In the 1960s, the “People’s Republic” of Berkeley was a hotbed of liberal ideology. Teeming with radicals and intellectuals, these people and this place would make significant contributions to the era’s iconic countercultural movements. It was in this liberal renaissance that two newly-arrived Americans would meet, marry, and procreate.

Donald was born in Browns’ Town, Jamaica, and his wife Shyamala was born thousands of miles away in Tamil Nadu, India. Fate brought them together at Berkeley. Donald received a prestigious scholarship from the British colonial government in Jamaica that traditionally funded doctorate education in the United Kingdom. But he broke precedent and lobbied to have his award used for his intended studies at Berkeley after reading about its students’ involvement in the Civil Rights Movement. In pursuit of a career more aligned with her natural abilities, Shyamala applied to Berkeley’s nutrition and endocrinology master’s program on a whim after studying homemaking in Delhi.

Both of these immigrants sought opportunity in America. Donald sought to break free from the ‘static rigidity of pomp, ceremony and class’ that accompanied his colonial Jamaican upbringing, while Shyamala wanted to avoid the pigeonholes and glass ceilings that would likely hinder her mobility in India. They both found what they were looking for at Berkeley, and they also found each other. Before separating and achieving esteem in their respective fields, Donald and Shyamala would have two children together: Kamala and Maya.

The Harris family’s immigration story is special but it is not singular. The zeitgeist of 1960s America was more similar to the People’s Republic of Berkeley than it was different. The 1965 Immigration and Nationality Act (aka the Hart-Celler Act) abolished national origin quotas and made the immigration process immensely easier for people from Asia, Latin America, and Africa.

Specifically in Donald’s home region of the Caribbean, the Act enabled an outflux of emigrants to America that mirrored a similar exodus of emigrants to the United Kingdom starting in the 1950s. That migration wave to the UK was driven by the British Empire’s massive rationalization during the post-war decolonization period. In the UK, these mid-20th century Caribbean immigrants are referred to as the Windrush generation since one of the first ships to ferry them to the United Kingdom during this period was named the HMT Empire Windrush.

In America, though we have no name for our Windrush generation, these people and their progeny exist here. Donald, Kamala, and Maya Harris are emblematic of America’s first and second Windrush generations. Other notable figures from the Windrush generation and their immediate offspring include:

• Al Roker: Television personality. Al Roker’s father immigrated from the Bahamas to New York as a child with his mother sometime between ~1932-1950, making Roker’s father and grandmother early members of the first American Windrush generation.

• Stokely Carmichael / Kwame Ture: Activist and pan-Africanist. Carmichael / Ture immigrated to America from Trinidad and Tobago in 1952 at 11 to join his parents who had immigrated themselves in 1943, making him and his parents members of the first American Windrush generation.

• Christopher Wallace / The Notorious B.I.G: Rapper. Christopher Wallace was born in 1972 to Voletta Wallace just a few short years after she had permanently immigrated to New York from Jamaica in the 1960s, making The Notorious B.I.G. a member of the second American Windrush generation. He was one of the most prolific and high-profile Rap / Hip-Hop celebrities of the 1990s.

• Voletta Wallace: Philanthropist & music executive. After her son’s sudden and tragic death due to music industry-related violence in the late 1990s, Voletta made a name for herself as a steward of The Notorious B.I.G.’s legacy, reportedly growing her son’s estate from a value of ~$10 million at the time of his death to ~$160 million by the time of her own passing in 2025. Voletta was also a schoolteacher in Brooklyn for many years.

To be clear, the impact that this mid-20th century wave of Caribbeans has had on America goes beyond a shortlist of a few notable figures. Using Jamaica as a proxy for the broader anglophone Caribbean (since pre-1965 Immigration and Nationality Act immigration data for other Caribbean countries is not available), immigration from the region grew by 176% from 1960 (25,000 immigrants) to 1970 (69,000 immigrants). Entire American communities, especially across the I-95 corridor, have been established by members of the Windrush generation and their descendants. A particularly fascinating manifestation of the Windrush generation’s impact on America is the heavy presence of Caribbean workers at JFK Airport. The airport neighbors New York’s Queens and Brooklyn boroughs, both home to several hundred thousand Caribbean-Americans, many of whom can trace their presence in America back to a member of the American Windrush generation.

The story of America’s Windrush generation is important and deserves more attention because it highlights important distinctions not only in communities of black Americans, but also among communities of more recent immigrants to America from the various parts of the developing world.

Because American Windrush generation immigrants and their descendants are 1) small in number relative to other recent immigrant groups like Indian- or Chinese-Americans, 2) better equipped for assimilation given their language and cultural backgrounds in former British colonies as well as 3) (pertaining to black American Windrushers specifically) their physical features that are largely indistinguishable from other black American groups, the American Windrush generation and anglophone Caribbean immigrants more broadly are often more ‘invisible’ than other recent immigrant groups and more easily bucketed into America’s existing racial and ethnic imaginary.

Obviously this invisibility is advantageous for immigrants trying to fit into a big, bustling new country. But this invisibility also has its negatives. Using the American ‘melting pot’ as an analogy, its more numerous and blatantly different flavors generally overpower the subtle but vibrant spices of the Caribbean’s small island nations.

Regardless though, the beautiful thing about even the smallest of communities is that with time, they grow exponentially. The first and second American Windrush generations have already contributed so much to various American and global movements. Future Windrush generation descendants are bound to be both more populous and more equipped at navigating the complexities of American life that make achieving the ‘American Dream’ so paradoxically, simultaneously elusive and within one’s reach.

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Solar panels were first invented in America by Bell Labs in the 1950s. Despite America’s early technological lead, Chinese companies have been the largest producers of solar panels since at least 2010. Similarly, modern personal drones were first introduced by a French company in 2010, but China’s DJI had become the world’s dominant drone manufacturer by as early as 2015. There are numerous examples of this phenomenon in industries broadly categorized as ‘emerging technologies’: the west is first to innovate, while Chinese firms are often more successful at achieving and sustaining scale. Many macroeconomic factors partially contribute to this phenomenon’s existence, but the development priorities of either bloc’s innovation ecosystems are also important drivers of Chinese firms’ tendency to surpass American firms that initially possess an advantage in a given emerging technology.

While the American innovation ecosystem prioritizes a ‘build first’ approach focused on establishing and protecting IP, developing in private, and developing for longer, the Chinese innovation ecosystem prioritizes a ‘build fast’ approach focused on open-source development, developing in public, and rapid commercialization and scaling to quickly determine the existence of product-market fit for emerging tech companies.

The reasons for these differences in development priorities across American and Chinese innovation ecosystems are largely structural. Traditionally, America’s innovation ecosystem has focused heavily on the funding of basic research and fundamental technology breakthroughs, necessitating long periods of losses and many funding rounds until the emerging tech company could sustain itself. While the history of China’s innovation ecosystem is not dissimilar, it is younger and venture capital is shallower — America’s largest ever startup round was OpenAI’s $110 billion round in the first half of 2026, while China’s was Deepseek’s first-ever external funding round in June 2026, totaling just $7.4 billion. American emerging tech firms can afford longer runways to profitability and even revenue due to deep capital markets and relatively patient capital providers, while Chinese emerging tech funding is more sparse. These forces act as an early push for Chinese firms towards cost-efficiency and revenue scaling to fund development, since the cushion of deep and forgiving capital markets is not as readily present in China as it is in America.

The U.S.-China humanoid race, encapsulated largely by America’s Boston Dynamics and China’s Unitree, is an exemplar of the differing ‘building fast’ vs. ‘building first’ approaches at play. Founded in 1992, Boston Dynamics developed the world’s first truly dynamic anthropomorphic robot in 2012 and has been at the vanguard of humanoids ever since. Despite Boston Dynamics’ first-mover advantage though, Unitree has become the world’s largest humanoid manufacturer, with 5,500+ units shipped globally in 2025 and $82.3 million in profit. Conversely, Boston Dynamics’ humanoid is not yet available for sale, and the company’s large R&D expenses mean significant operating losses, though these losses are absorbed by Hyundai, its parent company since 2020 and sole owner since June 2026. Although Boston Dynamics plans to begin shipping its humanoid in 2026, its price point of ~$150k is ten times higher than Unitree’s price point of ~$15k, and Unitree’s prices are expected to lower even further due to intensifying competition amongst Chinese humanoid manufacturers (e.g. AgiBot, Galbot, etc.).

Driving the order of magnitude price difference between the two companies’ humanoids is Unitree’s ‘extreme cost control,’ manifested through leveraging China’s sprawling domestic hardware supply chain and economies of scale attained through large-scale mass production. In further alignment with the ‘build fast’ approach, Unitree has open-sourced its large world model (LWM) for distributed embodied AI development and has also incorporated open-source features in the operating systems of its humanoids. Additionally, while Boston Dynamics first introduced the world to real humanoids with captivating YouTube videos of its robots in action in the laboratory, Unitree has augmented that exposure strategy by taking its robots out of controlled environments and placing them in live and competition events, like the Spring Festival Gala and World Humanoid Robot Games, generating significant spikes in sales and consumer interest as a result. Meanwhile, though Boston Dynamics is undoubtedly making development progress including transitioning to a fully-electric humanoid system, it is more difficult to gauge competitiveness of and consumer interest for its robots since building in public, uncontrolled environments is less common in the west.

Both the ‘build fast’ and ‘build first’ approaches ultimately achieve innovation, but the means through which they achieve it necessitate different macroeconomic factors for success. In addition to the structural differences in capital mentioned earlier, the Chinese Communist Party’s (CCP) State Council published a high-level directive in 2025 that explicitly identified developing open-source AI projects and development tools with global reach and influence as a national aim, demonstrating strong support along the political dimension for a ‘build fast’ approach. In Promoting Advanced Artificial Intelligence Innovation and Security, Trump’s Executive Order 14409 from June 2026, the administration espouses support for a policy of collaboration with the private sector to ‘protect American ingenuity and intellectual property from exploitation and theft by adversaries,’ conveying a blatantly ‘build first’ sentiment. To be clear, the Trump administration’s ‘build first’ bias is not inherently problematic, but the widespread decrease in research funding via the National Science Foundation (NSF) and National Institutes of Health (NIH) that has occurred during Trump 2.0 atrophies America’s ‘build first’ innovation ecosystem, since government research grants act as sources of bridge funding that can sustain early stage emerging technology firms until private funding can be secured. In fact, Boston Dynamics was spun out of a Massachusetts Institute of Technology (MIT) research lab that worked on creating highly dynamic robots inspired by nature.

Reducing government research funding only makes it more difficult for new technologies to emerge from America’s ‘build first’ ecosystem. This is far from ideal, especially when China continues to fund similar research programs of its own and is not only building faster than the west, but is also increasingly taking the lead on introducing emerging tech breakthroughs as well. For example, a Chinese company’s groundbreaking immunotherapy treatment for multiple myeloma (an aggressive blood cancer) was the first-ever FDA-approved cell therapy for the disease despite much of the foundational research on the drug being completed by America. Similarly, China became the world’s first country to commercially approve brain-computer interface (BCI) devices that allow paralyzed individuals to control external objects with their thoughts, an area generally considered to be led by American firms like Neuralink. Until this structural aspect of America’s ‘build first’ innovation ecosystem is repaired, China’s innovation ecosystem will continue to gain ground in additional emerging technologies.

The outlook feels grim for America’s ‘build first’ approach given the cost, supply chain, and increasing research advantages of the Chinese ‘build fast’ approach, but the American innovation ecosystem still possesses a historical edge in creating breakthroughs and is gradually evolving towards a more dynamic approach. The Department of Defense (DoD), one of the largest government enablers of research for emerging technology, is increasingly embracing commercial solutions by reducing defense-unique clauses in procurement contracts and maximizing the use of modular components that are easier to produce for domestic manufacturers, mirroring the supply chain and cost sensitivities of the ‘build fast’ approach. Furthermore, AI optimism and the recent capital markets success of emerging tech names like SpaceX, Anthropic, and OpenAI are stimulating the funding pipeline for American emerging tech firms. These factors are likely to stabilize American emerging tech progress despite the pullback in government research funding, but an organized effort across each component of the innovation ecosystem is necessary to keep American emerging technology globally dominant.

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Hooters’ 1983 founding provided the impetus for an entirely new concept in the American restaurant industry: the breastaurant. What started out as a side venture between friends in a small beach town near Tampa eventually became one of the largest restaurant chains in America at its peak, spawning countless imitators that recycled the egregiously simple business model that Hooters first stumbled upon — namely that the combination of scantily-clad waitresses, no-frills pub fare, and a laid-back, sportsbar atmosphere draws customers in for regular return visits, especially if they happen to fancy one (or a few) of the waitresses. Despite Hooters’ success in the 90s and early 2000s though, a disorganized franchise system, poor debt management, and competition from a steady stream of new breastaurant concepts (e.g. Tilted Kilt, Twin Peaks, Ojos Locos, etc.) resulted in steadily declining sales after its 2009 peak (Figure 1) and an eventual Chapter 11 bankruptcy filing in 2025. Importantly, Hooters is not the only breastaurant facing headwinds as of late. Sales across a selection of breastaurants were down 5% on average year-over-year in 2024 (Figure 2) compared to an average growth rate of 3% for America’s 500 largest chain restaurants. Coupled with Hooters’ more than decade-long downward spiral, the underperformance of the broader breastaurant segment seems to imply that the fundamental assumptions about consumer behavior underpinning the breastaurant concept are increasingly outdated.

Whereas in the 90s and early 2000s customers may have been satisfied by simple interactions with breastaurant waitresses given the novelty of the concept, the advent of ‘influencer’ culture that has proliferated alongside the growth of social media and livestreaming since the 2010s has accustomed consumers to more profound relationships with and greater access to personalities whose main purpose is to be watched. For example, modern-day consumers can directly and at-will interact with their favorite influencers or livestreamers via direct messages, real-time chats, in-real-life (IRL) meetups, and other means of communication that have yielded higher expectations in consumers for their relationships with the personalities they watch. Essentially, just looking at or exchanging niceties with a breastaurant waitress is no longer satisfactorily entertaining to the average breastaurant patron when he can interact with his favorite influencers in a more meaningful way. Borrowing from Laura Mulvey, the sheer ‘to-be-looked-at-ness’ of the breastaurant waitress is no longer a compelling value proposition to the would-be breastaurant patron.

Obviously, the main reason a consumer chooses to patronize a breastaurant is to look at scantily-clad women, but as one breastaurant waitress explains, ‘[w]hat keeps [customers] coming back is talking with them, remembering their name … being around pretty girls,’ and ‘[making] friends [with pretty girls].’ Disregarding the breastaurant waitress’ customer relationship management (CRM) role and instead reducing her only to her to-be-looked-at-ness facilitates competition between breastaurants solely on the basis of which breastaurant is daring enough to make waitresses do their jobs in the most revealing outfits — effectively a race to the bosom. In fact, a key reason that some analysts have cited for Hooters’ demise is the pedestrian nature of Hooters Girls’ outfits relative to uniforms at newer breastaurants like Twin Peaks or Tilted Kilt.

Following the resolution of the Chapter 11 proceedings, Hooters’ new owners (who are actually the founders of the original Hooters location in Clearwater, Florida) plan to revamp the brand by making marginal modifications to the menu and also to the Hooters Girl uniform, but such changes fail to address the real challenge facing the breastaurant concept: today’s would-be breastaurant consumers do not want to simply look at pretty girls — they want to get to know them.

