Missouri Congressman Blaine Luetkemeyer is taking on the Biden administration over policy moves that have caused higher prices and the return of noticeable inflation.
“Gas, milk, fruit, televisions, furniture, washing machines, car rentals, hotel rooms – what do all of these things have in common? Their prices have gone up under the Biden administration,” Luetkemeyer, the ranking Republican on the House Committee on Small Business wrote in an op-ed published Friday by Fox Business.
Data published by the U.S. Bureau of Labor Statistics showed prices up 5.4 percent last month over June 2020, the highest jump since the economic difficulties that began when the market for sub-prime home mortgages collapsed in 2008. That’s higher than the interest rate setting U.S. Federal Reserve expected and marks the sixth straight month in which prices have risen.
“While Democrats in Washington bulldoze a path for reckless government spending, small businesses and middle class working American families alike are left to pay the bill,” Luetkemeyer wrote, singling out the damaging impact the newest round of inflation is having on family-owned business.
“Small businesses are the backbone of the United States economy, and they were making huge economic strides before the Biden administration took over. Now, small businesses nationwide are facing the consequences of the Democrats’ massive government spending agenda in all sectors,” he wrote.
The U.S. says government nearly half the country’s small businesses were forced to increase prices in May, which Luetkemeyer said was “the largest percentage reported in 40 years.”
“From increased gas prices for delivering goods to rising food costs for restaurants, small business owners are bearing the brunt of Democrat-induced inflation,” he continued. “As more American consumers are spending and patronizing small businesses following the COVID pandemic shutdowns, this increased immediate spending has given our economy a bit of a shock. But rather than acknowledge this problem and correct the course, President Biden and Congressional Democrats are doubling down.”
“Make no mistake – inflation is taxation. Prices of the goods you buy go up, meaning the dollars in your pocket are worth less. It then takes more of those hard-earned dollars to purchase these goods.
“The Democrats’ proposed $3.5 trillion package will severely exacerbate the inflation problem for middle-class families and further crush Main Street U.S.A.
“Simply put, small businesses cannot afford the inflation tax that comes with the Democrats’ failed economic policies.
“As Republican Leader of the House Small Business Committee, my colleagues and I have worked tirelessly to provide much-needed relief for small businesses across the country as they regain their footing and reopen their doors to local communities.
“Unfortunately, there is no single COVID relief package that can simply fix inflation – the Democrats must stop their spending spree. As if the pandemic didn’t create enough of an economic burden for American families and workers, they now face an increased cost of living and consumer prices across the board with no end in sight.”
Luetkemeyer’s criticisms are being echoed by economists and others concerned about the effects ongoing inflation will have on the post-pandemic recovery.
Writing in mid-July for the Carsey School of Public Policy at the University of New Hampshire, Michael Ettlinger and Jordan Hensley observed that “As measured by Real Gross Domestic Product (GDP), 35 states and the District of Columbia have smaller economies, as of the first quarter of this year, than they did before COVID-19, while 14 states have seen a modicum of economic growth. Nationally, GDP remains 0.9 percent lower than it was before the pandemic struck.”
President Biden and others in his administration seem happy to claim credit for the good economic news but are rather cavalier about the impact the bad news is having, saying the spike in inflation is at worst temporary.
Biden himself recently dismissed the issue, saying his multi-trillion-dollar spending initiatives will “reduce inflation, reduce inflation, reduce inflation.” Some economists and business leaders fear, however, it is that very spending that is driving the hike in prices and that they will not stabilize or return to the levels at which they were at before the pandemic struck any time soon.
U.S. Treasury Secretary Janet Yellen told House Speaker Nancy Pelosi Friday that unless Congress acted quickly to raise the statutory limit on the amount of money the federal government can borrow, she would be forced to “start taking certain additional extraordinary measures” to prevent the United States government from defaulting on its financial obligations.
In a letter sent to Pelosi and other members of the congressional leadership in both parties, Yellen asserted that an increase or continued suspension of the debt limit “does not increase government spending, nor does it authorize spending for future budget proposals; it simply allows Treasury to pay for previously enacted expenditures.”
With just days to go before the statuary suspension of the debt limit ends at noon on July 31, the need for congressional action has already become a political football. Both parties are trying to use the issue on Capitol Hill to gain leverage over the other to either stop or move through to final passage several pieces of legislation that are a top priority for the Biden Administration.
The full text of the letter is as follows:
Dear Madam Speaker:
As you know, the Bipartisan Budget Act of 2019 suspended the statutory debt limit through Saturday, July 31, 2021. I am writing to inform you that beginning on Sunday, August 1, 2021, the outstanding debt of the United States will be at the statutory limit.
Today, Treasury is announcing that it will suspend the sale of State and Local Government Series (SLGS) securities at 12:00 p.m. on July 30, 2021. The suspension of SLGS sales will continue until the debt limit is suspended or raised. If Congress has not acted to suspend or increase the debt limit by Monday, August 2, 2021, Treasury will need to start taking certain additional extraordinary measures in order to prevent the United States from defaulting on its obligations.
Increasing or suspending the debt limit does not increase government spending, nor does it authorize spending for future budget proposals; it simply allows Treasury to pay for previously enacted expenditures. The current level of debt reflects the cumulative effect of all prior spending and tax decisions, which have been made by Administrations and Congresses of both parties over time. Failure to meet those obligations would cause irreparable harm to the U.S. economy and the livelihoods of all Americans. Even the threat of failing to meet those obligations has caused detrimental impacts in the past, including the sole credit rating downgrade in the history of the nation in 2011. This is why no President or Treasury Secretary of either party has ever countenanced even the suggestion of a default on any obligation of the United States.
The period of time that extraordinary measures may last is subject to considerable uncertainty due to a variety of factors, including the challenges of forecasting the payments and receipts of the U.S. government months into the future, exacerbated by the heightened uncertainty in payments and receipts related to the economic impact of the pandemic. Given this, Treasury is not able to currently provide a specific estimate of how long extraordinary measures will last. However, there are scenarios in which cash and extraordinary measures could be exhausted soon after Congress returns from recess. For example, on October 1 alone, cash and extraordinary measures are expected to decrease by about $150 billion due to large mandatory payments, including a Department of Defense-related retirement and health care investment.
