of an afterthought from a Chinese perspective; in 2019, the UK produced just 7m tonnes of steel, compared with the 996m made in China.

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The now barely British British Steel, reeling under high energy costs, is a pressure point for the Government. On the one hand, there is the wish to protect jobs in a “Red Wall” seat, won for the Conservatives in 2019 by the granddaughter of a steelworker. On the other, there is a national commitment to Net Zero carbon emissions, and steel accounts for around 14% of UK industrial emissions. Recently, British Steel has threatened to shed at least 260 jobs at Scunthorpe, and maybe as many as 800 — a quarter of all the jobs left — unless the Government gives it money to invest in greener electric furnaces. The Government has offered £300m, but negotiations appear to be foundering, because the money is thought insufficient, and comes with preconditions about guaranteeing employment for a decade. If all these Scunthorpe jobs do go, many Scunthonians fear they would be followed inexorably by others.

The Government claims to be committed to the industry, although support sometimes seems uncertain, and no new measures were announced in the latest budget. Steel does not contribute much directly to the UK economy — just £2 billion in 2020, when it accounted for 1.2% of manufacturing output and 0.1% of UK jobs. Still, there is strong ongoing and projected demand for steel — for projects ranging from HS2 to healthcare, flood defences to the military — and much of it could be produced here. Better to have our needs met in Scunthorpe than Baoshan, surely.

Industry veterans are sceptical about the Government’s Net Zero priorities. David Amoss, who spent 30 years working in Scunthorpe, points out: “The steel’s still got to be made and it may as well be made in Scunthorpe as in the Far East. I find this carbon footprint thing an absolute distraction and a nonsense. Not that I don’t believe we’re destroying our own planet, but if we don’t do it someone else is going to.” Steel that is not made here will just be made in another country, perhaps one with weaker environmental safeguards, and boosting their economy instead of ours. Steve Cook concurs: “From a global point of view, it’s just shifting the problem elsewhere.” Besides, closing down both furnaces could cost more than £1 billion.

Manufacturing has long been a victim of modern Britain’s focus on service industries over making things the world both needs and wants. “If steel does go, as a manufacturing country we’re buggered,” says Amoss. “I fail to understand how any country can really exist with any sort of wealth if it doesn’t make anything and consumes a lot.” To those who built their lives around industries like steel, today’s Britain can seem an unkind as well as unwise country, ungratefully casting off its past and recklessly mortgaging its future in the interests of expedience and profit.

The story of steel in Scunthorpe is unique, but it echoes that of the North’s, or Wales’s, mining communities. Our nation is replete with towns like this: so strongly associated with its industry that it is almost impossible to envisage existence without it. After 150 years of unglamorous and unrelenting endeavour, Scunthorpe’s whole reason-to-be has suddenly become ethically suspect, its Britain-building citizens at risk of being abandoned. Can a forward-looking national realism, drawing on an old sense of obligation, compete with today’s green and globalised agenda? This time-tempered town is not the only one nervously awaiting an answer to that question.

Almost a century later, America is still not confined to Washington, the Manhattan upper classes, or Silicon Valley oligarchs. America is still the American people — and that is a cause for some hope.

Yes, America is deeply divided and most Americans, with reason, fear the country is decaying both politically and economically. But overall, Americans are far more patriotic about their country’s virtues than in any European country. If the fight over the future of liberalism against China and Russia — a fight that now threatens to turn a cold war into a hotter one — is going to be won, it is here.

America’s cognitive elites may seem enamoured with China’s state-controlled political system, but for much of the country, this remains the land of Jefferson and Lincoln, not the Yellow Emperor. Despite the pandemic, new business formations rose from roughly 3.5 million in 2019 to 4.4 million last year. Self-employment, pummelled at first, has recovered more rapidly than conventional salary jobs; more than 500,000 Americans reinvented themselves as entrepreneurs.

Arguably the greatest test for American renewal lies in manufacturing, precisely the place China has based its ascendancy. Here Trump’s “America First” mantra is echoed in the demands of Biden’s progressive agenda: in just the past three months, Congress has passed The BuyAmerican.gov Act, The Make PPE in America Act, as well as recent legislation banning the import of good produced using slave labor in Xinjiang.

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This is not only good policy but good politics; Americans, at least theoretically, are willing to pay higher prices for domestically produced goods; an overwhelming majority, according to one recent survey, would even fork out 20% more for products produced at home. No doubt this desire to reshore production reflects the pain associated with the mounting deficit on trade goods, which has enriched many of our leading manufacturing companies — notably Apple — but has also cost an estimated 3.4 million job losses since 2001.

That also goes some way to explaining why America’s industrial revival is occurring largely outside coastal affluent ‘mini-Europes’. Between 2017 and 2020, five states — Arizona, Texas, Oklahoma, New Mexico and Nevada — accounted for 30% of all manufacturing job growth. Perhaps more important is the fact that, along with reviving Midwest states like Ohio, Iowa and Indiana, these states tend to have lower taxes, housing costs and less regulation than their coastal counterparts.

And this formula is being rewarded. Almost all the new electric vehicle and battery facilities, demanded most by Democrat politicians, are being built east of the Sierra and Cascades. Meanwhile, multi-billion dollar facilities from Intel, Samsung and Taiwan Semiconductor are popping up in growth states such as Arizona, Texas and, most recently, outside Columbus, Ohio. The impact of such growth cannot be underestimated: thanks to these new technologies, American companies are able to produce better and often cheaper products, crafting parts that, in many cases, have been largely sourced in China and other countries.

This industrial renaissance is critical if the West is to address its ruinous dependence on China — made all too evident during the pandemic and the current supply chain crisis. And yet it is also likely to elicit opposition from our own largely pro-China elites, who seem more willing to appease rather than confront Beijing.

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This is epitomised by Apple’s astounding $275 billion deal with Xi’s regime, an agreement that grants China continued control of production while also selling off advanced technology to the autocratic regime. Meanwhile, Wall Street figures such as Michael Bloomberg, Ray Dalio, Jamie Dimon of J.P. Morgan and even Blackrock’s Larry Fink seem to spot no contradiction between their craven progressive outpourings at home and China’s brutal repression in Xinjiang, Taiwan or Hong Kong — not to mention the Middle Kingdom’s greenhouse gas output, which totals more than the rest of the developed world combined.

At the same time, many of the same pro-China oligarchs also support draconian energy prices that undermine efforts to bring industry back home. Many have adopted the notion of “de-growth”, essentially a policy that seeks to reduce consumption and lower middle-class living standards to “save the planet”. Such campaigns — both corporate and within the clerisy — make little sense if companies end up shifting ever more production to high-carbon supply chains in China.

What makes this even more galling is the fact that now is a time of strategic opportunity for the US, particularly in terms of rising energy prices. Yet President Biden, obsessively seeking to please his green zealot supporters, insists on assaulting US production of natural gas and other fossil fuels. This seems particularly ill-conceived, given the US is the largest producer and China the biggest consumer. There is a competitive edge to be exploited here, not thrown away by begging for cheap oil from Russia or the Gulf states.

Perhaps even more important is another window of opportunity: now is the perfect time for America to attract foreign business. The increased threat of CCP government interference and higher operating costs are causing companies such as Sharp, Sony and Nintendo to begin move out of China — part of an exodus of more than 1,700 companies who upped sticks last year alone. Softbank, the giant Japanese based venture firm, has seen its revenues plummet as its Chinese investments fell due to government clampdowns and has suspended future investments there. A number of American entrepreneurs who came for the Sinic gold rush have pulled out as well, no longer seeing China as at the economic vanguard.

So it is not too late to constrain China and its global string of motley allies, including Putin. But this necessitates accentuating our differences; it means creating better conditions for smaller tech firms, and constraining the oligopolies who benefit from China’s squashing opposition and seek to create their own dominion at home.

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For this is about more than America. Elsewhere in the West, its allies now seem hopelessly passive in the face of bureaucratic control at home, and with many of them willing to accede to authoritarians abroad. Predictions of inevitable American decline have been popular, particularly in Europe, since at least the early Seventies. Yet here we are a half century later, and the US remains the world’s hegemonic economic, technological, and military power.

As Europe is now discovering, no country on the continent, including Germany, has the wherewithal, mentally or physically, to stand up to Putin’s Ukraine gambit — much less Xi’s more menacing attempts to repress Taiwan and Hong Kong. Germany’s boneheaded energy strategy has now effectively turned it into a satrap of the Sino-Russian “neo-Eurasianism” – an arc of autocracy.