This fundamental dichotomy — between simply looking and actual relationship development — is at the heart of the uniquely Japanese ‘hostess club’ (kyabakura) industry. Hostess clubs are nightlife establishments where customers pay for conversation with and companionship from woman hostesses (kyabajō), primarily serving as lively socializing venues for businessmen and usually featuring karaoke and other platonic pastimes. The first modern-day hostess clubs began appearing in affluent Tokyo neighborhoods like Akasaka and Ginza after World War II, and they are a vibrant and established aspect of Japanese nightlife culture.

Gauging hostess club profitability at a macro level is difficult since scant publicly available information analyzing these nightlife establishments’ financial performance exists, but anecdotal reports indicate customers regularly spending ¥20,000-50,000 (~$100-300) per visit on weekdays and large ‘whales’ spending ¥100,000-1,000,000 (~$600-6,000) per visit on weekends. Hostess clubs generate revenue via food and alcohol sales and a wide array of fees charged to customers for things like spending time in the club and choosing the services of a specific hostess, for example. The hostesses themselves usually earn a base hourly rate of ¥5,000-10,000 (~$30-60), but they also receive commissions based on their popularity with customers, and these commissions can net top performers at high-end hostess bars five-figure monthly earnings.

Importantly, the ‘race to the bosom’ dynamics that characterize competition between American breastaurants do not seem to exist among Japanese hostess clubs. The hostess’ to-be-looked-at-ness is just as important to the hostess club business model as that of the breastaurant waitress to the breastaurant business model, but whereas breastaurants emphasize a waitress’ to-be-looked-at-ness, hostess clubs emphasize a hostess’ role as a customer relationship manager. Elite hostess clubs are known to manage client lists using CRM software, and a common practice among high-performing hostesses is to keep a client journal to track the idiosyncrasies of their clients with rigorous levels of detail. Elite hostesses employ a combination of social engineering tactics and Japanese hospitality (Omotenashi) that makes the essence of their role more akin to that of a therapist or caretaker than any western conception of a ‘hostess’ or ‘waitress’ can comprehensively capture. For the infamously overworked Japanese ‘salaryman,’ one can clearly understand how the exorbitant cost of regular hostess club visits are justifiable.

Thus, by elevating the hostess as a customer relationship manager rather than simply a pretty girl to ogle, the hostess club business model simultaneously obviates the need for the revealing uniforms typically required by breastaurants while also offering an inestimably more critical service to its customers than breastaurants could ever hope to offer to theirs (hostesses often dress in semi-formal evening wear).

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An edited version of this essay was first featured in Fair Observer.

The US is in the grips of a trade war, battling against a resurgent Asian economic power. This Asian economy’s undervalued currency, formidable manufacturing capacity and unfair trade practices are driving its trade surplus with America to unconscionable levels. Moreover, this Asian power is moving up the manufacturing value chain, producing automobiles and electronics that rival those made in America. To support economic growth at home, this Asian economy is “dumping” its goods at artificially low prices across world markets. In response to these dynamics, the US is pursuing a raft of protectionist policies to address the growing competitive threat.

This scenario reads like a summary of the current US-China trade war, but it is actually a recounting of the 1980s US-Japan trade war. The uncanny similarities between the two trade wars reveal that little has changed in America’s strategy for addressing economic competition. With Japanese per capita GDP growing at an average rate of 7.1% between 1945 and 1956, Japan’s rapid post-World War II (WWII) growth and recovery led many Westerners to assume that it would one day overtake America as the world’s largest economy.

In a 1989 collection of essays on international finance, economics professors John Charles Pool and Stephen C. Stamos, Jr. claim that “new economic power blocs seem certain to assume world economic leadership early in the next century. Of these, Japan provides the most dramatic example.”

Although such predictions never fully materialized, America took the Japanese threat seriously. During the Reagan administration, a number of agreements were made with Japan to soften the impact of Japanese imports on the American economy; the most important being voluntary export restraints that placed quotas on imports of Japanese automobiles, steel, and machinery, the Plaza Accord — which strengthened the yen relative to the dollar to make Japanese imports artificially more expensive — and a semiconductor agreement that imposed a price floor on Japanese semiconductors sold in America and partially opened up the Japanese domestic semiconductor market to foreign companies.

Given China’s emergence as an economic superpower in the early 2000s, it has supplanted Japan in observers’ minds as the most palpable threat to American world economic leadership, and predictions of when China might take America’s place as the largest economy in the world have become commonplace. The US’s response to the Chinese economic threat is largely identical to its response to Japan in the 1980s — a rising trade deficit with a fast-growing foreign power stokes protectionist sentiment at home and yields policies targeted at slowing that power’s growth both in the US and globally.

Unlike Japan though, China’s unwillingness to cooperate with American attempts to curb exports has resulted in more unilateral efforts by the US to achieve a balanced trade relationship with China, namely through tariffs, initially on certain products (steel, electric vehicles, etc.) and then on all Chinese exports (US President Donald Trump’s “Liberation Day tariffs”), as well as through outright export bans of certain products on national security grounds.

An additional aspect of the US-China trade war absent from the Japan case is China’s reciprocal tariffs on American imports and other retaliatory trade actions, which have impacted American soybean exports, for example, and China’s rare earth licensing regime that limits rare earth exports to America, demonstrating China’s rare earth supply chain dominance.

Although the policies may differ in form, they are the same in substance and intent. In the US-Japan case, it was not protectionist policies that kept the American economy ahead of Japan’s, and such policies are not likely to have a decisive impact in the US-China case, either. Japan’s prolonged economic recession, driven by the unwinding of a real-estate bubble throughout the 1990s, is what prevented it from moving past America’s economy, and despite the recent bursting of a similar real-estate bubble in China, driving persistent deflation and dragging investment and consumption down, the economy continues to grow due to strong exports to the rest of the world.

American tariffs on Chinese products have simply rerouted Chinese manufacturing through third-party countries and integrated Chinese supply chains more deeply with other parts of the world. Notwithstanding a similar years-long recession that irreversibly stunts Chinese economic growth, American trade policy’s current stance on China will only provide a brief reprieve to Chinese competition for certain sectors of the American economy, which makes them and the broader economy ultimately less competitive in the long run.

On the contrary, if the US’s objective is to fend off the Chinese challenge for the title of the world’s largest economy, it must imitate what Japan and China did to become such formidable economic competitors in the first place — namely embrace supply-side economics and focus on the growth of production and exports not through tariffs or quotas on other countries, but through fiscal policy aimed at subsidizing and stimulating manufacturing output and exports.

Whether such a plan is in America’s best interests, though, is unclear given the trajectory of the American economy away from such activities, the competitive advantage and inertia in such activities already accrued in China and other emerging markets over the last few decades, and the staggering amounts of debt that such a plan would likely require.

Alternatively, if the US could learn to live with being only the second largest economy in the world behind China, the country would benefit from no longer needing to look over its shoulder and would instead be free to focus its efforts on ultimately more meaningful indicators of economic success, like striking an appropriate balance between the supply- and demand-side, resolving the growing debt crisis, reducing economic inequality, and developing economic and supply chain resilience. After all, as a Japanese economic researcher put it during the height of the US-Japan trade war, “being number 2 is really quite pleasant.”

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An edited version of this essay was subsequently featured in Charged Affairs on November 25, 2025.

Associated with deregulation, austerity, and the sanctity of the private sector, the modern interpretation of ‘neoliberalism’ emerged from drastic changes to the Chilean economy implemented by the Pinochet regime in the 1970s. From the outset of its entrance into popular political and economic thought as a term of art, neoliberalism has faced intense scrutiny from opponents that prefer a larger, more active role for government and bureaucracy in business and economics. For a brief while though, the late 20th century economic miracle in Chile — neoliberalism’s ‘birthplace’ — was enough to silence critics and make Chile’s neoliberal economic model an exemplar for other countries across the developing world. More recently however, nationwide popular protests and political upheavals that mainstreamed anti-neoliberal ideas have raised existential questions about Chile’s neoliberal legacy and the fitness of the neoliberal model for the rest of the world. Coincidentally, on the heels of Chilean neoliberalism’s identity crisis, Latin America found a new neoliberal champion in Argentina’s Javier Milei. But despite the early successes of Milei’s economic reforms, a marked uptick in social unrest in Argentina may portend a similar fate for his neoliberal project as Chile’s.

Following the 1973 deposition of socialist Salvador Allende as a result of Augusto Pinochet’s military coup, Chile underwent a yearslong program of drastic economic “shock therapy” that involved the abolition of price controls, the liberation of imports, the deregulation of financial markets and capital flows, the reduction of corporate income tax, the reversal of business nationalizations and land expropriations, and the raising of interest rates to combat rampant inflation, among other neoliberal policy reforms. It was these reforms that laid the groundwork for Chile’s eventual economic miracle beginning in the 1990s after a period of “growing pains” in the 1970s and early 1980s. By the early 2000s, Chile had become one of the richest countries in Latin America on a GDP per capita basis after being amongst the poorest in the 1980s. Poverty declined drastically as well, from 53% of the population in 1987 to 6% in 2017, the lowest figure in Latin America. Infant mortality rates decreased from 22.0 deaths per 1,000 live births in 1987 to 7.5 in 2017, and life expectancy increased from 72 to 81 years during the same period. Essentially, by all objective accounts, neoliberal reform in Chile had a positive effect on the country’s overall development.

Despite the country’s objective economic and developmental progress as a result of neoliberal reform though, a growing, pervasive malaise was spreading throughout the Chilean population in the early 2000s. As Sebastian Edwards explains in The Chile Project, ‘while every traditional indicator showed that Chile was a major success and was steadily moving towards the ranks of the advanced nations, substantial portions of society were deeply unhappy and demanded major changes.’ This malaise culminated in the massive 2019 protests that were set in motion by a 30 peso increase in metro fares, although the target of the protesters was the neoliberal model itself, as exhibited by graffiti that read “neoliberalism was born and will die in Chile!”

Understanding the Chilean malaise and the disdain for neoliberalism despite the economic and developmental progress it catalyzed, Edwards argues, necessitates going beyond income and development statistics and focusing instead on “social interactions … the provision of amenities and public goods … and … the way common people are treated by the elites.” Indeed, Edwards asserts that many of the protesters he spoke with in 2019 mentioned “dignity” as a key goal of their agitation.

Similar sentiments have cropped up more recently in Argentina. In Buenos Aires, a protester with a disabled daughter criticized Milei’s austerity measures targeted at pediatric care, saying that ‘[Milei] doesn’t care,’ while a mother at a related protest passionately exclaimed that ‘we all matter, not just the people who have money.’

Importantly, although Milei’s neoliberal reforms have notched meaningful macroeconomic wins including historically low inflation, a budget surplus for the first time in over a decade, and relative currency stability as a result of the abolition of currency and foreign exchange controls, these successes have come at the cost of social welfare, which in turn drives the people reliant on government programs and the social safety net to protest in defense of the dignity they feel they are losing.

To be clear though, this phenomenon of shock therapy and austerity catalyzing social unrest is not unique to Argentina — the same phenomenon occurred in Chile. Although Chile first began implementing neoliberal reforms during the 1970s, it was only after a decade of severe growing pains related to the transition from socialist-oriented to market-oriented economic policies that Chile could reap the dividends of such a painful transition and experience the economic and developmental miracles that cemented neoliberalism as a bona fide path to prosperity.

In other words, painful but temporary rationalizations of the social safety net in the first stages of neoliberal reform are a feature rather than a bug. But deftly managing the inevitable political and social unrest that such rationalizations create is of critical importance to ensuring the neoliberalized economy has enough time to actually produce the development outcomes that make the rationalizations and societal turbulence eventually worthwhile.

In Chile, Pinochet’s brutal dictatorship ensured the country’s neoliberal reforms had the requisite time to incubate and take root, but contemporary Argentina is a different beast entirely. Choosing to scapegoat left-wing Kirchnerist and Peronist influences as the reason for Argentina’s social unrest rather than his own neoliberal policy, Milei’s rhetoric implies that opposition to the neoliberal model in Argentina will only grow, exacerbating polarization and reducing the likelihood that neoliberalism in Argentina will persist long enough to affect material development outcomes for common Argentinians.

Furthermore, as the case of Chile makes clear, the balancing act between economic growth and social stability in a neoliberal economy does not necessarily become less important even after the economy has progressed through the first stages of a neoliberal transition. The 2019 protests in Chile were catalyzed by feelings of dispossession amongst large swaths of Chilean society even as the country had risen to the highest ranks of development in Latin America in the 21st century. In fact, as poverty rates fall and health outcomes and life expectancy improve, it is likely that more qualitative aspects of personal “dignity” become more critical to common people, making the provision of public goods and interactions between different strata of society that Edwards mentions even more critical to social wellbeing.

Thus, although the initial stages of a successful neoliberal transition may rest on austerity, the continued success of a neoliberal program is dependent on striking a balance between prudent economic management and an intimate awareness of — and a willingness to be responsive to — the diverse needs of all levels of society.

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An edited version of this essay was subsequently featured in Mongolia Weekly on August 4, 2025.

In the late 2010s, as the Mongolian economy came down from the highs of the early 2010s mining boom, a spate of articles about Mongolia’s “reverse gender gap” were published in various international media outlets. These articles and people interviewed for them cited the reverse gender gap as proof that ‘many women are better than men in [Mongolia],’ characterizing Mongolian women as ‘superwomen,’ ‘too smart [and] successful [for Mongolian men],’ and ‘harder [workers] than men and [larger] contributors … to the household economy.’ Although Mongolia’s nomadic tradition and culture — as well as its nearly century-long socialist history — have undoubtedly contributed to a unique sense of capability and empowerment amongst Mongolian women, the narratives these articles imply minimize a number of critical challenges Mongolian women still face in attaining gender parity on a whole-of-society basis.

An important issue with these earlier pieces’ portrayal of Mongolia’s reverse gender gap is their tendency to overgeneralize and sensationalize the reverse gender gap and its implications on Mongolian women’s place in society. A 2017 article from Borgen Magazine claims that the reverse gender gap appears in ‘various areas such as education, employment, economy and family,’ but the overwhelming majority of reports identify the existence of a definitive reverse gender gap only in education in Mongolia. In addition to greater rates of literacy in Mongolian women than in men, women also have greater rates of enrollment across all levels of education. Notably, although some researchers have claimed that Mongolia’s reverse gender gap in education is ‘unlike many other developing countries,’ this is also a specious claim. In Central Asia, the region of the world arguably most comparable to Mongolia, ‘the gross graduation ratio from Bachelor’s and Master’s level degree programmes is higher for women (30.8%) compared to both the global female population (28.4%) and [male population] (23.3%),’ and ‘girls hold a slight edge [in completion rates at all school levels] in Kazakhstan and Kyrgyzstan.’ Furthermore, in an analysis of higher education attainment in 50 countries, University of Oslo researchers found that ‘the pattern for most countries globally … is an emerging pro-female gender gap in … educational attainment.’ Essentially, Mongolia’s reverse gender gap in education is neither regionally nor globally extraordinary.