In recent years Congress has addressed the debt limit through regular order, with broad bipartisan support. I respectfully urge Congress to protect the full faith and credit of the United States by acting as soon as possible.
It is highly unlikely members in either party will allow the deadline to be reached without reaching some kind of compromise agreement to forestall the U.S. defaulting on its debt. Such a move would, most economists agree, that even a technical default would put in motion a disruption in the global financial markets of what one economist called “a global disruption of unknown and unknowable proportions.”
Such a collapse, which would provide China an ample boost in their campaign urging the replacement of the dollar as the global reserve currency, would likely be blamed on the Republicans. Fear that it might in turn limits the ability of spending restraint advocates to argue the deadline should be allowed to come and go unless reforms are made.
This game of economic chicken has been tried before, with the first one to blink generally considered the loser.
Forcing DiDi and Alibaba to toe the Communist Party line may help Xi build a police state but will stall the nation’s dynamic industry.
“Investors have to rethink the entire China structure,” David Kotok of Cumberland Advisers said last week. For Hong Kong, the One Country, Two Systems principle was “dead.” As for the crackdown on some of the nation’s tech giants, the Beijing government’s treatment of Alibaba “is not a one-off. Neither is DiDi. Everything China touches must be viewed with suspicion.”
Wait, you’re saying that investing in the other side in the early phase of Cold War II might have been a bad idea? You’re telling me that “long totalitarianism” was not a smart trade?
For the past three years, I have been trying to persuade anyone who would listen that “Chimerica” — the symbiotic economic relationship between the People’s Republic of China and the United States of America, which I first wrote about in 2007 — is dead. The experience has taught me how hard it can be for an author to kill one of his own ideas and replace it with a new one. The facts change, but people’s minds — not so much.
Chimerica was the dominant feature of the global economic landscape from China’s accession to the World Trade Organization in 2001 to the global financial crisis that began in 2008. (I never expected the relationship to last, which was why I and my co-author Moritz Schularick came up with the word: Chimerica was a pun on “chimera.”) At some point after that, as I have argued in Bloomberg Opinionpreviously, Cold War II began.
Unlike with a “hot” war, it is hard to say exactly when a cold war breaks out. But I think Cold War II was already underway — at least as far as the Chinese leader Xi Jinping was concerned — even before former President Donald Trump started imposing tariffs on Chinese imports in 2018. By the end of that year, the U.S. and China were butting heads over so many issues that cold war began to look like a relatively good outcome, if the most likely alternative was hot war.
Ideological division? Check, as Xi Jinping explicitly prohibited Western ideas in Chinese education and reasserted the relevance of Marxism-Leninism. Economic competition? Check, as China’s high growth rate continued to narrow the gap between Chinese and U.S. gross domestic product. A technological race? Check, as China systematically purloined intellectual property to challenge the U.S. in strategic areas such as artificial intelligence. Geopolitical rivalry? Check, as China brazenly built airbases and other military infrastructure in the South China Sea. Rewriting history? Check, as the new Chinese Academy of History ensures that the party’s official narrative appears everywhere from textbooks to museums to social media. Espionage? Check. Propaganda? Check. Arms race? Check.
A classic expression of the cold war atmosphere was provided on July 1 by Xi’s speech to mark the centenary of the Chinese Communist Party: The Chinese people “will never allow any foreign force to bully, oppress, or enslave us,” he told a large crowd in Beijing’s Tiananmen Square. “Anyone who tries to do so shall be battered and bloodied from colliding with a great wall of steel forged by more than 1.4 billion Chinese people using flesh and blood.” This is language the like of which we haven’t heard from a Chinese leader since Mao Zedong.
Most Americans could see this — public sentiment turned sharply negative, with three quarters of people expressing an unfavorable view of China in recent surveys. Many politicians saw it — containing China became just about the only bipartisan issue in Washington, with candidate Joe Biden seeking to present himself to voters as tougher on China than Trump. Yet somehow the very obvious trend toward cold war was ignored in the place that had most to lose from myopia. I am talking about Wall Street. Even as China was ground zero for a global pandemic, crushed political freedom in Hong Kong and incarcerated hundreds of thousands of its own citizens in Xinjiang, the money kept flowing from New York to Beijing, Hangzhou, Shanghai and Shenzhen.
According to the Rhodium Group, China’s gross flows of foreign domestic investment to the U.S. in 2019 totaled $4.8 billion. But gross U.S. FDI flows to China were $13.3 billion. The pandemic did not stop the influx of American money into China. Last November, JPMorgan Chase & Co. spent $1 billion buying full ownership of its Chinese joint venture. Goldman Sachs Group Inc. and Morgan Stanley became controlling owners of their Chinese securities ventures. Just about every major name in American finance did some kind of China deal last year.
And it wasn’t only Wall Street. PepsiCo Inc. spent $705 million on a Chinese snack brand. Tesla Inc. ramped up its Chinese production. There were also massive flows of U.S. capital into Chinese onshore bonds. Chinese equities, too, found American buyers. “From an AI chip designer whose founders worked at the Chinese Academy of Sciences, to Jack Ma’s fast-growing and highly lucrative fintech unicorn Ant Group and cash cow mineral-water bottler Nongfu Spring Co., President Xi Jinping’s China has plenty to offer global investors,” my Bloomberg opinion colleague Shuli Ren wrote last September.
Recent months have brought a painful reality check. On July 2, Chinese regulators announced an investigation into data security concerns at DiDi Global Inc., a ride-hailing group, just two days after its initial public offering. DiDi had raised $4.4 billion in the biggest Chinese IPO in the U.S. since Alibaba Group Holding Ltd.’s in 2014. No sooner had investors snapped up the stock than the Chinese internet regulator, the Cyberspace Administration of China, said the company was suspected of “serious violations of laws and regulations in collecting and using personal information.”