Germans and other Europeans may not much like our recent Presidents — nor do I — but is that an excuse to coddle long-time autocrats like Putin and Xi? Whether they like it or not, when searching for the best hope to resist the rising autocratic tide, the West will find only one viable alternative to China’s domination: the United States.

The White House has responded with talk of creating more “robust” supply chains and reviving American manufacturing with its “Build Back Better” agenda. But if Biden is serious about addressing these issues, he needs to understand that this is a decades-long process, unlikely to be fully fixed during his presidency.

Even then, victory isn’t guaranteed. At every step there will be efforts to undermine his attempts by a slew of powerful interests, particularly those US corporations who have based their decisions to outsource manufacturing on narrow short-term profitability concerns, at the expense of acknowledging the strategic value of basing factories at home. And now America is paying the price.

Yet many of the same executives who now bemoan the lack of skilled labour in the US are themselves the architects of this very problem. Unlike their Japanese and German competitors, American firms have repeatedly underestimated the value of integrating their product-design and manufacturing processes. This poses a major barrier for newcomers, particularly in high-end industries such as semiconductors and biotech, as moving part of the the production overseas not only degrades the quality of the product (see Intel as an example), but also enhances the possibility of intellectual property theft.

At home, the impact of decades of offshoring and outsourcing jobs is impossible to ignore: manufacturing plants have been shuttered or scaled back, while many former employees have moved on to other jobs or simply retired. Young people, too, are opting for other careers, while, starved of students, many community colleges and vocational schools have scaled back their technical programmes.

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Many business leaders, including the US Chamber of Commerce, have issued calls for increased immigration to solve the skills gap. But what kind of immigration? Right now in the US, we have an increasingly odd alliance defending today’s dysfunctional status quo. Both the libertarian Right and, increasingly, the progressive wing of the Democratic Party decry restrictions on immigration — the former because it shuts off an increasing source of cheap serf labour, the latter because they view such immigration restrictions as motivated by xenophobia (and also see the new immigrants as a source of long-term political support for their party). Meanwhile, political gridlock has precluded the shift toward a more coherent skills-based immigration policy, as opposed to the plethora of unskilled migrants now flooding the southern border.

The result is the worst of both worlds: relatively uncontrolled immigration of unskilled workers, which in turn inhibits wage growth among lower-income Americans, at a time when US manufacturing is undergoing an exodus. All of which means that high-quality American employment (as measured by the Job Quality Index) diminishes, and wages stagnate for the rest.

Advocates of globalisation argue that the resultant increase in profits to American companies spurs reinvestment, which in turn creates employment. But in many instances, profits are not directed toward domestic re-investment (and, as a result, more jobs), but to increasing investment abroad.

Consider the case of General Motors, which closed five profitable plants in North America — despite being a significant recipient of US and Canadian bailout funds after the 2008 crisis — in order to increase investment in the domestic Chinese market. That is, of course, when they are not using corporate cash to buy back stock and inflate share prices and CEO executive compensation. (By contrast, Toyota relies on suppliers clustered close to its base in Japan, making the company less susceptible to supply shocks or labour shortages.)

As far as redomiciling manufacturing goes, the Biden Administration has advocated a variety of economic measures for companies, such as tax incentives for insourcing. But on its own, this measure is unlikely to induce the requisite shift, as these rewards can easily be matched by the recipient investment country’s government. Hence, the state can and must drive this re-domiciling process in other ways: either via higher government-funded R&D expenditures or  local content requirements (LCRs).

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This may run counter to 40 years of free market orthodoxy in the US; it posits a much more activist role for government in the formulation of national developmentalist goals. But it must happen. Even presidents said to be champions of the free market, such as Ronald Reagan, resorted to managed trade measures in order to safeguard US manufacturing interests and counter foreign mercantilism. More recently, former Treasury Secretary Lawrence Summers has acknowledged: “economic thinking has privileged efficiency over resilience, and it has been insufficiently concerned with the big downsides of efficiency… More broadly our economic strategy will need to put less emphasis on short-term commercial advantage and pay more attention to long-run strategic advantage.”

For whether America likes it or not, the world — particularly in terms of national security — has changed in the 21st century. For most of the post-WW2 period, the United States was the dominant political power. Sustaining that position often meant that trade concerns were subsumed by broader Cold War considerations. The American domestic market was used as a carrot to sustain US political dominance in other regions, notably by creating Asian export dependency on the large American domestic consumer market, often without fully considering the longer impact on US industry.

That strategy succeeded and advanced American geopolitical interests for decades. It was a significant force multiplier — until it wasn’t. All of a sudden it became clear that the United States had failed to use trade to enhance its economy; if anything, it consistently sacrificed domestic economic interests in the service of foreign policy, keeping allies close and prosperous and pressuring adversaries. Today, however, it no longer makes sense for America to sacrifice manufactur­ing to its Asian economic rivals, many of whom are increasingly turning to China as their economic locus.

Absent a coherent policy that emphasises domestic manufacturing, then, American fiscal policy risks becoming a public works programme for the rest of the world. That’s undoubtedly wonderful for workers in China, Germany or Mexico, but hardly does much for the steadily rising casualties of globalisation in the US economy — the country’s blue-collar workers — who have continued to be dismissed as a rounding error.

Neoclassical economics has always recognised that there would be losers from free trade. But in theory, the net welfare gains — the increase in gross domestic product — would be large enough that it could be redistributed so that no one was worse off. In theory, it makes sense. But it is not always true in practice.

The opposite has happened. The gains have not been distributed equally — and American production capabilities and skills have deteriorated as a result.

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It is true that in macroeconomic terms, imports are a benefit and exports a cost (as it means that the exporting country is unable to consume the fruits of its own labour force). But when such trade creates a deficit with a strategic competitor, such as China, it extracts a significant economic cost, as the resultant deficit can ultimately degrade other nations’ industrial capacity and create huge economic vulnerability as a result.

Take the Taiwan Semiconductor Manufacturing Company (TSMC), which has emerged over the past several years as the world’s most important semiconductor company. As the high-tech analyst Jon Stokes has argued, were China to invade Taiwan and seize TSMC, the resultant collapse in semiconductor production could well cause the US economy to crash. The lack of national resilience is precisely the kind of “inefficiency” that globalisation proselytisers seldom consider.

So if the US is truly committed to a policy of building back better, it will require years of industrial reconfiguration and hundreds of billions of dollars — money that is now being deployed wastefully in America’s bloated defence budgets (which both Democrats and Republicans remain determined to feed).

Yes, higher wages and re-domiciling may well lead to higher business costs and possibly higher prices in the short term. But they would also lead to the creation of more disposable income and an invigorated market capitalism, as well as a more socially stable polity as the economic gains would be more equitably distributed. A virtuous cycle would be created: workers would be paid more, competent managers will compensate for higher wages by using more and better machinery, and by improving the way work is organised. This will bring better products, higher productivity and increased profits, which in turn can lead to higher wages.

It won’t be easy. But Biden has little choice. The present is not sustainable: a world of shortages, fragile supply chain links and a degradation of national security interests. If America continues down this path, it will soon face the ultimate inefficiency that economists seldom address: dangerous international confrontations and, ultimately, war.

There were deep-rooted problems here, of which the street-fighting was merely a symptom. Economically, this was a world that had been hit by waves of de-industrialisation, most notoriously during Margaret Thatcher’s premiership, and then, after a period of stabilisation, in the late 1990s. As more and more manufacturing industry was moved to the Far East, so jobs were lost at home. In the eight years between Labour’s election victories in 1997 and 2005, manufacturing output fell from 16.8% of the UK’s economy to just 11.8%, and the impact was felt most acutely in those old towns of the Industrial Revolution in Lancashire and Yorkshire. There weren’t big, dramatic closures that attracted national attention as in the 1980s, just a steady erosion of employment as plants with dozens, rather than thousands, of workers were shut down; places like the Ondura rubber-compound factory in Keighley, or Hillcross Pharmaceuticals in Burnley.

Running alongside this were racial tensions that had again been building for many years. Back in 1989, there had been violent clashes when a meeting in Dewsbury of the British National Party (BNP) was met by an anti-racist rally, with dozens of arrests. The problems, however, were more complicated than the simple antagonism implied by that conflict. In many places, there was rivalry and sporadic fighting between Hindus and Muslims, often sparked by developments in India, as well as conflicts between British Asians and white youths, and between all these groups and the police. Even before the riots in Oldham in May 2001, police statistics showed that there were more racist attacks in the area by Asians on whites than by whites on Asians.

Which is not to say that the BNP weren’t a factor, alongside — according to Labour home secretary David Blunkett — “the Socialist Workers Party and hangers-on who made matters worse and played directly into the hands of the far-Right”. Indeed, it was the presence of the BNP that gave the riots a national significance far beyond the immediate unrest.