From a labor and economic perspective, some have pointed to the lower levels of unemployment that Mongolian women enjoy relative to men as proof that women are somehow more economically valuable than men in Mongolia, but differentials in unemployment rates do not accurately or comprehensively capture the dynamics of the labor market or its interplay with gender. While Mongolian women do have slightly lower levels of unemployment (5.6%) relative to men (6.2%), Mongolian men have much higher levels of labor force participation (69.7%) than women (53.5%); basically, although a greater proportion of Mongolian women defined as being in the labor force have jobs than the same proportion for men, a greater proportion of all Mongolian men are defined as being in the labor force than the same proportion for women. Furthermore, the labor force participation rate (LFPR) has fallen faster for women than it has for men since Mongolia’s transition from socialism to democracy. From 1992 to 2024, the LFPR for Mongolian women has fallen from 72.7% to 53.5%, compared to a drop from 78.9% to 69.7% for men, equivalent to less than half the drop in the LFPR for women. Although women dropping out of the labor force for reasons related to childcare and unpaid domestic labor are often cited to explain gender-related LFPR differences, the Mongolian fertility rate has fallen by 22% since 1992, so such reasons likely do not fully explain the LFPR gap between men and women in Mongolia or the growth in the LFPR gap since the country’s transition from socialism to democracy.

A potential reason for the difference in unemployment rates between Mongolian men and women could stem from differences in the sort of work in which the two genders are generally engaged. Although the top two employment sectors for both Mongolian men and women are “agriculture, forestry, and fishing” and “wholesale and retail trade; repair of motor vehicles and motorcycles”, accounting for 36.1% and 37.8% of all male and female labor, respectively, important sectoral differences in employment between genders arise in the other sectors making up the top 5 employment sectors for each gender. For men, “construction”, “transportation and storage”, and “mining and quarrying” are the sectors that round out the top 5 employment sectors after agriculture and wholesale and retail trade, while it’s “education services”, “human health and social work activities”, and “processing industries” for women. The sectors in which Mongolian women are employed seem to be composed of distinctly more service-based, “white collar” or “pink collar” roles than the sectors in which Mongolian men are employed, which seem quite “blue collar”. This distinction is important for understanding gender differences in unemployment since blue collar jobs are generally more exposed to economic vicissitudes and seasonality than white collar jobs. Indeed, 13.5% of unemployed Mongolian men identify seasonality or job cuts as the reason for their unemployment, compared to only 3.3% of unemployed Mongolian women indicating the same.

Interestingly, although women do occupy a disproportionate share of Mongolia’s white collar jobs, these roles tend to have the most drastic wage gaps between men and women in the country. As of 2024, the average wage gap across all jobs in Mongolia was 24.1%, but the wage gap in managerial, professional services, and clerical support jobs was 24.3%, 28.5%, and 32.7%, respectively. Additionally, a 2022 Asian Development Bank report found that although Mongolian women ‘are more likely than men to be employed in professional jobs … the educated are more affected by joblessness [in Mongolia than in other developing countries] and the majority of these [people] are younger and female.’ In other words, although Mongolian women are more likely to achieve higher levels of education and occupy more professional jobs than men, the reverse gender gap in education does not always guarantee stable job prospects or protection from wage discrimination in the workplace.

Mongolia’s reverse gender gap in education has also failed to effect parity in political representation. Although the percentage of women in Mongolia’s parliament has grown from 3.2% in 1992 to 25.4% today, surpassing the regional Asian average of 21.5%, the country is still a long way off from parity, especially when considering the higher educational attainment in Mongolian women, their overrepresentation in professional occupations, and their larger share of the country’s total population. The country’s progress in female parliamentary representation is largely thanks to successive increases in legislative quotas that dictate the share of female candidates that parties must nominate to run for elections. The quota was raised from 20% in 2020 to 30% in 2023, and it will be raised to 40% for the elections taking place in 2028, although the final percentage of women actually elected to parliament in 2028 will likely fall below the 40% nomination quota, as was the case for the elections following the 2023 update to the quota.

Women play an integral role in every aspect of Mongolian society, as they have in every era of Mongolian history. Relying on a narrow interpretation of a few broad statistics to paint them as better or more important than Mongolian men, though, simultaneously disregards the many challenges they still face at achieving parity in numerous arenas and perpetuates harmful stereotypes about Mongolian men that likely contribute to the prevalence of destructive patterns of behavior in some Mongolian men, like alcoholism and domestic violence, which ultimately lead to vagrancy and joblessness, creating a vicious cycle of reinforcement that only makes solving such issues more difficult. Continued societal and economic progress for both genders in Mongolia will require a sincere acknowledgement of the different challenges facing both men and women in the country, and a commitment from both sexes to aiding each other in fixing them.

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An edited version of this essay was first featured in The Diplomat.

Driven primarily by investors seeking safe havens amidst the backdrop of an increasingly uncertain global economy, gold prices have been on a tear recently, reaching an all-time high of ~$3,500 per ounce in April 2025. Chinese demand has been a critical force propelling gold’s performance, as Chinese retail investors have flooded into gold ETFs and set records for bullion purchases, and as the People’s Bank of China (PBOC) has restarted gold purchases after Trump’s reelection and his intensification of the U.S.-China trade conflict. Interestingly, China’s demand for gold as the global trade system undergoes fundamental changes hearkens back to a much earlier era, when Chinese demand for silver ushered in the world’s very first period of economic globalization. Although the forces underlying imperial China’s demand for silver and contemporary China’s demand for gold are markedly different, the geoeconomic changes signaled by both periods of heightened Chinese demand for precious metals offer up valuable insights for global trade when examined in parallel.

Starting in the 16th century during the Ming dynasty, China’s importation of large quantities of silver — first from Japan and then from the Spanish colonies of Peru and Mexico — in exchange for exports of its coveted silk and porcelain forged linkages between the Americas, Europe, and Asia that constituted the world’s first system of global trade. Indeed, as Adam Smith puts it in The Wealth of Nations, ‘the silver of the new continent seems … to be one of the principal commodities by which the commerce between the two extremities of the old one is carried on, and it is by means of it … that those distant parts of the world are connected with one another.’ Chinese demand for Spanish silver was driven by the country’s need for a reliable medium of exchange after periods of high inflation eroded domestic confidence in paper currencies that were common during the Song and Yuan dynasties. As Alejandra Irigoin explains, ‘Chinese demand for silver up to the 1820s was primarily a demand for a reliable currency standard,’ effectively “dollarizing” the Chinese economy with Spanish pesos in the same way many countries use the U.S. dollar as a reliable alternative to volatile domestic currencies today. Spanish silver was so prevalent in China that estimates suggest ~30% of the silver produced in Peru and Mexico ended up there, and these two Spanish colonies alone accounted for ~80% of the world’s silver production from 1500 - 1800. Essentially, thanks to its role in facilitating the massive trade surplus China generated with the rest of the world during the period, Spanish silver became the world’s first reserve currency.

Similarly, in the early 2000s and 2010s, although the U.S. dollar was already established as the global reserve currency, the rapid growth in Chinese exports to the rest of the world during this period further bolstered the dollar’s reserve status as China’s trade surplus grew; China overtook Japan as the world’s largest holder of U.S. Treasuries in 2008 and remained in that position largely uncontested until 2019, following the first tariffs of the U.S.-China trade war in 2018 during President Trump’s first term in office. Since then, the rate of Chinese sell-offs of U.S. Treasuries has only accelerated, and China’s holdings of U.S. Treasuries have now fallen to third largest after those of Japan and the UK. China’s turn away from U.S. Treasuries has coincided almost perfectly with its embrace of gold; from the beginning of the trade war in 2018 to the present day, China’s holdings of U.S. Treasuries have fallen by 34%, while its gold reserves (measured in troy ounces) have grown by 25%. Hence, whereas imperial China’s demand for silver was driven by an increasingly globalized trade environment and the country’s desire for a reliable currency, contemporary China’s demand for gold is being driven by an increasingly de-globalized trade environment and mounting risks associated with its holdings of the reserve currency of the day.

China is not alone in its recent embrace of gold reserves — research from the IMF published in 2024 reveals that, after reaching a nadir around 2008, gold holdings in official reserve assets are ‘nearing the highest level since WWII, driven by accumulation of emerging market central banks.’ Further mirroring the evolution of China’s reserves, this phenomenon has also been accompanied by an appreciable shift of global reserves away from the U.S. dollar, which is even more pronounced when the dollar’s recent strength is accounted for; from a high of just above 70% in the early 2000s, the U.S. dollar now makes up just ~56% of exchange- and interest rate-adjusted global foreign exchange reserves.

Although much has been made of the Chinese renminbi (RMB) eventually displacing the U.S. dollar as the global reserve currency of the future, the RMB’s gains in global reserve shares only ‘match a quarter of the decline in the dollar’s share’ over the last two decades. What is instead taking place is a move away from the U.S. dollar and the three other currencies that generally dominate global reserves (the euro, Japanese yen, and British pound) to a gradual embrace of “nontraditional reserve currencies” that include not only the RMB but also the ‘Australian dollar, Canadian dollar … South Korean won, Singaporean dollar, and the Nordic currencies.’ In other words, the embrace of gold and non-traditional reserve currencies by PBOC and other central banks is not dethroning the dollar in favor of a new, single reserve currency. Instead, these shifts in reserve holdings are facilitating a diversification away from the traditional “hegemon” currencies to a larger, more varied basket of currencies, mirroring the broader rise in multipolarity that China’s emergence over the past two decades has fomented across various facets of geo-economics and -politics — a trend likely to persist as the outlook for greater liberalism in global trade remains pessimistic.

Looking back, imperial China’s reliance on Spanish pesos facilitated rapid economic growth and advancement, but it also exposed the economy to disruptive, exogenous shocks. During the early 19th century, colonial wars for independence across Latin America severely affected the output of the silver mines that undergirded the Spanish peso’s ubiquity in global trade. Not only was mining output affected, but the exacting quality for which Spanish pesos had been known was impacted as well. Such supply shocks to China’s de facto currency led to a ‘widespread dislocation [of] production and markets in China in the first half of the 19th century,’ which catalyzed ‘declining prices, real wages, land values and trade’ during a period known as the Daoguang Depression, named after the Qing emperor that ruled during the time. Although the destabilizing forces threatening today’s reserve currency are different — namely historic levels of debt, unprecedented fiscal, trade, and industrial policy uncertainty, and the unclear trajectory of long-term U.S. economic growth — they are nonetheless formidable. With hindsight of the outcome of imperial China’s reliance on Spanish pesos offering useful perspective, perhaps the world’s embrace of gold as well as a broader basket of reserve currencies as alternatives to the dominance of the U.S. dollar is prescient.

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Life Update: My Easter / Spring Break was a bit extended given a few new writing assignments I have taken on with Young Professionals in Foreign Policy and The Asia Cable. In addition to these new writing assignments, I will also be starting a new job soon that may impact my ability to maintain my twice-monthly publishing cadence, but I will try to strike a balance between all of these new responsibilities that also leaves time for regular updates here on The economy, stupid. Please bear with me as I iron out a new publishing schedule in response to these life changes. Regardless of whatever changes in publishing frequency may occur though, rest assured that the quality and originality of my writing here will remain unchanged.

Thanks for reading,
Arlen

Given its important role in facilitating trade between the east and west, as well as its geographic proximity to mainland China, Taiwan, and the contested waters surrounding them, Southeast Asia has become a critical site of geostrategic competition between America and China. As tensions have risen between the two, both America and China have sought to increase their presence in the region. Militarily, America has established the Quad and AUKUS partnerships with Australia, India, Japan, and the UK to ‘[support] an open, stable and prosperous Indo-Pacific’, and has also strengthened cooperation with the Philippines as Filipino-Chinese conflict in the South China Sea becomes more acute. At the same time, China has increased its deployment of naval resources in the region, building military infrastructure on and around the Paracel and Spratly Islands situated in the center of the South China Sea, and militarizing the substantial number of Chinese fishing vessels operating in the region. On the trade front, China and America are ASEAN’s largest partners, with ASEAN-China and ASEAN-America bilateral trade reaching $963 billion and $477 billion in 2024, respectively. Additionally, excluding intra-ASEAN foreign direct investment, America and China were the top sources of ASEAN FDI in 2023, with $74.4 billion and $17.3 billion invested in the region, respectively. Although more objective measures of economic and military involvement in the region might imply a dead heat between America and China for geostrategic primacy in Southeast Asia, the on-the-ground reality of American and Chinese political influence in the region is likely less balanced. Given a number of foreign policy failures across both the Trump and Biden administrations, America has lost considerable ground to China in cultivating strategic alignment in Southeast Asia, a trend likely only further exacerbated by President Trump’s recent imposition of “Liberation Day” tariffs on economies across the region.

According to annual surveys of Southeast Asian academics, businesspeople, government officials, and public sector workers conducted by the Institute for Southeast Asian Studies (ISEAS) in Singapore, levels of regional support for America as a strategic partner relative to China have been steadily declining since the survey began measuring this statistic in 2020 (Figure 1). From a high of 61.5% of respondents indicating they would prefer to align with America over China in 2021, only 52.3% of respondents indicated the same in 2025, and China even surpassed America as ASEAN’s preferred choice for alignment in 2024 with 50.5% of respondents indicating a preference for alignment with China compared to 49.5% of respondents indicating the same for America. Furthermore, China has consistently been identified as the most influential economic power in Southeast Asia since the survey’s first edition in 2019, although America has been making appreciable progress on this dimension of the survey more recently.

A key factor likely impacting the disparity in perceptions of American and Chinese economic influence in Southeast Asia is the level of trade integration each country has with ASEAN. China is a signatory to ASEAN’s landmark Regional Comprehensive Economic Partnership (RCEP), which came into effect in 2022 and significantly reduced import tariffs on Chinese goods sold in ASEAN as well as established common rules for e-commerce, trade, and intellectual property. Conversely, the overarching framework governing ASEAN-America trade is the Indo-Pacific Economic Framework for Prosperity (IPEF), which has largely been characterized as both an evolution of the Trans-Pacific Partnership (TPP) and a response to China’s growing economic influence in Southeast Asia, partly illustrated by its inclusion in the RCEP. The TPP, from which the US infamously withdrew during the first Trump administration, was so controversial in America because of pushback from conservatives that feared negative effects from freer trade with the Partnership’s various signatories in Latin America and Asia. When Biden took office in 2020, American foreign policy towards the “Indo-Pacific” (essentially ASEAN + India, Japan, South Korea, New Zealand, and Australia) needed to respond to China’s increasing power in the region while still allaying domestic concerns about free trade’s potential impact on blue-collar America.

The result was the IPEF, unveiled in 2022, in which greater economic cooperation with Southeast Asia has been pursued not through the lowering of tariffs and greater mutual access to domestic markets for all signatories, which is traditionally how trade agreements are structured, but through the IPEF’s advancing of four themes (1. Fair and resilient trade; 2. Supply chain resilience; 3. Infrastructure, clean energy, and decarbonization; and 4. Tax and anti-corruption) related to trade and doing business that all signatories have agreed to pursue in order to make their trade interactions fairer and more modern. The IPEF’s approach was innovative, but not particularly well-received, as 41.8% of ISEAS survey respondents indicated uncertainty about IPEF’s overall impact and effectiveness in 2023, which only grew to 44.8% in 2024. IPEF’s failure to reduce tariffs and facilitate greater market access between America and ASEAN, especially compared to RCEP’s success at doing both for China and ASEAN, likely explains the gap in growth of the percentage share of imports from and exports to ASEAN that America and China recorded from 2022 (when both the RCEP and IPEF were implemented) to 2023: ASEAN’s exports to and imports from China grew by an average of 104-basis points as a share of total ASEAN exports and imports, while its exports to and imports from America only grew by an average of 30-basis points (Figure 2).