The cyberspace agency then revealed that it was also investigating two other U.S.-listed Chinese companies: hiring app BossZhipin, which listed in New York as Kanzhun Ltd. on June 11, and Yunmanman and Huochebang, two logistics and truck-booking apps run by Full Truck Alliance Co., which listed on June 22. Inevitably, this nasty news triggered a selloff in Chinese tech stocks. It also led several other Chinese tech companies abruptly to abandon their plans for U.S. IPOs, including fitness app Keep, China’s biggest podcasting platform, Ximalaya, and the medical data company LinkDoc Technology Ltd.
To add to the maelstrom, on Thursday Senators Bill Hagerty, a Tennessee Republican, and Chris Van Hollen, Democrat of Maryland, called on the Securities and Exchange Commission to investigate whether DiDi had misled U.S. investors ahead of its IPO. Also last week, U.S. tech companies such as Facebook, Twitter and Google came under increased pressure from Hong Kong and mainland officials over doxxing, the practice of publishing private or identifying information about an individual online.
For several years, I have been told by numerous supposed experts on U.S.-China relations a) that a cold war is impossible when two economies are as intertwined as China’s and America’s and b) that decoupling is not going to happen because it is in nobody’s interest. But strategic decoupling has been China’s official policy for some time now. Last year’s crackdown on financial technology firms, which led to the sudden shelving of the Ant Group Co. IPO, was just one of many harbingers of last week’s carnage.
The proximate consequences are clear. U.S.-listed Chinese firms will face growing regulatory pressure from Beijing’s new rules on variable interest entities as well as from U.S. delisting rules.
The VIE structure has long been used by almost all China’s major tech companies to bypass China’s foreign investment restrictions. However, on Feb. 7, the State Council’s Anti-Monopoly Committee issued new guidelines covering variable interest entities for the first time. Recognizing them as legal entities subject to domestic anti-monopoly laws has allowed regulators to impose anticompetition penalties on major VIEs, including Alibaba, Tencent Holdings Ltd. and Meituan. This new framework substantially increases risks to foreign investors holding American deposit receipts in the tech companies’ wholly foreign-owned enterprises. For example, Beijing could conceivably force VIEs to breach their contracts with their foreign-owned entities. In one scenario, subsidiaries of a Chinese variable interest entity that are deemed by Beijing to be involved in processing and storing critical data could be spun out from the VIE — just as Alibaba was reportedly forced to spin out payments subsidiary Alipay in 2010.
The stakes are high. There are currently 244 U.S.-listed Chinese firms with a total market capitalization of around $1.8 trillion, equivalent to almost 4% of the capitalization of the U.S. stock market.
In my recent Defining Ideas article titled “A Refresher Course on Free Trade,” I made the case for free trade. A large part of the economic case is that free trade makes people in the country that adopts it better off than if their government hadn’t adopted it. It makes imports cheaper, allows consumers to get a more varied range of goods, and causes labor and capital to be allocated to areas of the economy where they are most productive.
In the United States in recent years, there have been two main objections to free trade. The first is that when free or freer trade is introduced into a particular sector, producers in that sector, both owners of capital and laborers, will be worse off. Therefore, argue some of the people who make this point, either trade shouldn’t be liberalized or, at least, introduction of trade should be accompanied by government spending to compensate the losers. The second objection is that free trade benefits mainly the wealthy and does little for the workers who are living on the economic edge. The first objection is often true in the short run but almost always false in the long run; it also applies to any economic change whether that change is caused by international trade or purely domestic economic interactions; in short, the objection proves too much. The second objection is simply false.
Winners, Losers, and Compensation
In my earlier article, I pointed out that if the market for sugar were opened to unrestricted imports from other countries, the price of sugar in the United States would fall and US sugar producers would be hurt. That’s all true in the short run. In the long run, say ten years from now, it’s not clear that those who produce sugar now would be worse off then. Owners of capital would have had ten years in which to find alternate industries in which to invest and workers would have had ten years in which to find other jobs.
Still, ten years is a long time. Those who lose jobs can find others at lower wages but they might be employed at these lower wages for at least a few years before they build their skills and earn wages comparable to the ones they lost because of free trade. So one can understand why people who see the benefits of free trade want a government policy to subsidize the losers for a few years. Those who want such subsidies tend to focus on workers who lose their jobs but the same thinking would presumably apply to business owners, including shareholders, who suffer a wealth loss due to free trade.
There are a number of problems with such proposals, though. First, government is notoriously bad at targeting help to groups sorted by their particular circumstances. When politicians sense a gravy train coming, they tend to lobby their colleagues to include other groups and causes. We saw this with the initial Biden proposal for infrastructure. It included a large amount of money for activities that have never been considered to be infrastructure, activities like day care.
Second, there is nothing special about free trade. Indeed, in a large economy like that of the United States, most trade is not across borders but is between people within the US borders. In 2019, imports were about 14.6 percent of gross domestic product. That sounds high, and is high, but that number confirms that most trade in the United States is between and among people in the United States. When a new technology or even a new way of running a business helps consumers, it also destroys many businesses and hurts workers who lose their jobs or who must work at a lower pay to keep their jobs.
We don’t need to go back far to see such examples. When I taught in the business school at the University of Rochester in the late 1970s, some of my evening MBA students who worked at Kodak called it the “big yellow money machine.” Kodak was riding high on the technology that innovator George Eastman and his successors had created and perfected. But digital cameras in the 1980s and 1990s and, later, cell phones that got better and better at taking still shots and movies, virtually destroyed the market for Kodak’s product. It’s true that part of the causes was international trade in cell phones. But even without cell phones from other countries, US cell phone producers were plenty capable of competing Kodak into bankruptcy.
Few of those who advocate compensating those who lose due to expanded trade across borders advocate compensating those who lose due to increased trade within borders. I hasten to add that I’m glad that they don’t. But the principle is the same.