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By Alwyn Turner

The party had been founded in 1982, but had amounted to very little until veteran neo-Nazi John Tyndall was voted out as leader in 1999, replaced by the less extreme figure of Nick Griffin. A 40-year-old who’d studied law at Cambridge, Griffin began to reposition the BNP, seeking to create a more electorally acceptable image, emphasising culture rather than race, talking about Europe and crime as well as immigration. His approach soon began to pay dividends.

The 2001 riots raised the party’s profile, and at the general election that June, Griffin stood in Oldham West and Royton, coming third with 16.4% of the vote. The following year, a milestone was reached when three BNP councillors were elected in Burnley. They gave their first press conference on a derelict piece of waste ground surrounded by boarded-up houses in Burnley Wood, and the deprivation of the area was clearly a major factor in the party’s growth. So too was a feeling that the political establishment had failed to remedy the situation. “I only voted for the BNP because Labour isn’t doing anything around here for whites,” said one resident. “Someone has to step in and make sure the whites get their fair share,” agreed another. “I’m disgusted with my Labour candidate. Where the hell was he when we needed him?”

In 2003 a further seven councillors were elected in Burnley — at one point the BNP was (albeit briefly) the official opposition on the council — and there were other successes elsewhere. The national media began paying serious attention.

Two television programmes in 2004 added fuel to the fire. In July, the BBC screened The Secret Agent, a documentary containing undercover footage of BNP members. One boasted of having committed a violent assault during the Bradford riots, another of pushing dog excrement through an Asian business’s letterbox. A third fantasised about machine-gunning Muslims. Nick Griffin also featured, calling Islam a “vicious, wicked faith”. Despite the party’s claims to democratic legitimacy and its new focus on bread-and-butter issues, the violence and racism beneath were still very much in evidence.

The second programme was Channel 4’s Edge of the City, which included the stories of young girls in Bradford who had been systematically abused by gangs of men. One of them, a thirteen-year-old, was said to have had more than a hundred sexual partners. Worse, these cases appeared to be just the tip of an iceberg, with a host of similar instances, widespread pattern of offending. In recent months, one man had been convicted, and others charged. Comparable accounts were also being heard elsewhere, and over the next decade there would be convictions of what became known as street grooming gangs in Aylesbury, Banbury, Bristol, Derby, Halifax, Huddersfield, Newcastle, Oxford, Peterborough, Rochdale, Rotherham and Telford.

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By Sarah Ditum

It was a horrific story, to which was added a racial dimension. The victims were predominantly white, the abusers predominantly of Asian heritage.

Edge of the City was scheduled to be broadcast in May 2004, but was postponed for three months at the request of the police, deeply worried that its revelations might provoke a new spate of race riots. “The broadcast will increase community tension across Bradford with the consequent risk that it will provoke public disorder,” said Colin Cramphorn, the chief constable of West Yorkshire.

And behind that was the fear that, with elections to the European Parliament due in June, the documentary might — in the words of Lee Jasper of the National Assembly Against Racism — “inadvertently act as a recruiting sergeant for the BNP”.

Why would the stories of the grooming gangs benefit the BNP? Simply because so few of those in positions of authority seemed interested in talking about the scandal. It had taken years for the abuse to be uncovered and still there seemed a reluctance to act. There were exceptions, of course, social workers and police officers who expressed concern, but all too often they found their seniors unwilling to pursue the issue.

There were also some mainstream politicians prepared to speak up, most notably Ann Cryer, Labour MP for Keighley, who had conducted her own enquiry even before Edge of the City. Hers was a lonely voice. “There must have been councillors and MPs all over the country who knew what was going on but were terrified,” she said in later years, as the scale of the abuse was uncovered; “terrified of being labelled a racist”. Denis MacShane was the former Labour MP for Rotherham, where there were an estimated 1,400 victims over a sixteen-year period, and he regretted he had not done more, but as a “Guardian-reading liberal leftie”, he was just following the prevailing orthodoxy: “I think there was a culture of not wanting to rock the multicultural community boat.”

The result was that the BNP — who inevitably talked a great deal of the grooming gangs — had a virtually clear field, posing as the defenders of white girls.

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Ulster's lost boys turn violent

By Jenny McCartney

Despite the non-screening of Edge of the City, the party won 4.8% of the national vote in those 2004 European elections. That was less than the Greens and didn’t result in any seats, but it still meant that over 800,000 people had voted for a far-Right party, the largest number since 1979, and twenty times more than the BNP had achieved at the last general election. And there were marked regional variations: support was low in Southern England, Wales and Scotland, but strong in Yorkshire and the Humber (8%). Next time round, in 2009, came the breakthrough, with two MEPs elected.

Later that year, Nick Griffin was invited onto BBC One’s Question Time, a controversial decision that many feared would legitimise the party, though the electorate seemed to have done that already. Certainly the public interest was there: the episode gave the show its highest ever audience figure of 7.9 million viewers. It proved, though, to be the BNP’s high-water mark. Griffin’s attempts at respectability provoked splits in the ranks, while anti-fascist groups raised the level of their campaigning, and the public exposure tended to repel rather than attract new support.

While the electoral threat of the BNP faded rapidly, the damage had been done. In particular there were two consequences of these events. First, the twin fears of appearing racist and of igniting racial violence worse yet than the 2001 riots had left thousands of children vulnerable to appalling crimes. The impression given was that the lives of these girls — many of whom had been in care homes and young offenders’ institutions — were not seen as being significant enough when weighing up political and policing priorities.

Second, much of the public felt betrayed by an establishment that was complacent at best, perhaps even complicit in those crimes.

By the time the full horrors were revealed, the story had also broken of Jimmy Savile’s long history of abuse, again aided by silence in official quarters, which only served to underscore the point. As with the grooming gangs, far too many had turned a blind eye, including — in Savile’s case — the BBC and the NHS, on whose property abuse had been perpetrated. It was hard to have any faith in institutions that had failed so badly.

And it was that sense of betrayal that was the real legacy of the 2001 riots. The looting was bad, but would be eclipsed by the nationwide spate of riots that erupted in August 2011, in which five people were killed. In any event, damage to property can be remedied. The loss of trust was harder to restore, and it fed into a much wider feeling of disillusionment with politicians, the police and the media.

In the wake of the banking crisis, the MPs’ expenses scandal and the revelations of tabloid phone-hacking, this was perhaps the greatest charge of all to be laid at the door of the governing classes: that fear of civil unrest had trumped a primary duty to protect vulnerable children, that silence had been seen as preferable to rocking that “multicultural community boat”.

Alwyn Turner’s All in It Together: England in the Early 21st Century is available now.

Another satirist, every bit as biting, took the opposite view. Jonathan Meades loves Birmingham, its “aptitude for substance over cosmetic style”, its “self-deprecating, unboastful, and peculiarly ironic humour”, and, most of all, its accent: English as it was before the great vowel shift. It is the closest thing we have to Shakespeare’s English; the Bard knew the northern reaches of the Forest of Arden on which Birmingham was sited. Meades asks you to declaim Polonius’s  “Neither a borrower nor a lender be” in Brummie. It makes perfect sense. An all-Brummie Hamlet would be quite the show.

Birmingham not only attracts satirists, it creates them. Christopher Spencer, aka ‘Cold War Steve’, has become the cold-eyed visual chronicler of Brexit Britain and its post-pandemic wasteland. His bleak, biting collages of two-bit celebrities, floundering mendacious politicians, and Harold Shipman, mark him out as the heir to Hogarth, to Rowlandson, to Gillray. He has tapped into the radical, non-conformist tradition of Birmingham.

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Birmingham did not become a city until 1889, when it was already the dynamo of late Victorian Britain. It was a mere municipal borough when it became the “best run city in the world” under its charismatic mayor, Joseph Chamberlain — a self-made dandy, whose fortune derived from screws; a political liberal with a loathing for the aristocracy. In that, he was true Brummie.

Birmingham’s identity was forged, literally, in the sixteenth and seventeenth centuries, the centre of a trading and manufacturing network built on iron and coal from its hinterland — what would become known as the Black Country. It was strongly Protestant: a Brummie, John Rogers, compiled the first authorised edition of the Bible in English and was martyred for his sins in 1555 during the reign of ‘Bloody’ Mary. It became an arsenal for the Parliamentary forces during the Civil Wars, attacked by the Royalist Prince Rupert in 1643 — an event satirised in the tract Prince Rupert’s burning love for England, discovered in Birmingham’s flames.