Without tariff reductions and greater market access, it was already unclear how exactly the IPEF would facilitate greater trade integration between America and ASEAN, but the dynamic has gone from bad to worse as the second Trump Administration has enacted higher tariff rates for ASEAN as well as indicated interest in ceasing the de minimis tax exemption for other countries in addition to China. Furthermore, current US Trade Representative Jamieson Greer, when asked whether he would continue the Biden administration’s work on IPEF, did not respond in the affirmative and instead said he would defer to section 2(g) of President Trump’s America First Trade Policy, which reads:

“The United States Trade Representative shall identify countries with which the United States can negotiate agreements on a bilateral or sector-specific basis to obtain export market access for American workers, farmers, ranchers, service providers, and other businesses and shall make recommendations regarding such potential agreements.”

Such a vague response from Greer does not bode well for further development or implementation of the IPEF, which only increases the uncertainty of ASEAN-American trade, which only strengthens China’s position as an economic influence in the region. In fact, reactions across ASEAN to Trump's Liberation Day tariffs indicate a telling shift in sentiment that will probably manifest itself in future editions of the ISEAS survey. In a recent meeting with Xi Jinping following Trump’s imposition of 24% tariffs on his country, Malaysian Prime Minister Anwar Ibrahim ‘struck a unified tone in defence of open trade and regional cooperation, while taking veiled swipes at rising US protectionism,’ declaring that ‘[Malaysia stands] with the Chinese government, for the well-being of [its] people and for [its] national economic interests, as well as the overall development and stability of [the] country.’ In a joint statement, the economic ministers of ASEAN’s member states expressed deep concern about the introduction of the tariffs, explaining that they would ‘hinder … the long-standing ASEAN-US economic and trade relationship’ and push ASEAN to ‘strengthen and expand [its] economic links with [its] … Dialogue Partners [including China], and seek out opportunities for economic cooperation with new partners.’ Singapore’s Deputy Prime Minister Gan Kim Yong expressed the country’s ‘disappointment’ with the tariffs, while Prime Minister Lawrence Wong claimed they represent a ‘seismic change in the global order,’ going on to assert that ‘the world is changing in ways that will disadvantage small open economies like Singapore [and other ASEAN member states].’

Indeed, the world and the forces that shape it are changing, and analyzing these changes from the Southeast Asian perspective is particularly important given the region’s unique geostrategic significance. How the various Southeast Asian middle powers perceive these changes, and how they choose to engage with America and China as these changes take root, offer numerous insights into the future of American and Chinese political influence the world over. What does seem abundantly clear from analyzing US-China competition in Southeast Asia though, is that America’s vague and inconsistent approach to trade and foreign policy, its increasing embrace of protectionism, and its lack of regard for partners and allies is doing more to advance China’s geopolitical interests than the country could ever hope to achieve on its own.

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The economy, stupid. will be on a brief Easter / Spring Break — happy Easter to all who celebrate, and be sure to subscribe to get the next essay sent directly to your inbox.

Throughout history, enabling technologies have facilitated the proliferation of new sources of energy. For example, during the Industrial Revolution, coal demand skyrocketed thanks to inventions like the steam engine, driving coal production in Great Britain from 5.2 million tons in 1750 to 62.5 million tons by 1850. During the 20th century, the advent of the automobile age drove the demand for gasoline to unprecedented heights. From 1945, when there were a mere 25.7 million cars registered in America, to 1973, when car registrations surpassed 100 million for the first time, gasoline consumption grew by more than 300%, from ~579 million barrels per year to more than 2.4 billion. More recently, the widespread adoption of electric vehicles has grown battery sales from significantly less than 100 gigawatt-hours per year in the 1990s to more than 1,000 gigawatt-hours in 2023. As demand grows for new technologies, so too does demand for the energy sources that power them; the growing demand for artificial intelligence is simply the latest affirmation of this phenomenon.

What makes AI’s burgeoning ubiquity different from the innovative technologies of decades and centuries past, though, is the sheer amount of energy needed to power it. In America alone, ‘energy demand is expected to grow by 40% over the next two decades, compared with just 9% growth over the past 20 years,’ driven primarily by increased demand from the data centers powering the training of the ever growing number of commercially available AI models. This unprecedented energy demand growth is proving problematic for power grids across America, as homeowners and small businesses are forced to share resources with numerous energy-hungry data centers that can each easily consume megawatts of electricity, or enough energy to power hundreds of individual households. With AI growing more powerful and popular, and with data centers projected only to become larger and more numerous, many big tech companies have realized that their current data center electrification strategies, namely just plugging into local utility grids, are unscalable.

In response to the bottlenecks posed by relying on local grids to power their data centers, tech companies are increasingly turning to off-grid power solutions as alternative energy sources. Given the massive amounts of electricity needed though, there aren’t many viable off-grid options to leverage. Using fossil fuels has been a nonstarter due to sustainability and climate concerns, and the inherent variability of solar and wind power are incompatible with the always-on nature of data center operations. It is against this backdrop that big tech companies have embraced nuclear energy (and to a lesser extent hydrogen and geothermal) as the data center power source of the future.

Starting in the last quarter of 2024, a number of American big tech companies announced long-term partnerships with nuclear energy providers to develop or rehabilitate nuclear facilities to power data centers (Figure 1), marking an inflection point in the development of nuclear energy in the country, which has been stagnant for quite some time (Figure 2). Although the 1950s — 1970s were relatively optimistic periods for nuclear development in America, safety and cost-effectiveness concerns stifled investment for the next five decades. With AI as an impetus for abundant, clean, and off-grid energy, though, nuclear may be on the verge of a J-curve moment.

Although nuclear’s role in powering data centers is still speculative given the decades-long timelines stipulated in a number of the recent deals, the fact that big tech companies have essentially become ‘early adopters’ of new and refurbished nuclear technologies, earmarking billions of dollars for nuclear investment and indicating interest in large quantities of nuclear energy over extended periods, is a significant tailwind for development of the industry, since such early investment and demand often drive subsequent breakthroughs in “learning” that have knock-on effects on supply chain efficiency and energy affordability. For example, when solar panel modules were first introduced in the 1960s, they were relatively costly and used only in satellites, but over time, as demand for renewable energy sources grew and as solar panels were employed in other use cases, the cost of the technology declined dramatically; from 1976 to 2019, ‘with each doubling of installed capacity, the price of solar modules dropped on average by 20.2%.’ This proportionate decline in price as capacity increases is the “learning curve” or “learning rate” of solar module development. Similarly, in the development of lithium-ion batteries, the learning curve from 1992 to 2016 was 18.9%, meaning the price of lithium-ion batteries declined by an average of 18.9% for every doubling of installed capacity during the period. Interestingly though, learning rates associated with the development of nuclear energy have been much more volatile.

From 2010 to 2019, the cost of nuclear energy actually increased as additional capacity was installed, meaning there was no benefit realized from learning during the period, whereas the learning rate in solar modules actually accelerated to 36%, more than 15 percentage points greater than its learning rate going back to the 1970s. The stark difference between the 2010-19 learning rates of nuclear and solar are a microcosm of the stark differences in development that the two energy sources have experienced in the 21st century; from 2010 to 2019, electricity production from solar grew by more than 20 times (from 32.2 terawatt-hours to 704.8), while electricity production from nuclear grew by just one percent — from 2,726 terawatt-hours to 2,754 (Figure 3).

Hence, the lack of a learning benefit in nuclear energy is likely due to the fact that there have been very few prolonged attempts at adding substantial nuclear capacity in the past few decades. In fact, nuclear learning rates used to be positive. From 1954 to the late 1960s, when annual construction starts on nuclear facilities were in the tens of gigawatts globally, nuclear learning rates were around 25% in Germany, the US, and Canada, and around 35% in France, Japan, and Korea. Following anti-nuclear protest movements that began in the mid-1960s though, nuclear learning rates turned negative everywhere except for Korea, nuclear facility construction starts eventually peaked in the mid-1970s, and learning rates have remained negative ever since.

Although nuclear learning rates have remained negative for decades, a reversal of this discouraging trend is not impossible given the right inputs. In addition to the safety and cost concerns that sapped enthusiasm for nuclear energy in the 20th century, advancements in other energy sources like natural gas probably also contributed to the global disregard for nuclear energy at the time, but now, given the world’s heightened awareness for sustainability, coupled with the enabling technology of artificial intelligence urgently necessitating additional sources of clean energy, now is as good a time as any to finally provide nuclear technology with the investment it has so desperately needed for decades.

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With kinetic interstate conflicts taking place across multiple regions (Ukraine-Russia in Europe, Israel-Palestine in the Middle East, and Rwanda-DRC in Africa), and with multi-polarity on the rise as America turns inward and China’s global ambitions grow, many members of the international community feel that contemporary geopolitics are as fraught and chaotic now than they have ever been at any time since the end of World War II. Despite how fractured the world may seem today, though, the ideological distance between the world’s major powers has actually been more or less stable since the dissolution of the USSR and Putin’s rise to power in the late 1990s; although the world may feel anecdotally more disorderly than in decades past, increased ideological polarization between great powers fails to sufficiently explain this perceived rise in geopolitical entropy.

Using ideal point estimates derived from UN General Assembly (UNGA) voting data, a ‘[state's position] towards the U.S. led liberal order’ can be quantified; essentially, a more positive ideal point estimate implies stronger alignment with the U.S.-led liberal order, ‘associated with democratization, financial liberalization and government ideology,’ while a more negative ideal point estimate implies weaker alignment. As illustrated by Figure 1, as chaotic as present day geopolitics may seem, the period between UNGA Sessions 1 — 40 (1946 — 1986) was characterized not only by a greater ideological distance between Russia and the west than at any time post-USSR dissolution, but also by greater ideological volatility amongst western powers. After the 50th UNGA Session (1995-96), Russia’s drift toward western-style liberalism reverses under Yeltsin and Putin, but the country’s ideal point never returns to its pre-perestroika lows. Around the 40th UNGA Session, Iran and China replace Russia as the powers most ideologically opposed to the U.S.-led liberal order, but their ideal point estimates fail to ever reach the lows of the USSR’s pre-perestroika. Despite relatively sharp downward moves in the ideal points of Russia and China during the 77th UNGA Session (2022-23), ideologies both in the west and its most prominent detractors have been uncannily stable, especially relative to the ideological volatility experienced between UNGA Sessions 1 and 40. So, if ideological polarization between the west and its adversaries has been more or less constant since UNGA Session 50, and if the world has experienced periods of greater ideological polarization and volatility in the past, why do today’s geopolitics feel so particularly troubled?

Part of the reason is anchoring bias, or the tendency of judgments to be influenced by irrelevant or incomprehensive reference points. Although UNGA Sessions 1 — 40 were ideologically volatile and chaotic, UNGA Sessions 40 — 50 were marked by drastic changes in ideological alignment between Russia and the west, as well as by particularly high levels of liberalism in America, as evinced by its ideal point estimate reaching its zenith during this period. This relatively brief period can arguably be described as the golden age of Pax Americana, when America’s geo-political and -economic heft were unmatched, and when the country’s political leaders embraced its role as the ‘world’s policeman.’ The zeitgeist of this golden age is embodied by works like Francis Fukuyama’s “The End of History?” and The End of History and the Last Man, published in 1989 (UNGA Sessions 43/44) and 1992 (UNGA Sessions 46/47), respectively, which argue that the US-led liberal order represents ‘the end-point of mankind’s ideological evolution and the universalization of western liberal democracy as the final form of human government.’ During this time, western liberalism — and America’s position at its vanguard — were hailed as unvanquishable. It is likely this very brief period of modern geopolitics to which pundits and commentators compare today’s geopolitics, instead of acknowledging the longer and more ideologically polarized span of history that immediately preceded it. Essentially, when compared to Pax Americana’s golden age, today’s geopolitical environment seems uniquely troubled, but when compared to earlier (and longer) periods of post-WWII history, the contours of today’s geopolitics feel less unprecedented.

In addition to anchoring, a more important factor contributing to today’s geopolitical unease is America’s changing approach to the rules-based order that has been so instrumental in maintaining its post-WWII hegemony. Historically, the United States has used its position in various multilateral institutions to advance its own interests, often at the expense of the rules-based order such institutions are intended to buttress; when the United States’ aims align with the rest of the world’s, it champions multilateralism and the rules-based order, but when policy conflicts arise, it has repeatedly demonstrated a willingness to disregard the rules-based order in favor of a unilateral approach. As political scientist John Ikenberry explains, ‘the United States is indeed a puzzle: no country has so consistently championed international organizations while resisting their obligations.’

One of the most infamous examples of America’s willingness to defy the spirit of the rules-based order was its invasion of Iraq shortly after presenting findings of weapons of mass destruction in the country (which have since been contested) at a gathering of the UN Security Council. Although no resolution authorized military action in Iraq after the gathering, America invaded Iraq anyway, starting the Iraq War and plunging the country into a prolonged state of emergency. Another example of America’s willingness to bypass multilateral approaches to conflict resolution in favor of unilateral ones occurred during the first Reagan administration, when America invaded Grenada following political strife in the country. America made no attempts at conferring with the United Nations or other multilateral institutions before its invasion, and the United Nations strongly condemned the invasion in a 1983 UNGA vote as well as a Security Council resolution that would have been adopted had America not blocked the resolution with its veto powers. More recently, America’s political and military support for Israel has defied multiple UNGA resolutions condemning the violence in Palestine and calling for a ceasefire, and America has vetoed numerous strongly supported Security Council resolutions calling for the same.

Importantly, while America’s opposition to true multilateralism has been constant throughout history, the underlying reasons for its opposition are changing. Whereas in the past, America has sought to undermine the rules-based order to pursue unilateral approaches to global conflict resolution, America’s opposition to multilateralism has more recently been characterized by an embrace of isolationism; America is increasingly less interested in maintaining its role as the world’s policeman and is instead content with playing only a peripheral role in global conflict resolution. By shirking its traditional role as a global enforcer of order while simultaneously continuing to undermine the rules-based order (as it has done for decades), America is contributing to the growing frequency of interstate conflict as well as to the direly existential feeling of today’s geopolitics.

With an America increasingly uninterested in maintaining global order unilaterally, a growing number of states willing to take up arms to achieve their political objectives, and a weak-as-ever rules-based system, the reason today’s geopolitics feel so troubled is because we are likely on the precipice of a new (but not unprecedented) era of heightened, multipolar realpolitik.

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With more than 2.1 million concurrent Steam users playing the game on its August 2024 debut, Black Myth: Wukong quickly became the most popular single-player video game ever on the Steam platform, surpassing concurrent player records for well-known titles like Dota 2 and Cyberpunk 2077. From the very first days of its release, Black Myth made waves in the global gaming industry, and for the next few months thereafter, media outlets hailed the game’s success, widely considered China’s first “AAA” video game, as a landmark moment for the Chinese gaming industry’s global appeal given that ~30% of Black Myth players came from countries other than China. Although the release of Black Myth was an undoubtedly historic moment for Chinese gaming, it was neither China’s ‘first blockbuster video game’ nor the first Chinese video game to amass a large following outside of China, as many media outlets seemed to erroneously imply in their coverage of its release. Such honors arguably belong to Genshin Impact, a free-to-play, mobile “gacha” game whose global success has largely changed the perception of the gacha model and the Chinese studios that are currently dominating its development.