Are the Rich the Main Gainers from International Trade?
In early 2016, UCLA professor Mark Kleiman wrote:
But the bottom line is that all of the gains, not merely from trade but from economic growth, have been concentrated in the hands of a relative few.
I was surprised when I read that. Historically, the opposite has been the case. Before considering recent history, let us turn to the famous repeal of the British Corn Laws, which happened in June 1846. The Corn Laws disallowed the import of wheat (which the British called corn) unless the domestic price of wheat hit a very high level. In practice this meant that imports of wheat were effectively banned. Because lower-income people spent a much higher percent of their income on food than higher-income people did, repeal of the Corn Laws helped low-income people disproportionately. Those who lost were primarily rich owners of agricultural land who, after 1846, had to face competition from other countries.
In a recent discussion to celebrate the 175th anniversary of the repeal of the Corn Laws, British historian Steve Davies of the Institute of Economic Affairs in London put it well. The successful popular campaign to repeal the Corn Laws, he observed,
fixed in the minds of the British working class in particular, right up to the present day, the profound belief that free trade is good for the poor and the working man and woman and that protectionism is basically a conspiracy by the rich and special interests to screw over the working class.
Now let’s turn to recent history, which is quite consistent with the nineteenth-century British history.
Although trade may hurt various low-income people in their role as competing workers, it helps lower-income people, as consumers, proportionally more than high-income people. The reason is that the particular goods that are traded tend to be those that are a larger proportion of a lower-income household’s income. Think about who shops at Walmart and where Walmart buys many of the items it sells. Lower-income people are disproportionately represented among Walmart shoppers and many of the items, typically low-end, that Walmart sells are imported, especially from China. In an article in the Quarterly Journal of Economics, UCLA economist Pablo D. Fajgelbaum and Columbia University economist Amit K. Khandelwal lay out the facts about the gains from trade.
In correspondence with me about their findings, Professor Khandelwal considered the gains that would be captured by various income groups if prices for imports fell by 5 percent. For food, people at the 10th percentile—those whose income is below that of 90 percent of the population—would have an annual gain of 0.39 percent of income. People in the 90th percentile and 99th percentile, by contrast, would gain zero. Similarly, a 5 percent price cut for manufactured goods would raise real income for people at the 10th percentile by 0.81 percent and for people at the 90th and 99th percentile by only 0.22 percent and 0.10 percent, respectively.
In many cases, moreover, those who lost their jobs due to the opening of trade had had substantially higher incomes than the lower-income people who made out big from trade. Consider the case of clothing. The US economy lost 650,000 apparel jobs between 1997 and 2007, which was the period during which Chinese imports increased so rapidly. Not all of those people found jobs at a pay as high as they earned before. That’s the downside. The upside is that, with the increase in international trade, clothing became much cheaper. In his book The Rise and Fall of American Growth, Northwestern University economist Robert J. Gordon reports that between 1980 and 2013, clothing prices fell by an annual average of 2.6 percent. Compounded over the period from 1997 to 2007, that’s a 24 percent drop. The actual drop is probably even more because the opening to China brought down clothing prices annually even more quickly than the average annual drop from 1980 to 2013.
For 2019, the latest data available, households in the bottom two quintiles, which is about 53 million households, spent an average of $1,032 per year on clothing. That’s out of an average after-tax income of $22,591. So they spent 4.6 percent of their income on clothing. Because clothing prices fell over that time, they would have bought more clothing at the lower price. So we will understate their gain if we assume that they were insensitive to price and bought the same amount of clothing that they would have at the higher pre-expanded-trade price. Even assuming no further drop in clothing prices after 2103, the 24 percent drop in price was important for a household with such limited means. The clothing they would have bought in 1997 would have cost an inflation-adjusted amount of $1,358. So the average family in the two bottom fifths of the income distribution saved $326 on clothing alone. Over 53 million households, that is a gain of about $17.3 billion. Assuming that the 650,000 people who lost their jobs lost as much as $10,000 each per year, which is probably an overestimate, their loss was $6.5 billion, which is less than 38 percent of the gain. Moreover, the average worker in a clothing factory in the United States, along with her or her family, almost certainly earned more than $22,591, the average income of the bottom two-fifths.
There may be other objections to free trade but two objections fail. First, even though some people lose in the short run when trade is made freer, almost everyone gains in the long run. Second, those who gain disproportionately from free trade are lower-income people, not higher-income people.
On July 5, 2021, Nathan Law, a pro-democracy activist and politician of Hong Kong, published a Letter to Orban from his London exile in Politico. In his Letter’s opening paragraph, Mr. Law states that “It’s difficult to imagine how somebody who battled against the brutal repression of a communist party at a young age could later become a staunch supporter of another.” Then, he continues thus: “Since assuming power in 2010, your growing intimacy with the Chinese government has made it difficult for the EU to put pressure on Beijing when it comes to human rights violations. Hungary was the first EU country to join China’s Belt and Road Initiative in 2012, paving the way for Beijing to export its authoritarian model to the world. And in the years since, your country has served as China’s biggest defender in the EU.”
Nathan Law is absolutely correct. The second son of an unskilled laborer who became the Communist party secretary at the local gravel mine, Viktor Orban used his personal hatred toward his cruel father to rebel against the Soviet occupation and the resulting one-party dictatorship. Having entered public life on June 16, 1989, the day of the symbolic reburial of Imre Nagy the failed leader of the 1956 Revolution, Viktor Orban called at Budapest’s Heroes’ Square for free elections and the removal of the Soviet military from Hungarian soil.
From there on, his journey in the discombobulated terrain of Hungarian politics has been marked by self-induced narcissistic turns in opposition, through leading between 1998 and 2002 an utterly inexperienced as well as woefully incompetent government that failed miserably within four years, to reestablishing the one-party dictatorship of the pre-1990 Hungary in its barely disguised oppression and all-encompassing corruption in his second reincarnation as Prime Minister. As proof of his sickening egomania, Viktor Orban has repeatedly claimed that his 1989 speech was the reason for the Soviet Union to remove its military from Hungary. Notwithstanding Viktor Orban’s laughable as well as baseless assertion, the decision about the retreat of the Soviet military was made years before his speech and the actual withdrawal of several military units was already ongoing or partially completed.