When Charles II was restored, Nonconformism came under fire. But the Act of Uniformity of 1662 — and the Five Mile Act that followed, banning dissenting ministers from within five miles of a borough — didn’t affect Birmingham, a thriving metropole but an unincorporated one. In fact, the repression worked in its favour, as it became a haven of dissent, nonconformist in every sense, welcoming those who were different. And then it changed the world.

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If we can point to the Ur-moment of the Industrial Revolution, it is surely 1709, in Coalbrookdale, Shropshire, where the Brummie Abraham Darby constructed the world’s first blast furnace using coke — abundant in the Black Country — to make cast iron. The nearby town of Ironbridge made his achievement tangible.

The Industrial Revolution in Birmingham and the Black Country was different to that in the North of England. There, it was about textile manufacturer on a grand scale, chewing and spitting out a low-paid, low-skilled workforce. In Birmingham and the Black Country, it was built on highly-skilled, highly-paid specialisms, incremental and adaptable. In the 100 years after 1750, Birmingham registered three times the patents of any other British settlement. Matthew Boulton’s Soho Manufactory, of which his Soho House residency remains in the city’s North-West, is where he teamed up with Scotsman James Watt to produce an improved steam engine, central to British manufacturing prowess at the time. No more would mankind be limited to the energies of hand, of water, of beast.

Culture accompanied this revolution. Birmingham became a focus for the British Enlightenment, centred on the Lunar Society. Ignoring the barriers between art and science, it often met in Boulton’s Soho House. Among its luminaries were Watt, Erasmus Darwin (who was an influential poet as well as an empirical scientist), Joseph Priestley, Josiah Wedgwood and Joseph Day (who wrote the anti-slavery tract, The Dying Negro in 1773.)

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Political radicalism peaked in Birmingham during the febrile Days of May, just before the passing of the Great Reform Act in 1832; the nation had been radicalised by Thomas Attwood’s Birmingham Political Union. Its vast political assemblies on Newhall Hill were the largest the nation had seen. Lord Durham, who drafted the Reform Act, noted that “the country owed Reform to Birmingham, and its salvation from revolution”. You’ll have heard of Peterloo, because it happened in Manchester, where people shout loud. But the real action was elsewhere.

And it didn’t end there. The Second Reform Act of 1867, which brought some of the male working class into the democratic fold for the first time, was led by MP for Birmingham, John Bright. The street named after him once housed the Futurist cinema, a haven, like the old Arts Lab in Aston, for those seeking European cinema during the 1980s.

By then, Birmingham was suffering. It had been bombed heavily, and inevitably,  during the war — but remained prosperous, maintaining its position as the nation’s manufacturing hub. Until the 1970s, the average wage in Birmingham and its environs surpassed that of the City of London. Preposterously, there were those associated with the Heath government during the early 1970s who thought the region should be levelled down, that it was overheating, that too many people wanted to live there, to the neglect of other cities. They didn’t have to wait long. The assault on manufacturing that began in the early 1980s hit Brum hard. Unemployment, which was 7% in 1979, rose to 20% just three years later. But it is a quietly resilient city.

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Sometimes one wishes that it blew its own trumpet a little more, but bragging is not in Brum’s nature. So I’ll do it. Its great orchestra, the CBSO, is one of Europe’s finest — brilliant at discovering world-class conductors: Simon Rattle, Sakari Oramo, Andris Nelsons, and now the mercurial Lithuanian Mirga Grazynyté-Tyla, whose repertoire is bold and original. She gets Brum and Brum gets her.

Graham Vick’s Birmingham Opera Company is simply the nation’s (and one of Europe’s) finest — a model of innovation, which mirrors the city in its diversity and its radicalism. It has engaged thousands in performances of the highest quality, making use of the city’s industrial spaces and architecture.

Birmingham Museum and Art Gallery has prospered, too, with the arrival, to join its Pre-Raphaelites, of the Staffordshire Hoard. This has been a reminder of the region’s deeper past, rooted in Mercia and the magic of settlements with names such as Wednesfield (‘Woden’s Field), Willenhall, Wolverhampton and, perhaps the greatest Anglo-Saxon name of all of them, Bloxwich, birthplace of Noddy Holder.

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But let’s return to the present, and Cold War Steve. Not all his visions of modern Britain are bleak. He has created one wonderful exception. It’s called Benny’s Babbies, named in honour of the dim-witted character in the little-lamented Birmingham-based soap opera Crossroads, who became the very woollen-hatted embodiment of the Brummie ‘daft’apporth’ in the city’s darker days. But Cold War Steve’s image is pure joy: a collage of the people and places that are Birmingham, crowned by Black Sabbath atop the Rotunda, and the statue of King Kong that became something of a cause célèbre in the 1970s.

Jumbled in this image are the mediocre and the magical, the surreal and stable, and what you realise is the sheer diversity of Brum’s people. The latter is still the city’s greatest strength; it has come a long way from the division of the 1970s, when the population was fired up by Enoch Powell’s Rivers of Blood speech, made in the Midland Hotel in 1968, and stoked by the IRA Pub Bombings of 1974. Birmingham has passed through that fire, thank God, and feels at ease in its diversity. It doesn’t bang on about it, it just is.

Much has been made of late of Britain’s supposed ‘world-beating’ capacities — in trade deals, in vaccines, its test and trace capacity — most of them chimerical. Birmingham — self-deprecatory, modest but assured — represents a blueprint for a better Britain, at ease with itself, less concerned about being number one, just content to be itself.

We are at a watershed moment: the coronavirus Covid-19 is a catalyst fast bringing many long simmering problems to the boil. It is exposing the creaking financial systems around us and it will change the way economies function. Economic and financial pundits, however, have been focusing almost exclusively on the short-term effects of coronavirus and so are missing the much bigger themes at play.

Epidemiologists tell us that when it comes to the virus, we are looking at a once in a century event. It is highly contagious and highly lethal. Experts are not comparing Covid-19 to SARS or Swine Flu, but to the Spanish influenza of 1918 that killed between 50 and 100 million people worldwide.

We do not have good data on what the stock market did during the 1918 flu, but we do know that it led to a severe recession. The connection between influenza and recessions is well documented. Going as far back as the Russian flu in 1889-90, the Spanish flu in 1918, the Asian flu in 1957-58 and the Hong Kong flu of 1968-69 — they all led to recessions. This one will be no different.

But this recession will not only be driven by the economic loss of able-bodied workers, it will be helped along too by the steps political leaders take to avoid the spread of the coronavirus. In medicine, the immune system’s response can often be worse than the disease. When the body goes into septic shock, the immune system overreacts, releasing what doctors refer to as a cytokine flood, which can reduce blood to vital organs and lead to death. Sepsis is common and kills more than 10 million people a year. Today, the political reaction to Covid-19 is causing something akin to a septic shock to the global economy.

The recession is likely to be very sharp but brief. Recessions are self-regulating. De-stocking of shelves and warehouses leads to re-stocking. Collapsing low interest rates and oil prices eventually spur spending and borrowing. Government spending and central bank easing eventually feed through to the real economy. While there will be massive panic and bankruptcies today, there is little doubt that markets will be better in a year, and certainly will be in two to three years,

But the structural changes to how our economy operates, however, will be felt for decades to come. And this is in large part because we didn’t learn the lessons of the last crash.

—

Over the years since the 2008 crisis, central banks have been trying to stamp out every single small fire that flares up (the European crisis in 2011-12, the Chinese slowdown in 2015-16, the slowdown last year); but suppressing volatility and risk only creates bigger fires. Risk is like energy and cannot be destroyed. It can only be transformed.

Forest fires are a useful analogy. California has infrequent, devastating forest fires; the Mexican state of Baja California has many small frequent fires and almost no major catastrophic fires. Both states have a similar climate and vegetation, yet they have vastly different outcomes. That’s because when there are very few small fires, underbrush grows, vegetation increases and creates greater kindling for the next fire. Suppressing small risks only makes them emerge eventually as very big ones.

In politics and economics, massive change events tend to happen not in orderly sequences, but in sudden spasms, like the Arab Spring, or the collapse of the Eastern Bloc. Watching events unfold is often like watching sand grains pile slowly on top of one another until a final, random grain causes the entire pile to collapse. People knew the Arab countries were fragile and that the Eastern Bloc might eventually fall, but predicting which grain of sand would do it precipitate either was impossible.

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2011 birthed the mother of all protests

By Christopher Rhodes

Physicists call these transitions critical thresholds. Critical thresholds are everywhere in nature. Water at moderate temperatures is disorganised and free-flowing, yet at a given critical value, it has an abrupt transition to a solid. It’s the same with the sandpile: one grain too many can trigger collapse — but which one?