Conceived in the 2010s by Japanese mobile game developers, the gacha model is a monetization strategy for free-to-play games inspired by gachapon vending machines that dispense collectible toys at random. Gacha games are generally free-to-play, mobile-native video games in which in-game items (like characters, equipment, or special abilities) are acquired at random through raffle-style drawings in which players participate by spending in-game currency, much like using a gachapon vending machine in real life. At first, the gacha model was employed in relatively simplistic mobile game genres, like card battle games (think Yu-Gi-Oh! or Pokemon, for example) and puzzle games (think Candy Crush Saga), but as cell phone technology advanced, more complex games with high-quality graphics comparable to those of console or PC games became a reality for mobile game developers, and gacha mechanics found their way into this newer, more advanced generation of mobile games as well. Popular titles from this earliest generation of console-quality mobile video games with gacha mechanics include the multiplayer online battle arena (MOBA) Honor of Kings, developed by Tencent Games and released in 2015; the action role-playing game (RPG) Honkai Impact 3rd, developed by China’s MiHoYo and released in 2016; and the strategy RPG Girls’ Frontline, developed by China’s MICA Team and released in 2016. In 2020 though, MiHoYo’s release of Genshin Impact ‘set a new benchmark for what could … be expected from a free mobile game.’

Whereas Black Myth sold 20 million units within a month after its initial release, Genshin Impact was downloaded 23 million times within one week of its initial release, demonstrating just how popular a mobile gacha game could be relative to a AAA console game. From a revenue perspective, gacha games have proven to be comparably lucrative relative to console games as well; Genshin Impact generated $2 billion in its first full year of sales, while Black Myth has grossed just under $1 billion in sales six months post-debut. Additionally, while a central talking point of Black Myth coverage was its popularity outside of China and particularly in the west, Genshin Impact has been even more popular with non-Chinese audiences; whereas 30% of Black Myth sales came from outside of China, 44% of all Genshin Impact sales came from outside of China (Figure 2), with Japan and the US contributing 24% and 18% respectively at one point in late 2022. Given their ‘AAA-like production and presentation levels,’— initial development costs for Genshin Impact and Black Myth were $100 million and $43 million, respectively — it is unsurprising that Genshin Impact and other titles developed by the ‘several Chinese studios’ responsible for the elevation of the mobile gacha model have garnered levels of popularity and profitability typically reserved for AAA console games.

The increasing quality, popularity, and profitability of mobile gacha games mirrors a broader trend in the global gaming industry that has seen mobile gaming command a larger share of growth in worldwide consumer spending on video game content than both PC and console gaming combined (Figure 3). This trend frustrates the traditional view of AAA games as inherently more significant than mobile or free-to-play games and raises fundamental questions about the essence of a AAA game; if free-to-play mobile games now cost as much as AAA games to develop, and generate just as much revenue and player interest as AAA games, then what exactly distinguishes a high-quality mobile game from a AAA game, and is that distinction particularly important? Furthermore, from the China perspective specifically, if the country’s studios already develop the most popular, highest-grossing mobile games in the world, what does it matter if its studios can now also boast a globally popular AAA console game, given that mobile is now the growth engine of the global video game market?

Essentially, although the success of Black Myth portends greater future investment in traditional AAA console games from Chinese studios, the existing stable of Chinese-made, internationally successful free-to-play mobile gacha games (e.g. Genshin Impact, Zenless Zone Zero, Wuthering Waves, Arknights, etc.) has already established China as a global game development powerhouse. Hence, coupled with the growing global dominance of mobile gaming relative to console and PC, Chinese leadership in high-quality mobile game development will likely continue to be a more meaningful phenomenon in the global gaming industry than the increased ambitions of Chinese studios for greater AAA representation precipitated by the success of Black Myth.

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Across the world, an often-overlooked commonality that many of us share are the payment networks through which our debit and credit cards function; regardless of your home country, there’s a strong chance that most (if not all) of the cards in your wallet are Visa- or Mastercard-branded. The most damning refutation of this assumption, though — as with so many other assumptions about global business — is China. In China, the global ubiquity of Visa, Mastercard, and (to a significantly lesser extent) American Express cards are replaced instead by the ubiquity of cards donning the UnionPay brand, China’s state-owned payment network that’s responsible for processing 95% of overall card spend in the country. Accounting for less than 1% of ex-China global card spend though, UnionPay’s ubiquity is confined within China’s borders, but this has not stopped the company from becoming the largest payment network in the world by far (Figure 1). In 2021, UnionPay processed 48% of all global card transactions by value, followed by Visa and Mastercard at 27% and 17%, respectively, highlighting the sheer scale of Chinese consumption relative to the rest of the world’s.

Although UnionPay’s share of global card spend fell to 43% in 2022 (Figure 2) given Chinese consumption headwinds (Visa and Mastercard accounted for 29% and 19%, respectively), its retention of the top spot by a significant margin is a testament to the resilience of the Chinese consumption landscape even as the country’s economic outlook is not as optimistic as it has been in decades prior. In fact, despite faltering GDP growth and an increasingly hostile global trade environment, China’s UnionPay ‘is expected to continue to be the largest international network for the foreseeable future, [as the] size of the Chinese market will continue to drive UnionPay’s share.’ Given its state-sanctioned monopoly on card payments in China, the story of UnionPay’s rise is inherently linked to the growth of the Chinese economy and the emergence of the Chinese consumer; as evinced by the sharp drop in its share of global card spend in 2022 as Chinese consumers reined in their spending, the vicissitudes of the Chinese economy and consumer dictate the vicissitudes of UnionPay’s fortunes.

Indeed, the policy impetus for UnionPay’s eventual creation was formulated in the 1990s, as the ‘average annual [GDP growth] rate of about 10% [that China had experienced from 1980 - 1998 resulted in] a significant increase in the income of individuals,’ which facilitated more ‘individualised and diverse’ consumer preferences, as well as a ‘diversification of financial institutions, financing methods and financial instruments,’ which in turn necessitated a ‘modernisation of the national payment system in China.’ During this period, a number of government projects aimed at moving the Chinese payments sector away from its reliance on ‘manual operations and using a large amount of notes and coin’ were commenced. One of these projects, referred to as the “Golden Card Project”, was started in 1993 and tasked with issuing ~300 million payment cards across ~400 Chinese cities by 2000, and in 1997, a national bank card center was established to provide interbank transaction services. Both of these projects, as well as others commenced during the period, paved the way for UnionPay’s establishment in 2002. In 2010, after less than a decade of operations, UnionPay had issued more cards than any other network in the world, and in 2015, UnionPay became the largest payment network in the world by card spend (Figure 2), arguably a more important metric.

Although UnionPay’s meteoric rise during the 2010s was not covered particularly widely, its competitors certainly took notice. In 2011, shortly after UnionPay became the largest global card network by number of cards, the United States (on behalf of major American card networks like Visa, Mastercard, and American Express) filed a dispute against China and UnionPay with the World Trade Organization (WTO), claiming that UnionPay’s monopoly on “electronic payment services for payment card transactions denominated and paid in renminbi in China” violated the General Agreement on Trade in Services (GATS), to which China became a party when it joined the WTO in 2001. Despite the WTO finding that UnionPay did in fact possess a monopoly on “yuan payment cards issued and used in China,” and requiring China to enact reforms that would level the playing field for UnionPay’s international competitors, not much has changed for global card networks operating in China in the twelve years since the WTO issued its ruling. In 2020, through joint ventures (JV) with local Chinese entities, both Mastercard and American Express were granted clearing licenses enabling them to begin processing yuan-denominated card payments and issuing cards in the country, but progress has been slow, as American Express’ JV is still unprofitable and Mastercard’s JV took 4 years to actually commence operations, having processed its first transaction in May 2024. Visa, which has opted to pursue establishing a wholly-owned China subsidiary instead of entering into a partnership with a local entity, has not yet received a clearing license, despite being ‘the first [international card network] to submit its application for a license in July [2017], after the People's Bank of China (PBOC) … issued the guidelines [for obtaining a license] on June 30 [of that year].’

That Visa’s attempts at entering China independently have been less fruitful than American Express and Mastercard’s JV approach is not a coincidence — softly coercing foreign firms into JVs with local entities in exchange for market access is a strategy that China has employed repeatedly, across various sectors (I explore this phenomenon in detail in this essay, about technology transfer in China’s commercial aviation industry). Regardless of the WTO ruling, the likelihood of China willingly weakening UnionPay’s monopoly power over payments in the country is low to nonexistent given the critical role that UnionPay plays in advancing several of the Party’s political objectives. From the centralization of financial data, to controlling the flow of capital (the government has periodically imposed limits on overseas withdrawals of UnionPay customers), to overseeing the financial sector and preventing systemic risks, to yuan internationalization (UnionPay cards have been issued in 81 countries/regions outside of China and are accepted in over 180 countries/regions), all of these goals are made more achievable through the government’s control of UnionPay and the company’s monopolization of Chinese payments; even if Mastercard and American Express can now legally operate in China, the Party will not let their competition jeopardize its longer-term strategic aims.

Although UnionPay is huge, its size is ultimately just a function of its monopoly control over the entirety of the Chinese market for payments. What is most important about UnionPay is the fact that it is a testament to the power of industrial policy even in inward-facing services industries. We often think of industrial policy as only being useful in manufacturing and trade-oriented industries, but the example of UnionPay shows us that industrial policy can play a role in advancing political objectives beyond managing trade balances and developing competitive advantages in certain manufacturing sectors. For larger economies especially, managing the market access of foreign services firms can be leveraged to develop domestic services and advance political objectives, just as China has done with UnionPay. With domestic-only payment networks in countries like Turkey, Indonesia, and India having processed more than $1 trillion in transactions for the first time ever, other large economies seem to be increasingly aware of this truth.

To be clear, although UnionPay is undoubtedly critical in enabling the Chinese government to achieve its strategic aims in global finance, it is important to note that UnionPay is only building the infrastructure through which the yuan will challenge the dollar for global hegemony; it is one thing for UnionPay cards, and hence renminbi, to be accepted or issued in a foreign country, and it is another thing entirely for them to actually be used significantly, especially relative to other global payment networks and currencies. With that said though, the globalization of UnionPay’s network does still present a challenge to the dollar’s role in the international financial system, which the Senate Committee on Banking, Housing, and Urban Affairs highlighted in a letter to then-Treasury Secretary Yellen and then-US Trade Representative Tai in late 2023, calling on the Treasury and Trade Representative to ‘(1) closely examine the infiltration of Chinese payments networks into the U.S. … (2) ensure the U.S. payments providers are not disadvantaged by China’s reckless disregard for international agreements; and, (3) conduct a review of any potential gaps in U.S. sanction authority created by the CCP’s expansion of its [Cross-Border Interbank Payment System (CIPS)].’ Combatting the UnionPay threat and maintaining American card networks’ dominance of global payments, though, is less about monitoring the operations of UnionPay in America and more about keeping the American economy and dollar fully-integrated into the world system; as America seems to be more reclusive and isolationist than ever before, such tendencies inherently pose risks to the dollar’s status in global trade and simultaneously strengthen the renminbi’s international appeal.

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During the 1980s, there were only about 3 disasters every year that caused more than a billion dollars in damage in the United States. Today, that number has grown nearly eight times, to 23. The economic carnage wrought by natural disasters has not only worsened in the United States; the World Meteorological Organization estimates that global economic losses from disasters have increased nearly five-fold since the 1980s, from $289.3 billion then to $1.4 trillion during the 2010s. The likelihood and severity of nearly every kind of natural disaster increases as climate change intensifies across the globe. As the U.S. Geological Survey explains, ‘with increasing global surface temperatures the possibility of more droughts and increased intensity of storms will likely occur. As more water vapor is evaporated into the atmosphere it becomes fuel for more powerful storms to develop. More heat in the atmosphere and warmer ocean surface temperatures can lead to increased wind speeds in tropical storms. Rising sea levels expose higher locations not usually subjected to the power of the sea and to the erosive forces of waves and currents.’ Hence, as temperatures have risen globally, so too have the economic risks of natural catastrophes.

Unsurprisingly, there is arguably no industry more preoccupied with risk than the insurance industry, as an insurer’s profitability is directly linked to its ability to accurately evaluate, price, and anticipate various kinds of risk. As climate risks become more intractable in many parts of the United States though (like wildfire-prone parts of California and hurricane- and flood-prone parts of Florida), large private insurers like State Farm, Allstate, and The Hartford are increasingly stepping away from those areas altogether, ‘deterred by more intense and frequent natural disasters, [as well as] state-imposed limits on how much they can charge’ for their insurance services. The vacuum of private insurance firms in areas where their services are needed most has necessitated the creation of government-owned/-operated “insurers of last resort”, typically referred to as “residual insurers”, whose ‘plans have more than doubled their market share since 2018,’ highlighting their increasing significance to the insurance system; Florida’s residual insurer, Citizens Property Insurance Corporation, ‘is already the largest single insurer in the state,’ for example. Even as residual insurers replace private ones in many areas though, the fundamental issue — that climate-linked economic risks are becoming too expensive for single insurers to underwrite — persists.

In California and Florida alone, residual insurers face $290 billion and $525 billion in potential claim liabilities respectively, which in the event of a severe-enough catastrophe, would exceed their assets and create gigantic deficits. This “risk protection gap” or “insurance protection gap”, between potential economic losses and losses the insurance system can actually cover, isn’t only a problem for residual insurers in America; PwC estimates that, as of this year, the global protection gap could be anywhere between $1.67 trillion and $1.87 trillion, with North America making up less than 20% of the total (Figure 1). Furthermore, PwC believes that, as climate change has intensified natural disasters and enabled them to yield more severe economic losses, annual growth in the protection gap is actually simultaneously accelerating, as ‘[an] erosion of trust [in the financial services industry], combined with lack of access and poor financial education, has made customers less likely to buy insurance.’

In such an environment, where the economic risks of natural disasters are greater than ever before and insurance policies are also less likely to be written given growing skepticism and barriers to access, new solutions to safeguarding against disaster are necessary. One growing alternative to traditional insurance for governments and corporations across the world has been the issuance of so-called “catastrophe bonds” or “cat bonds”, which are debt instruments that enable the issuer of the bond to receive a payout if a catastrophic event occurs in exchange for regular interest payments and principal repayment if the catastrophic event does not occur. In many ways, catastrophe bonds are essentially “marketized” insurance policies, enabling those in need of insurance to seek it from the broader capital markets as opposed to a single insurer, and granting insurance providers access to a relatively liquid, tradeable market of bonds that makes risk management easier. In fact, some of the earliest issuers of catastrophe bonds were residual insurers. In a 2014 report, A.M. Best claimed that residual insurers “have welcomed the availability of … catastrophe bonds … to transfer some of their peak risk exposure to the capital markets,” with Florida’s Citizens Property Insurance Corporation issuing a $1.5 billion cat bond in that year, which was the single biggest cat bond issuance ever at that point. Since 2014, annual issuance in the cat bond market has nearly doubled, from just over $9 billion then to almost $18 billion in 2024, with nearly $50 billion in cat bonds outstanding today (Figure 2).