Viktor Orban’s destructive transformation of Hungary from a developing democratic state to a neo-Communist fiefdom has come with a heavy price. Viktor Orban has become politically a fatally wounded non-entity and personally a persona non grata within the European Union. His Minister of Foreign Affairs and Trade Peter Szijjarto has only exacerbated Viktor Orban’s international misery. Having proved himself more as a pompous amateur, Mr. Szijjarto has made Hungary with his grossly undiplomatic statements about President Biden and the Democrat Party in the United States of America unwelcome too. As a result, the Viktor Orban-led Hungary has become a pariah in Washington, D.C. as well as in Brussels.
Thus, Viktor Orban’s epiphany from a young firebrand against Communist oppression to an egomaniacal monster has had its roots in his primitive communist upbringing and the related worshipping of power and money by persons who only knew hardships and destitutions in their miserable youth. Naturally, so-called scholars like Dorit Gerva are talking and writing about “Orbanism” as a new ideology. They are all badly mistaken. For Viktor Orban ideology has always meant an interchangeable and disposable semi-intellectual garbage whose sole purpose has been to conceal his insatiable appetite for power and money. Moreover, for people with Viktor Orban’s mentality, countries or individuals do not count as supreme political and humanistic values. Consequently, for Viktor Orban democracy with its glorification of individual rights and its protection of personal freedoms is meaningless platitudes that must be continuously attacked and decisively rejected. For these reasons, the combination of his ostracism by the leaders of NATO and the European Union and his personal inclination toward authoritarianism, moving closer to China has been an obvious solution.
Domestically, Viktor Orban and his propaganda machine has tried to sell his “Eastern Opening” as hugely beneficial for Hungary. However, the facts have belied his promises of large investments, preferential loans and new markets concerning China, Russia and many other Asian countries. Specifically, Hungary’s exports to China in 2020 were $2.04 billion. On the other hand, Hungary’s imports from China in 2020 have reached $8.72 billion. This means a trade deficit of more than $6 billion. Thus, while being up in arms against any foreign interference in domestic affairs, Viktor Orban is quietly and surreptitiously turning Hungary into an economic “Canton” of the People’s Republic of China.
The Chinese-built Budapest-Belgrade railway’s Hungarian section, a highly ballyhood accomplishment of the Chinese Belt and Road Initiative, is costing about $3 billion. Of this amount, 85 percent is financed with Chinese loans, with interest between $500 and $800 million. This means that the entire project’s cost around $3.7 billion. Thus, this railway project is wholly financed by the Hungarian taxpayers. Again, the project is much more beneficial to China than for Hungary. First, the new railway does not connect Hungarian towns. Second, tourism from the Balkan region has never been significant. Third, the railway is constructed mostly by Chinese companies. Fourth, the railway is designed to carry freight more than passengers. Fifth, the strategic penetration of the European Union’s infrastructure markets will become much easier for Chinese state-owned companies. Notwithstanding these negative aspects, the railway is being built and the entire project with all the documents connected to the bilateral deal were declared a national strategic matter, and thus top secret.
Similarly, fighting the coronavirus pandemic, Viktor Orban has never criticized China. On the contrary, he and his cabinet members have only had the kindest words for Beijing’s efforts to fight the pandemic and its willingness to supply Hungary and the rest of the world with vaccines, masks as well as badly needed medical equipment. Accordingly, the Hungarian government bought at the beginning of 2021 five million doses of Chinese Sinopharm vaccines for $36 (30 Euros) each. In comparison, the European Union paid only 15,50 Euros per dose for the Pfizer-BioNTech vaccine. For a dose of AstraZeneca, the European Union paid $2.15, according to Belgium’s budget secretary.
Even more suspicious is the way the Hungarian government acquired the five million medically absolutely useless doses of the Chinese Sinopharm vaccines. The intermediary company from which the Hungarian government purchased the vaccines was an offshore company with a registered capital of $10,700 (9,000 Euros). The net value of the bilateral contract was $179 million (150 million Euros). Such arrangements clearly raise red flags for anti-corruption watchdogs, as The New York Times article on March 12, 2021, rightly stipulated.
The Chinese vaccine was aggressively promoted by Viktor Orban himself. Claiming that he got the Sinopharm vaccine, he encouraged Hungarians of all ages to do the same. Yet, while promoting and using the vaccine, it lacked full approval even by the competent Hungarian authorities until January 2021. Adding insult to injury, the European Union and the American FDA have never approved the Sinopharm vaccine for use on humans. To prove the uselessness of the Sinopharm vaccines, Hungarians who were vaccinated with Sinopharm have never developed antibodies in their bodies.
The background story of the Shanghai-based Fudan University is equally strange, or more precisely, typical Orbanesque. This story has started with the forced expulsion of the George Soros-established Central European University from Budapest, Hungary. This University was accredited in both the United States of America and Hungary. In addition, it ranked in quality way above any indigenous school of higher education. The ensuing saga of the very personal feud between George Soros and Viktor Orban has been portrayed and analyzed exhaustively by the media in Hungary as well as across Europe and the United States.
To summarize it, the Central European University rejected government control. The University’s argument was that in a democracy institutions of higher education must be independent of political influence. Moreover, the President of the Central European University Michael Ignatieff argued that the Orban government destroyed the independence and the high quality of Hungarian university education by politically as well as professionally crushing their independence, while simultaneously liquidating the free-thinking intelligentsia. Yet, utilizing his artificially created two-thirds majority in the unicameral Parliament, Viktor Orban’s party adapted a law that made the functioning of the Central European University in Hungary impossible. The Central European University departed to Vienna, Austria, leaving Viktor Orban and his battered educational system enjoying in their miserable isolation their pyrrhic victory.