In 1987 Per Bak, Chao Tang, and Kurt Wiesenfeld found that while sandpiles may be individually unpredictable, they all behave the same way. The critical finding of their experiments was that the distribution of sand avalanches obeys a mathematical power law: The frequency of avalanches is inversely proportional to their size. Much like forest fires, the less frequent they are, the more catastrophic they are.

It’s the same with financial markets and the economy. We will experience years of quiet, interrupted by sudden avalanche. Years of slowly adding grains of sand can end abruptly — to our great surprise. Today in financial markets, many unsustainable trends have been building, and the coronavirus is merely the grain of sand that has tipped the sandpile.

—

It would be controversial to say that the stock market reaction to the coronavirus would not have been very big had we not been in the middle of an orgy of borrowing, speculation and euphoria. Of course, stocks would have fallen with coronavirus headlines, but it is unlikely they would have crashed the way they did without those exacerbating factors. Furthermore, without enormous underlying imbalances of high corporate debt, the prospect of poor sales would not have driven so many stocks to the verge of collapse.

This aspect of the current crisis has so far gone unreported. But not unmentioned. A few weeks before the crash, Charlie Munger, vice chairman of Berkshire Hathaway and Warren Buffett’s longtime business partner, issued a dire warning, “I think there are lots of troubles coming,” he said at the Los Angeles-based Daily Journal annual shareholders meeting. “There’s too much wretched excess.”

Speculative euphoria was at record highs. As Sir John Templeton once said, “Bull markets are born in pessimism, grow on skepticism, mature on optimism and die on euphoria.” Investors were all on the same side of the boat, and it capsized, as happens in market crashes.

• Investors were buying a record amount of call options, or bets on stock prices rising further. According to SentimenTrader, by early February, “We’ve never seen this level of speculation before. Not even close.”
• Asset managers were betting in record quantities on stock futures, which are instruments to bet on underlying indices. Positioning in S&P futures hit a new high as of February 11.
• Hedge fund borrowing to buy stocks was at a 24-month high. They were highly confident markets would keep rising.

Asset Manager positioning in S&P futures hit a new high as of February 11 in both net contracts and value. S&P futures comprises the bulk of equity futures positioning by these funds.#SPX #NDX pic.twitter.com/OA744Dxzsc

— QF Research (@ResearchQf) February 14, 2020

It was not a coincidence that there was such euphoria. Retail brokerages had announced over the past few months that they were eliminating all commissions on trading activity. Buying and selling stocks was suddenly “free”. It was like pouring truckloads of kerosene on a blaze. At Charles Schwab, daily average trading revenue exploded 74% after the change.

In scenes reminiscent of the dotcom boom, stocks were doubling overnight. Virgin Galactic Holdings, with no revenue, was worth over $6 billion dollars. Tesla, which has never made money selling cars, had a market capitalisation greater than any other car manufacturer. Its stock price quadrupled in less than three months. The market was so stretched that it would have crashed due to its own absurdity — with or without coronavirus.

The source of this “free” trading came from high frequency trading firms that are supposed to act as market makers, executing buys and sells for clients. Except that they are not really disinterested middlemen; they are running their own trading strategies to make money off retail investors. They execute the order flow of so called mom and pop investors and profit from these “dumb money” retail traders, in the words of Reuters.

The brokerages which sell retail orders receive hundreds of millions of dollars in return from the market makers. This means that, essentially the market makers are bribing the brokerages to profit from retail traders. For example, E*Trade received $188 million for selling its customer order flow last year, while TD Ameritrade made $135 million in the fourth quarter alone. The market makers are willing to pay so much because they almost never lose money — they trade fast and know where the market is going.

As Warren Buffet once said, “As they say in poker, ‘If you’ve been in the game 30 minutes and you don’t know who the patsy is, you’re the patsy.’” Retail is the patsy.

Ken Griffin is the owner of Citadel Securities the biggest market-making firm, and his business is so profitable that he has gone on one of the greatest property buying sprees of all time. In 2015 Griffin paid $60 million for multiple condo units in Miami. He paid a U.S.-record $239.96 million penthouse in New York City, a $122 million mansion in London, and over $250 million in Palm Beach properties. Market making against “dumb money” is a fabulous business.

Further reading

The three myths about free markets

By Jesse Norman

As the mania deflated in late February, though, mom and pop were abandoned. As the crash started, market makers pulled back and provided less liquidity. Retail investors were left high and dry. It is no wonder prices fell so quickly.

The high frequency market makers have since been pleading for more capital, and rumors swirl that many are experiencing financial difficulties. The illusion of benign market makers looking after retail investors has vanished.

There are echoes here of the old problems from the Lehman crisis; but they have mutated into different forms. During the Lehman crisis, mortgage bonds were pooled together, and insurance companies and pension funds bought them. Today, retail investors have been buying popular funds known as Exchange Traded Funds (ETFs). These are easy to trade and cheap, but they have a fundamental problem. While ETFs have simple tickers like HYG, JNK, LQD that the average retail broker can trade on their screen, they are really holding hundreds of individual bonds inside of them that the investor is unaware of. These bonds are not easy to trade at a moment’s notice and are highly illiquid. But while the ETFs rose slowly and steadily, and investors poured more money in, lulled by a false sense of security.

While the ETF shares trade daily by the second, the underlying bonds are not easy to trade on their own. In the old days, insurers and pension funds bought these bonds, put them away in a drawer and never traded them. Today, though, investors expect instant liquidity from an illiquid investment. Liquidity mismatches are as old as banking itself (deposits and cash are highly liquid, while mortgages and loans are often completely illiquid); the problems of ETFs have been known all along, and the outcome has been inevitable.

As the coronavirus panic spread, the ETFs started trading at big discounts to the underlying value of the baskets of bonds. Markets are broken, and the gap is a sign of how illiquid the underlying holdings really are.

But these ETFs should never have been allowed in the first place. In the words of Christopher Wood, an investment strategist at Jefferies, “they commoditise equity and bond investing in an insidious way which ultimately creates a dangerous illusion of liquidity. True, ETFs are cheap. But so is fast food.”

While ETFs may appear technical and unrelated to the broader problems in markets, they share the same underlying problem. We have had the illusion of safety and liquidity for some time, and it is the coronavirus that has exposed the gaping holes in financial markets.

—

The coronavirus won’t kill companies. But it will expose their bloated, over-leveraged balance sheets. Corporate debt in companies has never been higher and has now reached a record 47% of GDP.

Rather than encouraging moderation, central bankers and policy makers have been reloading the all you can eat buffet and persuading everyone to come back for third and fourth plates. The European Central Bank and the Bank of Japan have been buying corporate bonds, and central banks have kept funding at zero rates, which has encouraged a massive increase in indebtedness over the past decade.

Central bankers have long promoted high corporate leverage because they see it as a way to stimulate demand. Even now, many economists see no problems on the horizon. In the New York Times, Nicolas Veron, a senior fellow at the Peterson Institute for International Economics in Washington, was openly mocking anyone advocating prudence, “The prophets of doom who thought that more debt was more risk have generally been wrong for the last 12 years.” Like most central bankers for the past decade, he argued, “More debt has enabled more growth, and even if you have a bit more volatility, it’s still net positive for the economy.”

But while debt has encouraged growth, it has also introduced much greater financial fragility, and so the growth is fundamentally unsound. We are now finding out that less debt, rather than lower rates is better for financial stability.

Further reading

The global economy has gone mad

By Peter Franklin

According to FactSet, 17% of the world’s 45,000 public companies haven’t generated enough cash to cover interest costs for at least the past three years. Debt has been used to finance more debt in a Ponzi fashion. The Bank for International Settlements looked at similar economic measures globally and found that the proportion of zombie companies — companies that earn too little even to make interest payments on their debt, and survive only by issuing new debt — is now higher than 12%, up from 4% in the mid 1990s.

Entire industries are zombies. The most indebted and bankruptcy prone industry has been the shale oil industry. In the last five years, over 200 oil producers filed for bankruptcy. We will see dozens if not hundreds more bankruptcies in the coming year. They were all moribund with oil at $50 dollars; they’re now guaranteed to go bust with oil at $30.

Only now, belatedly, are groups like the IMF waking up to the scale of the problem. In a recent report they warned that central banks have encouraged companies to pursue “financial risk-taking” and gorging on debt. “Corporate leverage can also amplify shocks, as corporate deleveraging could lead to depressed investment and higher unemployment, and corporate defaults could trigger losses and curb lending by banks,” the IMF wrote.