Despite the marked growth of the cat bond market over the past decade, much of that growth has been concentrated in the United States, with smaller pockets of activity in Japan and Europe (Figure 3). Developing world economies have not been completely closed off from cat bond markets though, with the World Bank facilitating prominent cat bond transactions for Jamaica, the Philippines, and the Pacific Alliance countries (Mexico, Colombia, Peru, and Chile). The most successful of the World Bank-backed cat bonds seems to have been the Pacific Alliance series of cat bonds, which raised $1.36 billion of protection against earthquakes in the Pacific Alliance countries. In 2019, after an 8.0 magnitude earthquake struck Peru, the country became eligible for a $60 million payout pursuant to its $200 million portion of the overall collection of Pacific Alliance bonds, which ‘helped relief and recovery resources be disbursed … precisely where they were needed.’ Outcomes in the Filipino and Jamaican bonds seem to have been less successful though, with the Philippines declining to renew its $150 million cat bond coverage even after receiving a $52.5 million payout after super typhoon Rai / Odette struck the country in 2021, and Jamaica failing to receive a payout at all on its $150 million bond despite being devastated by hurricane Beryl in 2024, since the cat bond’s payout trigger stipulated that air pressure in the eye of the hurricane must fall below 950 millibars (generally, as a hurricane’s air pressure falls, the stronger the storm becomes) — Beryl’s lowest recorded air pressure was 959 millibars. Although cat bond structuring issues do need to be resolved, the industry is largely still in its nascency, especially in developing economies. As cat bond structures and the broader market evolve and mature, lessons from past failures (as with the case of Jamaica and hurricane Beryl) will hopefully inform the market’s development.

To more effectively safeguard against intensifying climate change and natural disasters, cat bond markets must expand deeper into the developing world, where protection gaps are projected to be the widest (Figure 1), and where climate change will have disproportionate and likely more severe economic impacts. Additionally, as the much-anticipated Loss and Damage Fund (LDF) continues to face funding and administrative hurdles, the expansion of cat bond markets into the developing world could be a stopgap measure implemented to address near-term risks that require more immediate attention than solutions like the LDF could provide, and could ultimately be incorporated into a broader portfolio of multilateral financing solutions for developing countries facing drastic economic regression as a result of climate change.

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In 1986, after a 25-year career at Texas Instruments, Morris Chang arrived in Taiwan with a mandate from Taiwanese ministers to develop the island’s semiconductor industry, which was vying for relevance in the global semiconductor supply chain alongside various other East and Southeast Asian economies. Shortly after arriving in Taiwan, Chang founded the Taiwan Semiconductor Manufacturing Company (TSMC), and the rest, as they say, is history; in TSMC, Chang created the world’s first semiconductor “foundry”, producing chips at scale for other companies that design their own chips but lack the capabilities to actually manufacture them (like Apple and Nvidia, for example), fundamentally reshaping the global semiconductor industry and Taiwan’s place in it forever. Interestingly though, Chang was already “[toying] with the idea of creating a semiconductor company that would manufacture chips designed by customers” while still at Texas Instruments. As early as 1976, Chang pitched his foundry idea to executives at Texas Instruments, but they did not believe in Chang’s vision of the future in which chip design and chip production would become increasingly separate processes as chip technology advanced, making large-volume chip production more complex and expensive, necessitating the creation of a specialized semiconductor manufacturing company that could handle chip production for a large array of client firms. Although Taiwan and the foundry business model are now inextricably linked, the world’s first foundry could very well have been located in America (or at least founded by an American firm) had Texas Instruments executives heeded Chang’s prescience.

In an ironic and full-circle twist though, more than four decades after Texas Instruments rejected Chang’s foundry proposal, TSMC is now building its newest fabs in America, as rising tensions between the US and China make the onshoring of chip manufacturing capabilities a critical political objective for American policymakers. Given that Chang first proposed his foundry model to executives at Texas Instruments, one might assume that he would still be generally supportive of establishing foundries in America, but it seems his opinions on such an endeavor have changed somewhat; in an interview with the Brookings Institution, Chang claimed that the “US’ efforts to increase onshore manufacturing of semiconductors is wasteful and an expensive exercise in futility due to a lack of manufacturing talent and high costs [sic].” Chang is not alone in his belief that human capital (or a lack thereof) is a key headwind facing the development of advanced semiconductor manufacturing in America. In a research report published by the Chung-Hua Institution for Economic Research, Kristy Tsun Tzu Hsu claims that “the working culture of Taiwan and South Korea require full commitment and rigid discipline at the workplace” and that “most Taiwan semiconductor companies … arrange two shifts of workers a day to fully utilize their manufacturing capacities,” going on to explain that “[such] practices are … not usual in the United States.” In a report from the International Data Corporation, researchers assert that “[chip foundry employees] must not only be willing to work in shifts but should also possess a culture of ‘immediate response’ when problems arise. In a high-yield, high-productivity fab … engineers and production line personnel need to … be on-call even during off hours.” Additionally, the researchers claim that, “[in the U.S., where most of the talent is oriented to software, IDA/IP, and Fabless, it may … be difficult to establish the talent and cultural mindset for semiconductor manufacturing.” Similarly, in a report for the Swedish Defence Research Agency, Tobias Junerfält claims that “many East Asian semiconductor companies have employees that are used to being available around the clock,” and that “[work] ethics and views on work-life balance are difficult to export to countries with laxer working conditions.” In an interview with Nikkei, Konrad Young / Yang Guanglei, a former TSMC executive and professor at the National Taiwan University Graduate School of Advanced Technology, goes so far as to identify Asia’s “Confucian culture” as the reason why “Taiwan and South Korea are … perfect … for developing semiconductor manufacturing,” explaining that Confucian culture has made available “professionals with solid engineering training … willing to follow orders and willing to work overtime to get things right” in those economies. In another interview, Young / Yang explains that “culturally, compared to American individualism, Confucian culture allows Taiwanese talents to have personality traits that are more willing to sacrifice themselves and achieve the long-term interests of the company,” citing this cultural difference as a key reason for the success of semiconductor manufacturing in East Asia and the futility of attempting to engineer similar developments in America.

Despite reservations about American workers’ ability to replicate the productivity and efficiency of East Asian workers in chip manufacturing, early results at TSMC’s newest fab in Arizona imply that the assumptions Chang, Young, and others have made about the compatibility of American work culture with successful semiconductor manufacturing may have been too pessimistic; in a late 2024 webinar, Rick Cassidy, President and CEO of TSMC North America, claimed that “the share of chips manufactured at TSMC’s facility in Phoenix that are usable is about 4 percentage points higher than comparable facilities in Taiwan.” Although the team of workers that achieved those results would have been composed of both Taiwanese and American employees, the Arizona fab yields are an empirical refutation of the largely speculative arguments against American chip manufacturing on a cultural or talent basis. As the results at TSMC’s Arizona fab make the culture argument for East Asian competitive advantage in semiconductor manufacturing feel spurious, a more compelling explanation for the dominance of East Asian economies in advanced semiconductor manufacturing (Figure 2) could simply be government-led industrial policy.

Since the twentieth century, targeted industrial policy across various East Asian economies has facilitated strong leadership in semiconductor manufacturing in the region. In Chip War, Chris Miller explains how a $400 million investment commitment by the South Korean government, as well as an accommodative lending environment facilitated by the country’s banks, is what spurred Samsung Group founder Lee Byung-chul to expand the group’s activities into semiconductor manufacturing in the 1980s. In Taiwan, The Taiwanese government itself provided 48% of TSMC’s startup capital, “stipulating only that [TSMC] find a foreign chip firm to provide advanced production technology,” which it eventually did in Philips, which exchanged production technology and intellectual property for a 27.5% stake in TSMC. The Japanese government subsidized domestic chipmakers, too; in addition to competitively low interest rates and quotas that limited the number of chips American firms (like pioneering semiconductor companies Fairchild, Texas Instruments, and Western Electric) could sell in Japan, the Japanese government launched and provided substantial funding for a semiconductor research consortium that facilitated cooperation between domestic semiconductor companies. Miller also explains how, even though memory chip manufacturer Micron is an American firm, “government subsidies in … Singapore encouraged [the company] to maintain and expand fab capacity there.” In summary, Miller asserts that “[Asian] governments … have elbowed their way into the chip industry by subsidizing firms, funding training programs, keeping their exchange rates undervalued, and imposing tariffs on imported chips,” as well as partnering with Western firms to acquire critical production technology and intellectual property, “[yielding] certain capabilities that no other countries can replicate,” or in other words, competitive advantage.

Although culture no doubt plays a role in competitiveness, the real source of sustained East Asian competitive advantage in semiconductor manufacturing has been a decades-long commitment from various East Asian governments to support the development of such capabilities in their jurisdictions. Regardless of cultural differences between America and East Asia, now that the American government has identified advanced semiconductor manufacturing as critical to national political, security, and economic objectives, there is no reason to expect that well-crafted industrial policy will not affect outcomes similar to those it has yielded for the various economies of East Asia.

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Indian stocks had a bumper 2024, trailing only the NASDAQ Composite and S&P 500 in terms of percentage growth during the year. Despite their strong performance however, Indian stocks have experienced ‘increased foreign capital outflows’ since late September, when China’s central bank unveiled its ‘most aggressive stimulus since [the] pandemic,’ which was followed by further announcements of broad stimulus by other parts of the Chinese central government. As Appaloosa founder David Tepper’s exuberance on Chinese markets in late September illustrated, news of stimulus in China suddenly made underperforming, out-of-favor Chinese stocks attractive to emerging markets investors, especially compared to Indian ones, given the average price-to-earnings (P/E) ratio on Indian stocks had reached 25.78x in October compared to 9.41x for Chinese stocks. Essentially, emerging markets investors have been rebalancing their portfolios, taking profits from ‘expensive’ India and investing them in ‘cheap’ China, driving a historically strong negative correlation between Chinese and Indian markets (Figure 1). Despite the wide gap between valuations in India and China though, the negative correlation between the two markets is unlikely to persist given the two markets’ history of a strong positive correlation, but the ongoing India-China rebalancing is indicative of a problematic mindset predominant among many global investors — namely that India and China cannot simultaneously be engines of global growth.

Nowhere is this belief more apparent than in the decades-old debate among pundits about whether India will in fact be the ‘next China.’ For years, market watchers have posited that slowing growth in China and accelerating growth in India will yield a change in fortunes for the two countries, leaving China in economic malaise and India as the new darling of emerging markets. This view not only disregards the strong positive correlation the two markets have shared for a majority of the past two decades, but it also fails to account for size differences between the Indian and Chinese economies. Even as Chinese GDP growth has slowed to the 4-5% range while Indian GDP growth has remained between 6-7%, the GDP gap between China and India will grow to $20.88 trillion by 2034, assuming constant rates of growth for both countries; while it is true that Chinese growth has moderated relative to Indian growth, the sheer size difference between the two economies implies that the dollar value of growth China contributes to the global economy will be larger than India’s contribution for some time. The issue with the ‘next China’ argument is that investors seemingly view the rise of India as inherently negative for China (and vice versa, hence the negative correlation the two markets are currently experiencing), but this line of thinking is flawed, since the economies India’s rise is most likely to displace are those of Japan and Germany.

As the competition for the title of world's largest economy has become a two-horse race between America and China, the rest of the world’s economies are left to compete for 3rd place, 4th place, and so on. Regardless of whether the Chinese economy ultimately triumphs in dethroning America’s in GDP rankings, it is unlikely that it will shrink so substantially that it faces a real challenge for 2nd place from any of the economies currently ranked just behind it, India included. Instead of India ‘replacing’ China, what is more likely in the near future is the advent of a global south-led world economy with China’s economy being either the largest or second largest economy in the world (behind America’s) and India’s being third, flipping the top 3 spots from 2-1 global north (global north: America and Germany; global south: China) to 2-1 global south (global north: America; global south: China and India). Essentially, instead of India being the ‘next China’, what is more likely is that the Indian economy will one day be to the Chinese economy what the Japanese and German economies have been to America’s in terms of global economic order. The recent negative correlation between Chinese and Indian markets suggests that many investors still do not appreciate the growing likelihood of this paradigm shift in global markets. Moving out of India to invest in China is myopic since the long-term trajectories of both economies are moving in the same direction; they both still remain on track to challenge their global north analogs (China/America; India/Germany and Japan) in the global economic order. Increasingly, many of the world’s ‘emerging’ markets have in fact emerged, making comparisons with developed nations more apt than ever before, and the ‘emerging’ label more nebulous than ever before.

As much as the Indian Media would like to draw comparisons with China, the fact is that the size of the Indian economy dictates that its competition is less with China and more with South Asian, Southeast Asian, and East Asian economies excluding China. A 2019 report by Nomura pointed out that of the 56 American companies that left China, 6 relocated to Vietnam, 11 went to Taiwan and 8 to Thailand. Only 3 moved to India. More recently, the World Bank highlighted that India is losing ground to Vietnam and Bangladesh (Figure 2). Even in traditionally strong manufacturing sectors of Apparel, Leather, Textiles, and Footwear (ALTF), India has been losing ground to Vietnam and Bangladesh since 2013 when the country peaked at a 4.5% share of the ALTF market.

The World Bank report further buttresses the point that India’s competition is not with China but rather with other ‘emerging’ economies and even with ‘developed’ countries. Among the top five countries that benefited from China's loss in share of global exports in low skill sectors are Bangladesh, Vietnam, Poland, Germany, and France. India, with its large unskilled and relatively cheap labour force, remains absent from this list. Further, limited infrastructure, logistical limitations, gaps in technology and skills, and policy uncertainty has prevented India from becoming part of global value chains (GVCs) and consequently has resulted in lower exports. Its potential as a high value participant in these GVCs has been subsumed not by China but by emerging and developed countries alike. For Europe, India is both a competitor and a market. The free trade agreement (FTA) between the two remains the subject of apprehensions and uncertainty. The Niti Aayog, India’s apex public think tank, has stressed that lower tariffs and openness to signing FTAs has led Vietnam, Thailand, Cambodia, and Malaysia to tap into the benefits of manufacturing moving out of China. Given India’s size, for it to make the best of the China +1 strategy, the European gamble may be a sure shot way. Competition and, importantly, political compromise - in matters of trade - with the European Union may allow India to tap into the China +1 bandwagon.

Another reason why India may not be the next China is perhaps one that will be seen with mournful regret in a few decades. India will soon approach its population peak in the 2060s and its demographic boon will start turning into its bane by the 2050s. With its current growth rate it is unlikely India can provide fertile opportunities to its youth. On the other hand, China’s population grew and peaked at its most prosperous time. When compared with the South and Southeast Asian regions, India’s labour force participation rate (LFPR) was only greater than those of Pakistan and Sri Lanka, and only greater than Nepal’s since 2018. A demographic dividend greater than that witnessed by China may very well be squandered.

This trend, of emerging market economies competing less amongst only themselves and more with developed economies, is indicative of the phenomenon illustrated by Figure 4. After migrating westward during the 20th century and thereafter, the world’s economic ‘center of gravity’ is returning to the east, driven by the outsized growth that both China and India are experiencing relative to their western counterparts. Investors subscribing to the India as ‘next China’ argument and driving the negative India-China correlation are anchored to an increasingly anachronistic view of the global economy and emerging markets’ role therein; the economies of the emerging world are focused less on becoming the ‘next China,’ and more on finding their place in the new order China’s rise has precipitated.