This self-congratulatory gloating about the triumph of Viktor Orban’s “illiberal democracy” over the “Leftist liberalism of George Soros” has culminated in the Hungarian government’s sudden announcement about rolling out the red carpet for the Shanghai-based Fudan University. Preemptively declaring that the Chinese university’s mission would be strictly educational, the ensuing nation-wide protest against the “Trojan Horse” of Communist influence and potential spying expressed the real opinions as well as the anti-Chinese feelings of the Hungarian people.
Clearly, the pivoting towards China, defined vaingloriously by Viktor Orban as “Eastern Opening,” is extremely unpopular among all Hungarians. Adding fuel to the already existing popular discontent is the cost and the size of the Fudan University project. Planned to spread over twenty six acres, with an additional forty acres accounting for the surrounding park, and estimated to cost a whopping $1.687 billion, it would exceed the total cost the Hungarian government spends on the annual operation of its over two dozen state-run public universities. No wonder that the suspicion of another gigantic government corruption has again raised its ugly head throughout the country and beyond.
To top this monstrous political and financial ploy, the construction of the campus is carried out exclusively by Chinese banks and Chinese companies, involving only Chinese workers. More specifically, the Hungarian government agreed that the Chinese only involvement also means that the job must be done by the China State Construction Engineering Corporation (CSCEC), the world’s largest construction company. Again, bribery and corruption suspicions are justified by the tarnished reputation of the Chinese company that has been involved across the globe in numerous scandals and foul plays. To prove this point, the Chinese company’s financing offer that would cover all expenses only amounts to $1.06 billion. The difference between the published figure of $1.687 billion by the Hungarian government and the Chinese estimate speaks for itself. Even more glaring is the Chinese financing proposal of $1,81 billion that is supposed to cover only 80% of the construction costs. This unprecedented and unjustified overfinancing of the Fudan University project potentially could be another proof of the long-suspected high-level corruption in state-funded construction business deals.
The secrecy surrounding the Fudan University project thickens by its legal construct. While in the case of the Budapest-Belgrade railway reconstruction an international agreement was executed, the relevant contracts of the Fudan University deal were designed to exclude public procurements and open biddings even in the management of the campus. The obvious sleaziness of these arrangements was crowned by the establishment of a consortium of two Chinese and a single Hungarian company, in which the latter is wholly owned by Viktor Orban’s childhood friend and straw man, Lorinc Meszaros.
Finally, leaked documents suggest that the Fudan University deal was in the offing for years but assiduously kept away from the Hungarian and the European public. During his 2019 visit to Hungary, the Chinese foreign minister Wang Yi spoke of the Budapest campus of the Fudan University as a done deal, negotiated carefully for some time before. Designating it a “priority project,” he emphasized the strategic importance of the Fudan University’s presence in the geographic middle of the European continent for Beijing. Like in the case of the Budapest-Belgrade railway project, the Hungarian government classified the Fudan University deal as a “national security” matter. The expropriation and even usurpation of great construction projects affecting the entire country by a single yes-men party, namely the FIDESZ, are another proof that Hungary is not a democracy. Even more unsettling is the state of democracy in Hungary when the one-party legislature and executive do not govern by consensus but political improvisation and greed.
Demonstrations against the establishment of the Fudan University have been held across Hungary. The Mayor of Budapest Gergely Karacsony and the opposition called for a nationwide referendum and already proceeded to rename streets around the planned campus “Dalai Lama Street,” “Free Hong Kong Road,” etc. The Chinese regime that regularly launches vigorous protests against “interference in Chinese internal affairs” has gone ballistic over the free expression of “anti-Chinese” sentiments in Hungary. Global Times, one of the many subservient mouthpieces of the Chinese Communist Party, called in an editorial Gergely Karacsony “an enemy of China.” The Press Secretary of the Chinese Embassy in Budapest released a statement voicing his outrage thus: “As a diplomat of the Embassy of the People’s Republic of China in Hungary, I have been working in Hungary for nearly a decade and witnessed the deepening friendship between the Chinese and the Hungarian peoples. Recently, Hungary has gradually overcome the COVID-19, and people’s daily life is beginning to return to normal. People on the streets are full of joy and laughter again. As someone who works and lives in Budapest, I am also delighted by this.” Clearly, such an idyllic description of the general mood in a country is more reminiscent of the Chinese propaganda lies concerning their own country than the reality in Hungary.
Referring again to the Mayor of Budapest, his long winded nonsense continued with the following hypocritical sentence: “In broad daylight, it is unseemly to criticize the internal affairs of another country.” However, in the same breath he goes on wadding into the internal affairs of Hungary: “The Mayor’s speech was a serious interference in China’s internal affairs and a deliberate attempt to undermine the friendly and mutually beneficial cooperation between the two nation, which is incompatible with the trend of the era of mutually beneficial cooperation. We firmly protest, resolutely oppose and strongly condemn it.”
To better understand the real Chinese strategic intentions, one should not search farther than the recent spring visit of the Chinese State Councilor and Minister of Defense Wei Fenghe to Budapest. Praising Hungary as a “good brother” and “partner,” Wei stated that China is ready to strengthen cooperation with Hungary in various fields. He grew agitated about the sanction imposed by the United States of America and the European Union against his country for the treatment of the Uyghurs in Xinjiang, calling them lies and false accusations made by the West. Then, turning to the President of Hungary, Janos Ader, he thanked him for Hungary’s firm support of China on Xinjiang and other issues concerning China’s core interests. Janos Ader, on his part, praised China’s vaccine support, claiming that this support has brought hope to Hungary’s fight against the pandemic. He also called for a “comprehensive strategic partnership” and the strengthening of cooperation in the economy, trade, tourism and military matters.