According to the IMF, a downturn only half as bad as 2008 would put $19 trillion of debt—nearly 40% of the corporate borrowing in major countries—at risk of default. The economic consequences would be horrific.

Corporate debt has doubled in the decade since the financial crisis, non-financial companies now owe a record $9.6 trillion in the United States. Globally, companies have issued $13 trillion in bonds. Much of the debt is Chinese, and their companies will struggle to repay any of it given the lockdown and the breakdown in supply chains.

We have not even begun to see the full extent of the corporate bond market meltdown. One little discussed problem is that a large proportion of the debt is “junk”, i.e. lowly rated. An astonishing $3.6 trillion in bonds are rated “BBB”, which is only one rating above junk. These borderline bonds account for 54% of investment-grade corporate bonds, up from 30% in 2008. When recessions happen, these will be downgraded and fall into junk category. Many funds that cannot own junk bonds will become forced sellers. We will see an absolute carnage of forced selling when the downgrades happen. Again, the illusion of safety and liquidity will be exposed by the coronavirus.

—

The average family is encouraged to save money for a rainy day, in case they are fired, or they face hardship. Saving some money is considered prudent. It’s quite different for business. Companies pocket the profits in the good years and ask Uncle Sam to bail them out in the bad years. Heads shareholders win, tails the taxpayer loses.

Industry can’t be blamed for not expecting an act of God or force majeure, but in the past 30 years we have seen two Gulf Wars, 9/11, SARS, MERS, Swine Flu, the Great Financial Crisis, etc. Saving for a rainy day should only be expected in cyclically sensitive industries.

But rather than do that, companies have been engaging in a rather more reckless strategy: borrowing to buyback shares. This may boost their Return on Equity (ROE), but it is not remotely prudent and makes their companies highly vulnerable. Borrowing to prop up their own shares means they have less on hand when hard times come.

According to Barons, “Stock buybacks within the S&P 500 index totalled an estimated $729 billion in 2019, down from a record $806 billion in 2018.”

And then along came coronavirus.

Of those industries that are now seeking a bailout, none has saved for a rainy day. Boeing, the poster boy of financial engineering and little real engineering, bought back over $100 billion worth of stock over the past few years. Today it is asking the government for a backstop to its borrowing.

According to Bloomberg, since 2010, the big US airlines have spent 96% of their free cash flow on stock buybacks. Today, they’re asking US taxpayers for $25 billion.

Airline CEOs have been handsomely paid while not saving for a rainy day. Delta Airline’s CEO Ed Bastian made the most, earning nearly $15 million in total compensation. American CEO Doug Parker $12 million, while United CEO Oscar Munoz earned total compensation last year of $10.5 million.

Further reading

Corporate buyback culture is financial engineering not value creation

By Charlotte Pickles

The cruise liners were little different. Over the past decade, Carnival Cruises paid $9.2 billion dollars in dividends to its billionaire owners and bought back $6.7 billion of shares. Royal Caribbean, which is a smaller company, paid out $2.7 billion in dividends and $1.6 billion in buybacks. And the smallest cruise liner Norwegian Cruise Line spent $1.3 billion on share buybacks.

For years, the cruise lines have triumphantly proclaimed massive dividends and buybacks. For example, Carnival proudly announced in 2018. “In just three years, we have doubled our quarterly dividend and invested $3.5 billion in Carnival stock.”

Cruise lines have no real claim to any bailout. They pay no taxes due to a legal loophole, and all their vessels fly the flags of Liberia, Panama and the Marshall Islands. Furthermore, their owners tend to be billionaires with more than enough financial wherewithal to recapitalise their own businesses. Their shareholders are not among the 1%. They’re among the 0.01% of richest people in the world. In the worst-case scenario, the US has a highly efficient bankruptcy process. Bondholders of today become shareholders of tomorrow, and the companies can have a fresh start. Bondholders would only be more than happy to own the equity of these companies.

Banks, too, will inevitably be asking for bailouts before this is over. Banks have among the most aggressive stock buyback programs of any industry, with some repurchasing a staggering 10% of their outstanding shares annually. The eight biggest banks have announced they will suspend their share buybacks for the next two quarters due to the COVID-19 pandemic on the global economy. In 2019, the top eight banks bought back $108 billion of their own stock.

If any good can come of the current crisis, perhaps it is exposing the irresponsibility of share buybacks and lack of prudence of most companies.

—

Monetary policy was one of the mechanisms employed in response to the last crisis, in the hope its effects would trickle down to the unwashed masses. Central banks bought vast amounts of treasuries and mortgage bonds to tighten financial spreads for banks and borrowers, but none of it went directly to households. It was all intermediated by the financial system and those who had access to capital.

The absurdity of the policy was perfectly illustrated recently in Europe. The European Central Bank has been busy buying bonds, and recently it bought bonds from LVMH, the luxury conglomerate owned by the world’s richest man Bernard Jean Étienne Arnault. The bonds had a negative yield, meaning that the ECB was paying LVMH to borrow. LVMH used the ECBs money to buy Tiffany.

If rates are now so low that billionaires are being paid to borrow, monetary policy has reached the limits of its usefulness.

Investors own stocks because their bond portfolios have acted like a hedge. Whenever stocks have fallen, bonds have gone up. In every downturn since the 1980s, central banks have cut rates, but most government bonds now have close to zero yields.

Extremely low interest rates and high valuations mean that any small change in interest rates will make portfolios much more volatile. If interest rates were to rise even slightly, they would vaporise many bond and stock portfolios. The margin of safety in bonds and stocks has diminished rapidly as rates have approached zero.

The world is now upside down. Many investors now buy stocks for current income and buy bonds to trade given how volatile they have become. Things cannot hold.

—

What do high frequency market making, share buybacks and high corporate debt have in common? They are supposedly tools to make trading, growth and returns on capital more efficient and cheaper, yet they have made the system more fragile and less resilient. Perhaps returns on capital and cheapness of market orders and ETFs are less important than stability and anti-fragility, i.e. designing systems that are robust in the face of stress.

We have seen the fragility in supply chains in the recent crisis.When the coronavirus struck in China, suddenly companies everywhere found out that outsourcing all their manufacturing and even medicines and face masks to China might be a problem.

Manufacturing has become less robust, more fragile, even if the returns on capital are better for those companies that outsource everything to China in pursuit of share buybacks.

The lessons of history are instructive. Although planting a single, genetically uniform crop might be more efficient and increase yields in the short run, low genetic diversity increases the risk of losing it all if a new pest is introduced or rainfall levels drop.

Further reading

Have we been played by China?

By James Kirkup

The Irish Potato Famine is one such cautionary tale of the danger of monocultures, or only growing one crop. The potato first arrived in Ireland in 1588, and by the 1800s, the Irish had used it to solve the problem of feeding a growing population. They planted the “lumper” potato variety. All of these potatoes were genetically identical to one another, and it was vulnerable to the pathogen Phytophthora infestans. Because Ireland was so dependent on the potato, one in eight Irish people died of starvation in three years during the Irish potato famine of the 1840s.

The lessons from nature are dire. In the 1920s, the Gros Michel banana was almost wiped out by a fungus known as Fusarium cubense, and banana shortages became a growing problem. The widespread planting of a single corn variety contributed to the loss of over a billion dollars worth of corn in 1970, when a fungus hit the US crop. In the 1980s, dependence upon a single type of grapevine root forced California grape growers to replant approximately two million acres of vines when the pest phylloxera attacked.

Today, China is manufacturing’s monoculture.

—

Against this dangerous backdrop of volatility and uncertainty, the coronavirus will now achieve the impossible. For the past few years, two ideas have floated around on the political fringes of the Left, but they have been dead on arrival. No one has seriously thought they might become government policy. Today, the Left and Right in the United States and Europe are embracing them.

Andrew Yang, a former tech executive from New York, ran a quixotic, obscure presidential campaign in the United States based on the idea that every citizen should receive a Universal Basic Income (UBI). He advocated a “Freedom Dividend”. This would be a form of universal basic income that would provide a monthly stipend of $1,000 for all Americans between the ages of 18 and 64.

Today, Trump, Pelosi, Romney and others are fully backing Yang’s idea. Respected think tanks such Brookings and Chatham House have advocated UBI. But once it is implemented, there will be no going back. Handouts will start small and grow.

The other big idea has come from Stephanie Kelton, who advised Bernie Sanders and advocates for Modern Monetary Theory (MMT). Kelton argues that in any country with its own currency, budget deficits don’t matter unless they cause inflation. The government can pay for what it needs by simply printing more money — no reason to borrow by issuing bonds. Helicopter money.

Further reading

Could free cash fix the economy?