The notion of India becoming the ‘next China’ misses the crucial point that both nations are part of a broader transformation in the global economic landscape. While China and India will likely continue driving global growth, their roles will be complementary rather than competitive. India's immediate challenge lies not in matching China's economic scale, but in effectively competing with both regional peers like Vietnam and Bangladesh, and developed economies like those of Western Europe and East Asia (ex-China). As the global economic center shifts eastward, the question objectively isn't whether India will replace China, but how both nations will reshape the existing world order alongside their developed and emerging market counterparts.

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In recent years, China has cemented itself as the global leader in renewables manufacturing. At the end of 2022, China’s 759 gigawatts of installed wind and solar capacity outstripped that of the EU and America combined, which stood at just 659 gigawatts. China is even outpacing its own stated renewable energy goals, with its 2030 benchmark of 1,200 gigawatts in wind and solar installations set to be eclipsed in 2024, almost six years ahead of schedule (Figure 1). In the production of batteries (Figure 2) and electric vehicles (EVs), China also leads the world; in 2023, nearly 60% of all new EVs were registered in China, compared to only 25% and 10% in the EU and America, respectively. Although China’s dual goals of peak carbon dioxide emissions before 2030 and carbon neutrality before 2060, announced by Xi Jinping at a United Nations General Assembly meeting in 2021, will require even further progress and development in Chinese renewables capacity, that such goals are even realistically within reach is a testament to China’s proactive attempts at addressing the existential threat of climate change.

Despite official commitments to collaboration on climate change from both China and the west, regional rifts are forming in the global response to the issue. In May 2024, just days after ‘seemingly cordial US-China climate talks,’ and less than a year after the release of the Sunnylands Statement that outlined a comprehensive framework of US-China climate cooperation, a raft of US tariff increases on Chinese renewable manufactures was announced. Similarly in the EU, despite a long history of cooperation with China on climate and energy, increased tariffs on Chinese EVs were announced after a series of broader probes into Chinese producers of renewable goods.

Western policymakers are so opposed to unfettered market access for Chinese renewable goods because of the high levels of support Chinese renewables producers have received from the Chinese government. In a May 2024 speech at a Group of 7 (G7) meeting of finance ministers and central bankers, US Treasury Secretary Janet Yellen claimed that ‘China’s industrial overcapacity … [is] being aggravated by Chinese direct and indirect government support to the manufacturing sector … leading to production in some industries that significantly exceeds not only China’s domestic demand but also what the global market can bear.’ In another May 2024 speech, Secretary Yellen addresses Chinese overcapacity specifically in renewables, stating that ‘China’s industrial overcapacity … is currently leading to production that significantly exceeds global demand in … electric vehicles, lithium-ion batteries, and solar … [posing] a threat to the development of clean energy industries around the world.’

Although Chinese renewables overcapacity may hinder the development of renewable goods production in other parts of the world, the urgency of the global climate crisis demands immediate proliferation of existing solutions; refusing renewable goods based on country of origin is a myopic strategy that will set the west’s energy transition back by years if not decades. Yellen’s stance is indicative less of a preoccupation with collaboratively addressing global issues and more with prioritizing American economic interests even at the expense of just-as-important climate action.

Even if western firms could magically replicate the robust supply chains and productive scale of Chinese renewables producers overnight, the costs of such a grand project would be hard to justify. Cost is such an important factor in facilitating the world’s energy transition because the entire world — not just the G7 — will need access to renewable goods for a successful and timely transition; through its “overcapacity” in renewables, China is making the energy transition cheaper and thus more feasible for the developing world. In solar panels alone, Chinese supply has driven the price of a solar module from 27 cents per watt in 2022 to 11 cents per watt in 2024, more than halving the price of a component critical to the transition in just two years’ time (Figure 1).

Although the deflationary effect of Chinese overcapacity is making the transition cheaper for the entire world, deflation is a net negative for producers. Since the Chinese supply of renewable goods so vastly outstrips domestic demand, Chinese renewables producers must endure intense price competition at home (often referred to as 内卷 nèijuǎn or “involution”) as they wait for global demand to pick up and ultimately justify years of central government support. Yellen and other western policymakers must understand that developing a western renewables industry from scratch to rival China’s will necessitate a similar process of involution and largely unprofitable production in their own countries, but given the drastically differing political and labor relations contexts, such undertakings may yield more troublesome issues than just overcapacity. Essentially, in this stage of the transition where largely commodified goods have yet to fully proliferate across the globe and give rise to the adoption of more advanced and complex renewable goods and services, letting China ‘foot the bill’, so to speak, may be the west’s best chance at catching up and being competitive in the energy transition’s coming iterations.

Not only do western tariffs on Chinese renewables fly in the face of already-announced commitments to collaboration on climate action, but they also ultimately make the west’s transition costlier and longer and hinder western firms from leveraging Chinese renewables progress to their advantage. As it stands now, the west is squarely behind China in renewables innovation, but if it can embrace Chinese technology while also encouraging western entrepreneurs to generate their own renewable breakthroughs and advancements through intentional technology transfer, then the future of renewables production will be the west’s for the taking.

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*** Happy holidays to you and yours from The economy, stupid. This will be the last post of 2024. Be sure to subscribe now to get the first post of 2025 sent directly to your inbox. ***

Read Part I here:

The Contours of the Indonesian and Global Nickel Trade

Like Congolese dominance in the production of cobalt, Indonesia dominates global production of nickel, another mineral critical to the world’s ongoing energy transition as well as to the production of stainless steel. In 2023, Indonesia produced 1,721 kt of nickel, while the Philippines, the world’s second largest producer, was responsible for just 365 kt of production. Interestingly though, despite its vast margin of leadership in global nickel extraction, Indonesia was only the twelfth largest exporter of nickel ore in 2022, exporting just over USD $50 million worth of nickel ore compared to first place exporter the Philippines’ USD ~$1.3 billion worth of nickel ore exports in the same period.

Indonesian nickel ore exports are so low because of strict export bans first imposed in 2014 and reinstated in 2020 in an attempt to broaden the country’s activities in the nickel sector beyond simple extraction. Despite large disruptions to the Indonesian nickel industry in the years immediately following the first imposition of the nickel ore export ban, the strategy seems to have yielded its intended effects, which were to enable Indonesia’s capturing of more of the added value from nickel processing; whereas in 2013, Indonesia exported more than 60,000 kt of nickel ore (unrefined, raw material) at a value of USD ~$2.5 billion, the country exported about 6,000 kt of ferronickel (processed nickel used in stainless steel manufacturing) at a value of USD ~$13 billion in 2022.

Inbound FDI in mining and quarrying to Indonesia dropped sharply from 2014 – 2016, briefly recovering in 2017 coinciding with the government’s decision to partially relax the nickel export ban, only to resume sharp declines thereafter until 2020. Despite overall declines in inbound mining FDI to Indonesia during this period, Chinese FDI inflows grew both on an absolute basis and as a share of the total; where the rest of the global nickel industry saw risk, Chinese stakeholders saw immense opportunity. Whereas Indonesia’s first imposition of the nickel ore export ban drove declines in inbound FDI, its reinstatement of the export ban in 2020 drove increases in inbound FDI, this time from non-Chinese firms looking to replicate the Chinese strategy after the first export ban imposition.

Despite more recent investments by non-Chinese refiners, the nearly half a decade of virtually exclusive access to Indonesian nickel ore that Chinese firms enjoyed have given them a formidable head start in supply chain development. Additionally, as Chinese FDI after the first export ban imposition went mostly to building nickel refining capacity in joint ventures with Indonesian firms, the Indonesian government is now more actively overseeing the development of the domestic nickel refining sector, with little interest in greater capacity for ferronickel refining (used in stainless steel manufacturing) and more interest in building capacity for nickel intermediate and unwrought nickel refining (used in battery manufacturing).

The years following the imposition of the first export ban were particularly difficult for domestic Indonesian miners. As Chinese capital rushed in via joint ventures with Indonesian firms to build refining capacity, and as the government explicitly promoted more value-additive nickel activities, ‘capital-intensive [refiners] … benefited enormously, while mining firms … suffered.’ Since Indonesian ASMs and LSMs were prohibited from selling nickel ore on international markets thanks to the export ban, their only customers were the small crop of Chinese-backed Indonesian refiners. Thousands of Indonesian ASMs and LSMs were providing nickel ore to only a handful of refiners, ‘[creating] a race to the bottom to compete for the limited domestic nickel market, allowing the smelting firms to push down the price [of domestic nickel ore].’ Chinese-backed refiners not only had virtually exclusive access to Indonesian ore during this period, but given their concentration and market power relative to Indonesian nickel miners, they were able to access this ore at prices cheaper than prevailing rates on international indexes.

As Massot’s framework predicts, fragmented production relative to concentrated or coordinated consumption yielded an asymmetric relationship between producers and consumers that nickel refiners operating in Indonesia were able to leverage to their advantage. Interestingly though, despite Indonesian industrial policy essentially creating a goldilocks environment for Chinese firms to exercise market power, this situation yielded immense development boons for the Indonesian nickel sector and its economy more broadly, especially in relation to the Congolese experience in cobalt mining despite Chinese firms having no clear position of market power in that instance.

Case Comparison and Conclusion

In both the Congolese cobalt and Indonesian nickel cases, the global energy transition and China’s disproportionately large demand for raw inputs created invaluable opportunities for both the DRC and Indonesia to devise strategies for leveraging their abundance of natural resources. Congolese policymakers sought to “get in at the ground floor,” granting foreign LSMs mining concessions that often required partnership with and granting off-take rights to Gecamines. Indonesian policymakers sought to transcend the mere extraction of its natural resources altogether, encouraging foreign refiners to partner with Indonesian firms and establish domestic refineries that added more economic value relative to extraction alone. Whereas economic development was sought without regard for the full extent of the supply chain for transition-critical minerals in the Congolese case, the Indonesian case presents a more prudent, future-oriented approach to leveraging a country’s natural resource abundance. Essentially, Indonesian policymakers sacrificed the short-term revenues generated from the export of unrefined natural resources as an opportunity cost of attracting FDI to build capacity in higher value-added midstream and downstream activities that were dependent on its vast raw material reserves. Although the DRC has generated substantial revenues from its own vast reserve of raw materials from taxes on and off-take agreements with LSMs, the mining rush will eventually subside, and more sustainable sources of income will need to be devised.

In either case though, what is clear is that the real shaper of market interactions with Chinese and other foreign stakeholders were the national governments of the DRC and Indonesia themselves. Despite their outsized hunger for raw materials, Chinese firms were subject to the same policies and market forces, dictated in each case by Congolese and Indonesian policymakers, to which all other foreign firms were subject. In the DRC, as Gecamines sought to maximize revenue from cobalt extraction, Chinese and non-Chinese LSMs alike agreed to its concessions, establishing operations and creating a fragmented production landscape that sold to a predominantly Chinese array of increasingly fragmented refiners. Just as in the Indonesian case, the dominant source of refining demand came from China, but the difference was that Chinese cobalt refiners had no policy impetus (as they did in Indonesia) to establish refineries in the DRC and contribute to the downstreaming of Congolese activities in cobalt in exchange for access to the country’s reserves. Both Indonesia and the DRC leveraged Chinese demand for their natural resources to achieve their development goals, but the difference in outcomes lies in the difference in their development goals; whereas the DRC’s goal was to profit directly from Chinese (and international) demand for unrefined cobalt, Indonesia’s goal was to manifest Chinese (and international) demand for unrefined nickel into new, more complex and value-additive activities for its economy from which future profits could be derived. Given its aims at securing the raw materials needed to power its desired leadership in new energy industries, China was happy to oblige the policy directives of the Indonesian and Congolese governments in both cases. Interestingly though, despite their willingness to extract cobalt in the DRC without the need to also invest in facilities to refine it there, much of the international business community balked at the Indonesian government’s intent to implement such a plan for Indonesian nickel with the imposition of the first export ban in 2014. The market power afforded to Chinese nickel refiners in Indonesia was a direct result of their willingness to engage with the Indonesian government’s development plans while the rest of the industry largely exited the country as evinced by the sharp declines of inbound FDI Indonesia experienced after enacting the export ban; had other international refiners joined China in investing in Indonesian nickel refining capacity, the virtual monopsony Chinese nickel refiners enjoyed after the ban would likely not have materialized.

Despite claims of mercantilism stemming from large Chinese demand for raw materials and Chinese investment across the global south to access these raw materials, a comparison of the Indonesian nickel and Congolese cobalt cases calls these claims of mercantilism into question given China’s lack of market control (as characterized by Massot’s framework) in either case. Instead, the truth that seems to arise from a close analysis of both cases is that neither Chinese market vulnerability nor market power necessarily yield specific development outcomes; rather, global south nations must leverage China’s place in critical mineral supply chains as well as its huge demand to their advantage through cooperation and the structuring of compelling industrial policy to achieve their own internally determined development goals.

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This essay was originally published in the “China in the Global South” Special Issue of the Tsinghua International Relations Review.

This essay was originally published in the “China in the Global South” Special Issue of the Tsinghua International Relations Review.

Since the early 2000s, China’s unprecedented demand for commodities has led to its rise as dominant consumer in several global commodity markets. For example, China became the world’s number one importer of potash in 2002, iron ore in 2003, copper in 2008, and uranium in 2010; in just a few decades after its period of reform and opening-up, China had arrived as a node of real significance in the world’s commodity supply chains. China’s rise as dominant global commodities consumer displaced incumbent dominant consumers (often Japan) and brought about substantive changes to the structure of many individual global commodity markets. Although it seems intuitive that such changes would always have been positive for China and at its behest, the opposite was often just as likely; even though China’s demand for commodities granted it a significant role in numerous commodity supply chains, the country was not always able to leverage its newfound significance into positions of market advantage. Paradoxically, in some cases China was even unable to leverage its dominant consumption to prevent unwanted changes in market structure as a result of its rise and displacement of other consumers. Understanding this paradox of market power and vulnerability lies at the crux of China’s Vulnerability Paradox, Pascale Massot’s recently released examination of Chinese market power through case studies of its impacts on the global markets for iron ore, potash, copper, and uranium. In the book, Massot puts forward a novel and compelling framework for understanding why China’s rise as dominant global commodities consumer yielded different outcomes in different individual commodity markets. Her framework examines how concentration asymmetries between commodity producers and consumers impact the balance of market power between the two groups, and how this balance of power influences changes in market structure. Although Massot is primarily concerned with ‘the capacity and quality of the coordination that takes place among global producers and Chinese stakeholders … at the import/export interface,’ employing her ideas in the examination of Chinese interactions with specific commodity-producing countries yields compelling insights about the impact China’s rise as dominant global commodities consumer has had on the economic development of various countries in the global south.

Although China’s investments in the extraction of natural resources across the global south have often been characterized as exploitatively ‘mercantilist’ or ‘neo-mercantilist,’ an analysis of specific China-global south interactions in specific commodity markets reveals a more nuanced narrative. By applying Massot’s ideas to case studies of Chinese involvement in the Congolese cobalt and Indonesian nickel industries, Chinese market power in both cases will be clarified and its implications and outcomes in both countries will be better understood.