In line with these essentially anti-NATO and anti-European Union declarations and actions by Chinese grandees, leading Hungarian politicians have given a slew of irresponsible and derogatory statements about both organizations, in which they have claimed to be loyal members. Just very recently, exactly on July 11, 2021, the Speaker of the Hungarian Parliament Laszlo Kover said on Radio Kossuth that, if a referendum would be held today about Hungary’s joining the European Union, he would definitely vote against it. And on July 8, 2021, in another interview that he gave to Mandiner, he opined that Hungary will stay a member of the European Union until it collapses.
Viktor Orban’s dislike for the European Union has been well documented throughout the last nine years as Prime Minister. Equating any criticism of his government and the Hungarian Parliament that he rules through Laszlo Kover as a condemnation of the Hungarian nation, he has repeatedly insinuated that leaving the organization could be an option. On September 25, 2020, Reuters reported that he praised Britain’s decision to leave the European Union as a “brave one” and demonstration of “greatness” that Hungary should not follow. However, signaling his real feelings, he went on to criticize Brussels for its treatment of Great Britain and opined that the 2016 referendum was an act to safeguard the “good reputation” of the British people: “Brexit is a brave decision of the British people about their own lives…we consider it as evidence of the greatness of the British.”
After years of cutthroat hostility with the overwhelming majority of the European Union’s other member states Hungary’s new legislation that couples pedophilia and anti-LGBT behaviors is the newest bone of contention. Without descending into the dirty swamp of Hungarian politics, it suffices to state that the values that the Viktor Orban-led government has espoused for the last nine years and the values that the European Union views as compatible with Western civilization have been distinctly different in most of the cases. While Brussels defends values in general, the Orban government protects its parochial and thus narrow political and financial interests. For this reason, an ultimate rupture could occur at any time in the future.
Where does all this leave the Orban regime and Hungary? It leaves both in an ever widening vacuum full of lies, deceptions, existential corruption, moral depravity and hopelessness concerning the future of the individual as well as the Hungarian nation. It leaves Hungary hovering between Europe and Asia. It leaves Hungary in a state of permanent paralysis politically, economically, financially, culturally, morally and existentially. It leaves Hungary with a government that prioritizes the interests of the privileged one percent to the detriment of ninety nine percent of the nation. It leaves Hungary with a government that is despotic and inimical to the country’s real interests. Finally and tragically, it leaves Hungary in a state of utter despondency.
Historically, whenever Hungary has turned away from the West and has attempted to seek its future in the East, stagnation and even backsliding were the results. Today, when confronted with the uncomfortable facts of his “Eastern Opening,” Viktor Orban’s and his party’s responses rest on two parts. First, they try to conceal, deny and obfuscate. Second, when such brazenly authoritarian and shamefully immoral political campaigns fail, they attack with ruthless aggression the motives of their domestic as well as foreign critics.
Clearly, the worldwide criticism of Hungary has reached a dangerous stage. Led by Hungary’s incompetent foreign minister, its diplomats call such criticism a shameless plot to slander the country and thwart its progress. The government controlled media spew ad hominem falsehoods at scholars who analyze Hungarian government statements and documents, as well as open-source materials, describing them as CIA agents or anti-Hungarian fanatics. Regrettably, such fallacious assertions have had an impact domestically. It has not been very difficult to meet Hungarians from every walk of life who treat even the mildest criticism of their country as a hostile attack directed against them personally.
Yet, facts are stubborn things. Since his election victory in 2010, Viktor Orban has governed Hungary as an elected despot. The safeguards of democracy have been eliminated gradually. With his “Eastern Opening,” Viktor Orban is preparing to tear up all pretence of democracy and develop his “illiberal democracy” into a full fledged dictatorship. The obvious question is why? The answer is almost self-evident. Viktor Orban and his associates fear defeat in the upcoming elections in the spring of 2022. As Nathan Law stated, Viktor Orban and his FIDESZ party has betrayed its democratic past for a semi-Feudal and arch-Communist regime, combined with nepotism and dynastic pretensions. While capturing total control over the legislative, judicial and executive branches as well as vertically the local councils, he has courted the rural population with monies that the European Union has given to Hungary. Simultaneously, the pliant media are selling in unison Viktor Orban’s “illiberal democracy” as identical with the desires of the whole nation.
To add political insult to existential injury, the declared election alliance of the thus far fragmented opposition parties might not be enough to stop another triumph at the ballot boxes for Viktor Orban and his FIDESZ party. While the 2018 elections were laden with irregularities, suspicions are rife throughout the country that the upcoming poll might be fraught with more shenanigans. As in the past, the most contentious issue will be the voting rights of Hungarians living abroad without registered Hungarian addresses, mainly in the neighboring states of Slovakia, Ukraine, Romania and Serbia. The emotional manipulation, financial bribery, voting by mail without proper verification, practically ensures that the overwhelming majority of these ethnic Hungarians, estimated to be close to ninety percent, will cast their ballots for FIDESZ. To illustrate the shocking political nature of courting the ethnic Hungarian votes, the Fuggetlen Nemzet (Independent Nation) revealed that ethnic Hungarians with barely any elementary school education claimed to have been directors of large Ukrainian companies with outlandishly high salaries, collect huge retirement pays from the Hungarian Pension Disbursement Office.
Such an electoral system clearly distorts the will of all Hungarians who live within the international borders of Hungary. Leaders of the opposition parties and foreign observers have claimed in 2018 that the voting laws installed by FIDESZ enabled electoral fraud through uncontrollable manipulation of the mail-in ballots. Hungarian humor has it that being buried in one of the neighboring states as a Hungarian guarantees the dead person’s resurrection and a second life in Hungary proper through elections.
In stark contrast to this extremely liberal treatment of ethnic Hungarians, Hungarians who live in Hungary proper but work or live abroad with real Hungarian residency must be registered on the electoral roll a maximum of fifteen days before election day. Moreover, on election day they must go to a Hungarian consulate or embassy to cast their votes in person. Registration has been slow and laden with bureaucratic obstructions. Consulates and embassies have posed additional hurdles to Hungarians suspected of not voting for Viktor Orban’s party. The nefarious political intent is clear. Those Hungarians who live outside the country are alleged of not always agreeing with the domestic situation. Thus, they must be prevented from voting by dictatorial bureaucratic fiat. Those who have been bribed by the Hungarian government abroad must cast their votes without any bureaucratic difficulties, because they are presumed to be loyal to Viktor Orban and his regime. This is ethnic discrimination by voting, plain and simple.