By Peter Franklin

Her ideas were widely criticised across the Left and Right, ranging from Paul Krugman to Warren Buffett to Federal Reserve Chairman Jay Powell.

Yet today, the two ideas have come together. There are no atheists in foxholes. Even libertarians on Twitter are now calling for government intervention. Investors and politicians of all stripes are calling for UBI financed by MMT money issuing.

This is an epochal turning point, a great reset. The coronavirus is the grain of sand that will cause the avalanche.

For once the taboo of printing money to pay citizens is broken, we can never go back. Governments will spend money with few constraints, aided by central banks. It’s a strategy that has not worked well in emerging markets, and it did not work well in the 1970s — which has conveniently been forgotten.

Undoubtedly, the government must compensate citizens from mandatory curfews and quarantines. The short-term impacts of the lockdowns must be mitigated, but temporary policies must not become permanent political expedients.

That’s why the danger is not today or even a year from now, it’s five to ten years away, when the crisis has past, along with the reason for UBI and monetary easing. What politician will be disciplined enough to stop spending? What central banker will raise rates when it is unpopular to do so?

Today we are reaping the whirlwind of the last financial crisis. Rather than pursue lower leverage, less debt and more robust institutions and more responsible corporate behaviour, investors and companies instead learned that they would be bailed out in a crisis.

Central banks became enamoured of their own success as fire fighters, and they have busily been trying to put out fires by encouraging reckless behaviour, prizing low volatility above a robust financial system, viewing “risk management” as preferring no financial corrections ever.

They should accept that sometimes putting out every single fire creates greater conflagrations. They should be humbler about the extent and limits of their power.

It looks like they’re about to learn the hard way.

It’s written from the perspective of a decaying civilisation awaiting the invader. A fatalistic ruling class is resigned to its fate and mounts no defence of their city – except for a display of finery, which they hope will impress their new overlords.

Suggested reading

Why the Matrix needs humans

By Peter Franklin

Their behaviour is both pompous and cowardly; and one hopes they get what they deserve (which in the poem they do, but more on that later).

‘Waiting for the barbarians’ has been interpreted as a satire on authoritarian paranoia – and its deep psychological need for a mortal enemy. But this is a misinterpretation. The poem satirises decadence, not paranoia.

The protagonists don’t so much fear invasion as long for it – seeking exaltation in subjugation. Indeed, there’s a special egotism in seeing oneself as the last in a long line – the culmination of an old order and therefore entitled to give it up without a fight.

Real world examples include the 20th century liberals who saw the triumph of socialism as inevitable. Or the appeasers who would have had us submit to Hitler. Or the post-war declinists who gave up on Britain and begat the euro-submissive establishment.

Today, we can see the same impulse in those who wait not for barbarians, but robots.

There’s a whole industry of experts predicting the obsolescence of the human workforce, displaced by the irresistibility productivity of AI-powered automation. It’s a disturbing, but also beguiling, prospect – a promise of leisure and luxury without limit. I’m half-attracted to it myself.

Suggested reading

Are you ready for 'fully automated luxury communism'?

By Peter Franklin

But is it inevitable? Writing for Bloomberg, Noah Smith sounds a sceptical note:

“The truth is, nobody knows how many jobs will be replaced by automation, or how automation will affect wages and inequality. There’s the possibility that AI, rather than replacing workers, will mostly just allow them to do their jobs more easily. And even as some jobs are eliminated, new ones will pop up, possibly at higher wages. That may involve painful, stressful transitions for people who have to switch jobs, but it doesn’t represent a robot apocalypse…”

It’s not that the relevant technologies aren’t already making advances. But whether they’re destroying jobs or not is an open question:

“…some countries that use more industrial robots, such as South Korea, Germany and Japan, have unemployment rates as low as or lower than that of the U.S.”

Exhibit A in the case that robots are replacing us is what happened to manufacturing employment in the 2000s. In America, a third of all factory jobs – nearly 6 million – were lost. As noted by Gwynn Guilford in an article for Quartz last year, there is no precedent for this rate of attrition, not even the Great Depression of the 1930s.

In seeking to attach blame, technology is an obvious suspect; but there is a plausible alternative – competition from, and offshoring to, low cost manufacturing economies (especially China). So how do we decide between them?

The standard view is that despite the job losses, there was a substantial rise in US manufacturing output in the 2000s – showing that America automated its jobs away (as opposed to exporting them to China). But as Guilford explains, the output statistics are misleading. That’s because they’re adjusted for the exceptionally rapid rate of product improvement in the computers subsector (Moore’s Law and all that):

“…the method statisticians use to account for these advances can make it seem like US firms are producing and selling more computers than they actually are. And when the computers data are aggregated with the other subsectors, the adjustment makes it seem like the whole of American manufacturing is churning out more goods than it actually is.”

Strip out this adjustment and the “apparently robust growth in manufacturing productivity is mostly a mirage”, which means we’re not looking at a productivity miracle:

“To be clear, automation did happen in manufacturing. However, throughout the 2000s, the industry was automating at about the same pace as in the rest of the private sector. And if booming robot-led productivity growth wasn’t displacing factory workers, then the sweeping scale of job losses in manufacturing necessarily stemmed from something else entirely.”

So that brings us back to China and some hard questions about the terms of trade and globalisation. This is Trump territory, but only because the ground has been vacated by more moderate politicians.

It’s all too convenient for those who do well out of globalisation to conclude that those who don’t are the victims of unstoppable technological change (as opposed to factors governments can do something about). Indeed, in the long-term, we needn’t worry about the world of work at all, if we assume there won’t be one. We can just theorise about things like ‘post-work’ and universal basic income instead. But what happens when it becomes clear that machines won’t be replacing us after all?

Sod the singularity, we must assume that the future of work will remain in our hands. When it comes, and if we’re still in charge, we’ll look very stupid if we have no idea what to do with it.

Suggested reading

The most influential religion you’ve never heard of

By Peter Franklin

At the end of ‘Waiting for the barbarians’, some terrible news reaches the city from the frontier: there are no barbarians. The confused citizens return to their home, wondering what to do now the invaders aren’t coming:

“They were, those people, a kind of solution.”

Contrary to expert opinion, America has been adding hundreds of thousands of manufacturing jobs in the past two years. Last year, the nation’s manufacturers added 284,000 jobs – the most in any year since 1995. That comes on top of the 207,000 additional jobs in 2017, itself a reverse of patterns in the final two years of the Obama Administration.

Trump might not deserve the credit for this, but the timing of the gains strongly suggests he does. Federal government data shows that manufacturing jobs started to increase in December 2016. The gains continued throughout 2017, and accelerated in late 2017 after it became clear that the President’s large corporate tax cuts were likely to pass Congress. Correlation does not prove causation, but it’s hard to imagine what other circumstances were more important to manufacturing’s health than Trump’s election and his agenda.

Suggested listening

Is Trumponomics really helping blue-collar workers?

By Henry Olsen

The problem for Trump, however, is that the Rust Belt is not getting the bulk of those new jobs. Data shows that less than 89,000 of the 503,000 manufacturing jobs gained since November 2016 were in the five Rust belt states whose switch from Obama to Trump decided the election.[1. (Wisconsin;  Pennsylvania;  Ohio; Michigan;  Iowa.] Moreover, the number of jobs varied significantly among these states. The smallest of the five states, Iowa and Wisconsin, obtained nearly half of the new jobs. The largest, Pennsylvania, gained just 7,700 new manufacturing jobs, barely a ripple in the state’s large economy.

The uneven distribution of jobs can also be seen within the Rust Belt states themselves. Ohio, for example, has gained over 21,000 manufacturing jobs since Trump’s victory. Yet the hard-hit Youngstown area, site of many closed steel mills and a region with some of the largest swings towards Trump in 2016, has actually lost 2,100 manufacturing jobs in the past two years.

Suggested listening

Trump's white identity politics

By Lynn Vavreck

Michigan, which Trump won by only 11,000 votes, has received nearly 16,000 new manufacturing jobs since he won. But 7,000 of them are in the Grand Rapids and nearby Muskegon regions. Long troubled areas like Flint, meanwhile, are experiencing a continued loss of coveted manufacturing work.

The states really benefiting from the manufacturing upsurge, perhaps not surprisingly, are mainly the same ones which were growing quickly before Trump.[2. See data.] Texas, America’s second largest state, has added over 56,000 manufacturing jobs during the Trump era. The fast-growing Southeast has added another 62,000; while Arizona and Nevada – which have grown rapidly over the past two-plus decades – added more than 30,000. Even tiny Idaho, which is about one ninth the size of Pennsylvania, has added 6,000 manufacturing jobs under Trump – nearly as many as the once-great Keystone State itself.