The Contours of the Congolese and Global Cobalt Trade

As the world’s shift towards renewable energy has accelerated, cobalt has been recognized as a critical mineral for the transition due to its usage in battery manufacturing; battery demand accounted for 73% of the cobalt market in 2023, and 93% of total demand growth in the same period. An overwhelming majority of the world’s mined cobalt comes from one place: the Democratic Republic of the Congo (DRC) (Figure 1). In 2023, the second largest source of cobalt production following the DRC’s 182 kilotons (kt) was Indonesia with a mere 16 kt (though Indonesia is investing heavily in greater cobalt mining capacity). As nearly 80% of the world’s cobalt is sourced from the DRC, the country is a critical point of concentration in the global cobalt supply chain, but at the domestic level, cobalt production in the DRC is relatively fragmented.

Extraction of Congolese cobalt is divided between large scale miners (LSM) and artisanal and small-scale miners (ASM), with ASM output historically providing approximately 10% of total Congolese cobalt production and trending higher during strong pricing periods (the global cobalt market is currently in a supply glut that has driven prices to recent lows). All legitimate ASM and LSM mining operations in the DRC are licensed and overseen by Gecamines, the Congolese state mining company. Gecamines also often invests as a minority stakeholder in joint mining ventures with foreign LSMs and arranges “off-take” agreements for trading rights to a specific proportion of a mine’s total output which, in addition to tax revenues from LSMs, helps the Congolese government benefit directly from granting LSMs concessions to Congolese mines.

Within the LSM segment, a number of large multinational miners including Swiss trading giant Glencore, China Molybdenum (CMOC), and Eurasian Natural Resources Corporation (ENRC) are active in the DRC, though Chinese LSMs make up the lion’s share of Congolese mining capacity with stakes in 15 out of 19 cobalt-producing mines as of 2020. Despite their formidable and growing presence in the DRC, Chinese cobalt miners seem to only partially coordinate their operations if at all, and LSMs of other nationalities remain competitive. Chinese influence over cobalt mine production (7% cobalt content) and cobalt intermediate production (22%-27% cobalt content) has been estimated at 14% and 33% respectively as late as 2016, indicating significant Chinese influence in the cobalt supply chain but not complete dominance or control. Additionally, the two most productive Congolese cobalt mines (which together produced 97 kt of the DRC’s 182 kt of 2023 cobalt production) are controlled by CMOC and Glencore respectively, further contributing to fragmentation (based on country of origin) among producers.

The largest consumers of raw and intermediate cobalt are global cobalt refineries, of which China again controls the lion’s share, with more than 78% of 2023 global cobalt refining capacity estimated to reside within the country. Like Chinese LSMs operating largely independently of each other in the DRC, it seems there is very little cooperation between domestic Chinese refineries in their interactions with global stakeholders, contributing to fragmented demand by Chinese refiners despite the country’s dominant consumption position. 11 unique Chinese cobalt refiners were identified in a 2016 report when China controlled 50% of global refinery production, but as the country’s dominance of refining capacity has grown, the number of unique Chinese refiners seems to have grown as well; in recent supply chain due diligence reports from multinational manufacturers like Renault, Ricoh, Asus, and Stellantis, upwards of 22 unique Chinese cobalt refiners are identified.

Despite the country’s outsized and growing share of cobalt refining capacity, the proliferation of unique Chinese refiners frustrates attempts at leveraging this dominant consumption into a position of concentrated, substantive market power. Together with the just-as-fragmented supply side, it is evident that China’s unprecedented hunger for cobalt has not translated into a clear position of market control in the extraction of Congolese cobalt or in the broader global market for the mineral; as Chinese production of cobalt ore and intermediates as well as Chinese cobalt refining capacity are divided across numerous stakeholders acting largely independent of one another, the country’s ability to wield market power through central organization and coordination is diluted.

Coordination capacity, described by Massot as ‘the capacity of various … market stakeholders to overcome collective action problems and work together effectively,’ is central to her conception of market power because ‘coordination facilitates cohesion, the pursuit of certain procurement goals, and also increases bargaining power.’ A foundational tenet of Massot’s framework is her claim that there exists a ‘causal relationship between … the relative capacity of consumers [or] producers to coordinate behavior [and their ability to affect] market institutional change at the global level.’ From this understanding of coordination and its influences on market power, Massot introduces a two-by-two matrix that plots the relative coordination or fragmentation of consumers in a given market against that of the market’s producers (Figure 2).  When a market’s consumers and producers both operate in fragmented capacities, as is the case with Congolese cobalt, Massot claims that this symmetry will ‘likely … lead to competitive dynamics,’ which in cobalt are borne out in recent record supply gluts and pricing pressure. Despite their dominant market share in both the extraction of Congolese cobalt and global refining capacity, the relative fragmentation of Chinese cobalt producers and consumers (both domestically from a refining perspective and globally from an extraction perspective) largely negates claims of institutional control of Chinese stakeholders over the Congolese or global cobalt industry (Figure 3); if Chinese cobalt extraction and refining practices are in fact mercantilist, such practices are not exclusive solely to LSMs and refiners of Chinese origin.

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A number of notable disruptions to the global shipping industry have recently captured headlines, including Houthi rebel attacks in the Red Sea and a labor strike that halted shipping for a few days on America’s east coast, but one shipping disruption in particular seems to have gone largely underreported: the post-COVID rise in maritime piracy. Although the 195 pirate attacks that occurred in 2020 were well below the 21^st century high of 469 in 2000 (Figure 1), the figure still represents a more than 20% increase over the number of pirate attacks in 2019, a significant rise in a statistic that had been trending steadily downward since 2010. The post-COVID spike in pirate attacks has since subsided, but the brief uptick in attacks was reminiscent of the spikes in maritime piracy that began in the late nineties as well as in 2008, and may also portend a coming resurgence in piracy given recent trends in the factors that seem to animate it.

The two 21^st century spikes in maritime piracy, in 2000 and 2010, occurred almost immediately after severe disruptions to the functioning of the global economy; the 2000 spike occurred after the Asian Financial Crisis of the late nineties, and the 2010 spike occurred after the Global Financial Crisis of 2008. Although pirate attacks are largely local phenomena devised by small, coastal militias from developing countries like Indonesia, the Philippines, and Somalia, the timing of past piracy spikes implies that the impetus for attacks is global; when prolonged shocks to the global economy create an ‘absence of legal opportunities in the local economy,’ people that would otherwise look for legitimate work are incentivized towards piracy.

Part of the reason the COVID-related spike in piracy was so short-lived was due to the historic amounts of stimulus provided by central bankers and policymakers around the world in an effort to prop up their economies in the face of lockdowns and other COVID-induced economic strains. As interest rates across the developed world have since risen as a result of post-COVID inflation though, many of the developing countries that are home to would-be pirates face increasingly dire economic challenges as stimulus-related (and often dollar-denominated) debts must be paid back or restructured; recent unrest in Nigeria and Kenya, for example, illustrates the challenges developing nations face when forced to balance the provision of economic opportunity for citizens with the need for fiscal prudence to maintain access to global debt markets. Furthermore, as the IMF and Paris Club of bilateral lenders face growing opposition in restructurings, mainly from Chinese lenders that have taken up a more significant role in sovereign lending, debt negotiations for developing countries have become longer, more drawn out processes, exacting severer economic carnage on debtor countries as restructuring timelines lengthen.    

In addition to a global rise in interest rates and a more complex sovereign lending landscape, changes in the geopolitics of regions critical to maritime piracy, like Southeast Asia, the Middle East, and West Africa, could contribute to reduced multilateral cooperation in the global response to piracy. In Southeast Asia, as tensions escalate between China, the Philippines, and Vietnam over sovereignty in the South China Sea, collaboration on issues like piracy are likely to be deprioritized, though ASEAN member nations do have a strong track record of cooperation on piracy. In the Middle East, as the United States and its western allies conduct naval operations against Houthi attacks on commercial ships in protest of the war in Gaza, these nations’ traditional role in policing international waters could be diminished since their resources are concentrated on countering the Houthi threat. In West Africa, as commercial shipping is rerouted towards the area to avoid Houthi attacks in the Middle East (Figure 2), and as western military forces face increasing skepticism and mistrust in the region (though this mistrust has been most acute in the West African interior), this confluence of factors could yield a drastic rise in piracy in the area, already home to the most violent and severe incidents of piracy in the world today (Figure 3), if economic conditions further worsen and incentivize coastal West Africans towards piracy.

Despite its numerous risks, piracy is an incredibly lucrative activity for the small militias engaged in it, especially relative to many of the more legitimate forms of employment pirates might be able to find in their homelands. Though estimates vary greatly, RAND and the International Maritime Bureau have placed global piracy costs somewhere between USD $1 billion and $16 billion per year, with other annual assessments carried out by the One Earth Future Foundation estimating that the cost of piracy from 2010 – 2012 ranged from USD $5 billion to $12 billion. The cost of piracy per incident was estimated at USD $28.6 million in 2011 and $82.7 million in 2012, indicating large swings in value year over year, but given that the average attack is carried out by a militia made up of less than 10 pirates, dividing a reward of even a few million dollars amongst themselves makes piracy economically worthwhile.

Although shipping companies, which are estimated to bear over 80% of the global costs associated with piracy, have begun employing armed guards and training crewmates to respond to pirate attacks, piracy prevention must begin at the international and national levels rather than the company level; a stable, growing global economy to which people in developing countries contribute is the world’s best piracy deterrent. Thus, increasingly excessive protectionism around the world, coupled with a rise in multipolarity as ideological and economic competition create rifts between great powers, could directly contribute to heightened levels of piracy in the years and decades to come. In addition to an inclusive and growing global economy, stronger governance in developing countries where pirates are known to operate is another effective deterrent; pirate gangs are empowered at the national and local levels by ‘ineffective and corrupt government institutions, deficient security forces, poorly enforced borders and boundaries, [and] inadequate coordination of prevention efforts,’ so strengthening governance capacity directly disincentivizes piracy by making the carrying out of illegal activity more difficult and costly.

Though it might seem largely immaterial at the moment, as the world is gradually cleaved further apart, piracy (like climate change, global health, and a host of other hard-to-solve problems) may be yet another issue that falls through the cracks in the heat of conflict.

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American politics’ recent embrace of populism has been vividly embodied by the happenings surrounding two business and economics events that have coincided with the 2024 presidential election: the labor dispute between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance (USMX), and the U.S. Steel-Nippon Steel deal (which I first wrote about in July 2024). Two different labor unions (United Steelworkers (USW) and ILA) have separately found themselves pitted against foreign corporate interests (the foreign shipping companies with USMX membership in the ILA-USMX case, and Nippon Steel in the U.S. Steel-Nippon Steel case) in battles that have largely been characterized as reckonings for America’s pursuit of globalism and neoliberalism in the late 20^th and early 21^st centuries. Bucking the trend of increasing polarization in the 2024 election cycle and the broader political environment, a bipartisan consensus on responses to both the ILA-USMX labor dispute and the U.S. Steel-Nippon Steel deal make a few truths abundantly clear: American neoliberalism is in its death throes, populism is unquestionably in vogue, and American competitiveness is being increasingly deprioritized as a political objective relative to labor issues, particularly those of the blue-collar variety. Although safeguarding the interests of labor is important, the delicate balance that must be struck between labor and the interests of other economic stakeholders (e.g. consumers, management/shareholders, investors, etc.) for the sake of dynamism and competitiveness seems to be out-of-whack in America.

In the ILA–USMX labor dispute, before the two parties came to an agreement that ended the 3-day strike affecting eastern and southern ports, the Biden administration initiated a campaign pressuring USMX to accede to ILA’s demands without much consideration for USMX’s own bargaining points, the most contentious being the role of technology and automation in ports covered under the USMX-ILA Master Contract. Despite proposing a nearly 50% wage increase in an offer extended to the ILA just before the strike began, USMX ultimately agreed to a 62% wage increase for ILA workers in the agreement that ended the strike (only 15 percentage points below ILA’s initial demand of a 77% wage increase), notably without addressing the technology and automation issues that initially stymied negotiations. These issues, along with other bargaining points, will be negotiated over the next few months up until January 15, 2025, the date the Master Contract extension expires, but seeing as ILA has already secured a wage increase nearly equal to its original demand, it is unclear how much bargaining power USMX will have to effect vital changes to American port technology and automation, which are necessary for keeping American ports on par with those in Europe and Asia, which tend to be more technologically advanced (Figure 2). Essentially, to appease blue-collar workers that may prove pivotal to success in the upcoming presidential election, ‘Biden, Harris, and former President Donald Trump all denounced the [USMX-affiliated] foreign shipping companies that control much of the trade coming in and out of the country,’ claiming that their record profits during the pandemic and thereafter justify steep increases in wage agreements with the ILA. While this may be true, policymakers on both sides of the aisle leaned into a growing skepticism of foreign multinationals doing business in America (even European and Japanese ones) to pressure USMX into a largely one-sided agreement, vilifying foreign corporations that could have played an integral role in upgrading American shipping infrastructure and thereby American competitiveness. Similarly, in the case of the U.S. Steel-Nippon Steel deal, ‘Biden, Harris and Trump have all come out against the deal’ in an attempt to appease blue-collar voters, simultaneously squandering an opportunity to revive the declining American steelmaking industry and alienating Nippon Steel and Japanese corporates more broadly. The consensus among Biden, Harris, Trump and the broader Republican and Democratic parties in the ILA-USMX labor dispute as well as the U.S. Steel-Nippon Steel deal highlights the increasingly entrenched, bipartisan nature of America’s embrace of populism.

Although they were towards misguided ends, the actions of the Biden administration in response to the ILA-USMX labor dispute demonstrated its ability to advocate on behalf of workers and effect outcomes beneficial to their interests. In addition to pressure on USMX from the White House itself, Labor Secretary Julie Su and Transportation Secretary Pete Buttigieg were influential forces in pushing USMX to accede to ILA demands and end the strike in a timely manner. Buttigieg preemptively warned shipping companies against the imposition of surcharges on shipping fees that would have made shipping more expensive as a result of the labor strike, which was one strategy firms like CMA CGM, Hapag-Lloyd, and Maersk intended to employ in response to the strike. In addition to several hours spent on the phone and in meetings with both ILA and USMX in the days leading up to the strike, Su spent much of the final day of the strike at ILA headquarters, working with the union to come to an agreement with USMX. Since the administration’s main objective in responding to the strike was placating blue collar workers, its actions were effective albeit one-sided. Had more credence been given to advancing American competitiveness in addition to advancing the interests of labor, though, a more balanced agreement incorporating USMX concerns about automation likely could have been achieved with the help of the administration’s concerted efforts across multiple departments.

Given that USW’s main point of contention with Nippon Steel’s takeover of U.S. Steel is its skepticism about the foreign corporation’s willingness to maintain the union’s profit-sharing and mill investment agreements already in force with U.S. Steel’s current ownership, the Biden administration’s efforts to bring USMX and ILA to an agreement that affirms ILA’s demands are proof that, with government help, successfully closing the U.S. Steel-Nippon Steel deal while still safeguarding USW’s interests is not impossible; all that is necessary from government is the political will to balance its advocacy for workers with the need to strengthen the broader economy’s long-term prospects — an approach to policymaking that is a far cry from the increasingly one-sided populism that has pervaded contemporary American politics.

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