This gap highlights one of America’s most pressing political challenges: how to ensure that growth is widespread. As in many Western countries, America’s economic growth for the past decade has primarily occurred in large metropolitan areas, and has mainly benefitted people with more advanced education.

Increases in manufacturing jobs are intended to help ‘spread the wealth around’, as they are more often filled by people without college or post-graduate degrees. But if the jobs these people can fill are not going to the places they live, then that’s a problem.

Suggested listening

Why the Democrats need the Deplorables

By Henry Olsen

People could, of course, move to fill these jobs, but the evidence suggests that this is not happening quickly enough. Fast-growing Texas, for example, gained a net 467,000 Americans in 2017. Only 35,000 of these, or about 5%, came from the five economically hard-hit Rust Belt states mentioned above. That is far below the 13.3% of the population that the five states comprise.[3. See Table 1]

This strongly suggests that rather than move in search of economic opportunity, many Rust Belt residents are staying put, adding to the political tensions caused by living in towns and areas that are no longer vibrant.

Of course, two years is a very short time in which to change the economic trajectory of a large country. It may be that the significant uptick in manufacturing job growth seen in 2018 will accelerate in the coming years and be more evenly spread throughout the country. That could start to turn around depressed Rust Belt cities, and in the process help Trump’s re-election chances by demonstrating that he could keep promises that national elites thought foolish from the start.

If that does not happen, however, Trump’s re-election chances will likely suffer even if aggregate national growth figures look healthy. The people who put their faith in him may have signed on to a campaign that intended to “Make America Great Again”, but what they really wanted was to make their lives great again. If Trump fails to do that, big job gains in other parts of the country won’t matter to the folk whose dashed dreams are symbolised by the shuttered factory around the corner.

Suggested reading

How politics is poisoning the truth

By Graeme Archer

The quotation is attributed to Napoleon Bonaparte, who knew a thing or two about moving the world. His words have been endlessly re-quoted – in countless articles about the irresistible rise of today’s China as an economic, technological and military superpower.

It’s not all hype, of course. Many of the ‘killer facts’ really are true. For instance, China really did use more concrete in three years (2011-13) than America did in the entire 20th century.

But however impressive the scale of Chinese investment and technology, it’s important to realise that the People’s Republic is not omnipotent.

Consider the Belt and Road Initiative, a vast programme of actual and proposed infrastructure investment designed to link-up markets across the Eurasian landmass and beyond. In theory, the sum total of investment could reach $8 trillion; in practice the initiative is already running into trouble.

Further reading

China is railroading its exports through Europe – literally

By Peter Franklin

Writing for Bloomberg, Mihir Sharma, focuses on the political backlash against China’s BRI investment in Malaysia:

“In many ways, China’s stumbles in Malaysia are exactly what BRI skeptics had always warned would happen in countries across Asia. Projects that might be easy to execute in China would run into delays and cost overruns in less-regimented countries; growth in debt, deficits and Chinese immigration would spark political opposition; and, when a new political leadership cancelled those projects, bilateral and multilateral tensions would spike.”

Malaysia is not alone. Other Asian and European countries are also having second thoughts:

“China has a capital surplus that needs to go somewhere. But, if it wants its investments to be sustainable, China will have to behave in these countries a lot more like the Western capital it seeks to displace. That means being cautious, cooperative with local capital and civil society, and respectful of political sentiment, even from dissidents.”

Needless-to-say, democratic give-and-take isn’t exactly exactly a ‘core competence’ of the Chinese government. The input of western partners in the Initiative is looking more important than ever.

Further reading

How Brexit Britain could help China build a new world

By Peter Franklin

Another area in which Chinese economic policy has had a shock-and-awe effect is state investment in leading-edge technology. Examples include quantum computing, artificial intelligence and driverless vehicles.

The gaps in China’s technological prowess get rather less attention. Here’s an earlier Bloomberg article, in which Adam Minter highlights an especially surprising example:

“Semiconductors are the building blocks of electronics, found in everything from flip phones to the servers that make up a supercomputer. Although China long ago mastered the art of making products with semiconductors produced elsewhere (the iPhone is the most famous example), it wants to move beyond being a mere assembler…

“…China is currently the world’s biggest chip market, but it manufactures only 16 percent of the semiconductors it uses domestically.”

Further reading

China’s taking a quantum leap in its tech rivalry with the West

By Peter Franklin

With western trade policies taking a Trumpian turn, acquiring chip technology from other countries is going to be harder than ever. However, developing the technology at home also presents a challenge:

“For decades, labor-intensive industries – such as assembling mobile phones – were the route to riches in China, attracting investment from entrepreneurs and bureaucrats alike. Making semiconductors, by contrast, requires billions in up-front capital and can take a decade or more to see a return.”

Minter gives the example of Intel which invests billions of dollars in R&D every year. As important as public investment is at the very frontiers of technology, one has to question whether the state can substitute for product-orientated innovation by companies who know their business better than any government could. For all its flaws, the western model of capitalism still has some key advantages. 

Of course, in questioning the idea of an unstoppable China it is important not to go to the opposite extreme. Despite its many problems, including horrendous pollution, growing personal debt and its deep social inequalities, China is a giant, it is awake and it will continue to move the world.

Then again, that makes the country’s weaknesses all the more important.

Further reading

Communist China's class-ridden society

By Peter Franklin

What I should have added, however, is that the company is based not in London, but Coventry in the West Midlands.

The Midlands are part of Britain’s ‘flyover country’ – the equivalent of rustbelt and red state America. Or at least that’s the way they’re seen by the metropolitan elites, for whom ‘the provinces’ are an economic and cultural drag on London’s global success story. To the extent that the ‘national’ media covers the rest of the county, it is to report on bad news.

Fortunately, there are some honourable exceptions and one of them is Tom King of Sky News, who writes about the good economic news coming from the Midlands:

“Just one national newspaper has bothered reporting plans from Meggitt, the defence and aerospace contractor, to build a £130m ‘super-site’ in Coventry that will support a similar number of jobs.

“Elsewhere in that city, Chinese company Geely recently opened a £325m facility to build electric taxis, employing 1,100 people.”

While the London establishment frets over Brexit, the Midlands have been getting on with business :

“During the three months to the end of February, the biggest drop in unemployment anywhere in the country was in the West Midlands.

“The East Midlands, meanwhile, has an unemployment rate lower than the national average.

“And both are seeing more job creation than anywhere in the country outside London. Between September 2016 and 2017, the most recent regional comparisons available, 74,000 jobs were created in the East Midlands and 95,000 in the West Midlands…

“Both regions remain strong in manufacturing with more people employed in ‘production’ in the East Midlands, as a proportion of the labour force, than anywhere else in Britain.”

As more and more people discover that the Midlands are capable of supporting human life, property prices there are heading upwards – though, happily, they remain far below the vitality-destroying levels of the capital:

“The estate agency and property consultancy Knight Frank published a report late last year, entitled ‘The Birmingham Boom’, highlighting the significant number of new businesses being formed in the West Midlands and in Birmingham in particular.

“It cited how the city has become the destination of choice for businesses relocating from London due to the cost of the latter…

“The best-known example is HSBC, whose ‘ring-fenced’ UK bank will be headquartered in Birmingham, involving the relocation of 1,000 well-paid jobs to the city.”

Could we be seeing a structural change in the UK economy – a long-term economic revival of the country beyond south east England? It is striking that, since 2010, the previously chasmic north-south gap in job creation has all but disappeared.

Certainly, it’s vital that the media wakes up to the economic potential of the Midlands and the North. For several decades, politics has been distorted by a narrative that locates the UK’s economic future in only one part of the country. As a result, undue emphasis has been placed on indicators like the buoyancy of the London housing market and its stock exchange.

That’s why successive UK governments have been overly-welcoming of speculation in UK property and dubious take-overs of UK companies. Not only have such ‘investments’ done nothing (or worse) for productivity, they’ve sucked-in exchange rate distorting flows of foreign capital. The long-term consequences of an artificially overvalued Pound can be seen in the UK trade figures – and in the damage done to those parts of the country that are especially dependent on manufacturing.

Following the financial crisis, and then Brexit, there have been ‘corrections’ to the value of the Pound – helping to redress the balance. However, in the long-term we need a geographically-unbiased economic policy.

We live in a political culture where policy follows PR. That’s why it’s so crucial that the media reports on economic good news from all parts of the country. Politicians love feel-good stories, especially those they can associate themselves with. If these can be had from locations beyond the Great Wen, economic policies will be tailored accordingly.