In these and similar manners, Hungary’s march away from Western values and democracy toward Socialism/Communism with Chinese characteristics is in full swing. As for the leaders of the Chinese Communist Party, creating enemies and demonizing opponents have been the order of political culture for Viktor Orban and his FIDESZ party. Meanwhile, Hungary proper has been torn by deep hatred, unbridgeable divisions and the danger of civil war. Moreover, the country lacks a large middle class and is divided into the miniscule group of the very rich and the vast majority of destitute survivors as well as hopeless Have-nots.
Yet, the greatest threat to Hungary’s future is the fatalistic complacency of its people. To overcome this deadly cultural disease, the Hungarian people must take back their past, present and future. In doing so, they should be able to rely on the active and decisive assistance of all the member states of NATO and the European Union. Conversely, the latter should start to take democracy as well as political, economic and cultural morality seriously – meaning that they must enforce the values of both alliances more rigorously. Otherwise, NATO and the European Union will cease to be multilateral bodies of free nations. Even worse, they will continue to nurture internal enemies within their ranks that ultimately will destroy both alliances. Clearly, it is high time to put a stop to the destructive madness of the current Hungarian government by calling it to full account. In closing, Hungary must be made to understand that membership in both organizations comes with rights and obligations that are inextricably linked. Joining both organizations was voluntary. No one forced the competent Hungarian government to join. However, once Hungary joined, it must fulfill its obligations fully. Claiming that Hungary has only rights but only selective obligations is unrealistic. Comparing Washington, D.C. and Brussels to the Kremlin of the 1940s, 1950s, 1960s, 1970s, 1980s, is wrong and self-defeating. Such comparison is simply idiotic. Yet, Hungarian politicians, with Viktor Orban in the lead, have played the victimhood card often and shamelessly in the last eleven years. Enough is enough. Either the Hungarian government will start to play fairly or it must be asked to leave both organizations. The future effectiveness and unity of NATO and the European Union are at stake. Time is of the essence. Before the Orbanesque cancer could metastasize, it must be stopped peremptorily.
Dr. Anthony Fauci, the man many consider to be the public face of the U.S. government’s fight against the COVID virus, now stands accused of violating a federal law prohibiting certain government employees from engaging in activities and making statements intended to influence the electorate.
Protect the Public’s Trust, a government watchdog organization, said in a June 30 filing that Fauci, the director of the National Institute of Allergy and Infectious Diseases, ran afoul of Hatch Act restrictions during an October 30, 2020 interview with The Washington Post in which he “intimated that the state of the nation’s public health outlook could be directly linked to the two candidates’ diverse approaches” to combating the spread of the novel coronavirus.
The virus, which some allege was created in a bacteriological research facility in the People’s Republic of China, spread rapidly around the world and is believed to be responsible for the death of more than 600,000 people in the United States alone. A recent Rasmussen Reports national survey of registered voters found 46 percent did not believe Fauci had not been truthful about U.S. financial support for the “gain of function” research — defined as “taking a virus that could infect humans and making it either more transmissible and/or pathogenic for humans” — conducted by the Wuhan Institute of Virology.
Kentucky GOP Sen. Rand Paul, who is also a physician and has aggressively called for a full investigation into the origins of COVID has said repeatedly that emails sent and received by Fauci and uncovered by a Freedom of Information Act request show that Fauci was aware American taxpayer-funded grants were at least partially underwriting the Wuhan lab’s research that may have produced the virus.
Asked by The Post about the differences between the plans of the two 2020 presidential candidates for dealing with the pandemic, Fauci praised then-former Vice President Joe Biden for “taking it seriously from a public health perspective” while stating simply that President Donald J. Trump was “looking at it from a different perspective.”
The group’s complaint also singles out Fauci’s call for an “abrupt change” just days before voters headed to the polls. It could be inferred from his remark that he was advocating for Biden to replace Trump in the White House though, in the context of the interview it appears he was talking about the national strategy for stopping the spread of COVID.
The collection of issues related to COVID has a major impact on the 2020 election. They were, Protect the Public’s Trust recently wrote, a “paramount concern for voters entering the 2020 general election.” An August 2020 pre-election Pew Research poll cited by the group found, “62 percent of voters say[ing] the outbreak will be a very important factor in their decision about who to support in the fall.”
Post-election surveys as well as Trump’s own campaign team’s analysis explaining why he lost suggest strongly the public’s perception he’d mishandled the pandemic drove many voters — even some who typically vote GOP — to cast their ballots for Biden.
“The timing of (Fauci’s) statements, combined with the circumstances of the interview and post-election comments celebrating the outcome,” The Federalist wrote about the complaint when it broke the story in June, “illustrate further intent in Fauci’s remarks that violate the Hatch Act.”
The election, The Federalist pointed out, was decided by less than 43,000 votes across what it called “three tipping-point states” despite Biden’s popular vote total having exceeding trump’s by more than 7 million. The narrowness of the actual result could, some election professionals say, be interpreted as lending support to the argument made by the watchdog group that Fauci’s remarks assisted Biden politically even though that would be hard to prove.
The federal Hatch Act dates back to the New Deal period and is the result of allegations some connected to the administration of President Franklin D. Roosevelt had played politics with funds intended to alleviate the economic impact of the Great Depression to the benefit of local Democratic Party political machines. In its current form, it also prohibits members of the federal government’s Senior Executive Service – of which Fauci is part – from engaging in political activity while on duty and from using their official authority to interfere with an election.
The Biden Administration serves up complacency in the face of deterioration.
Joe Biden’s handlers and media friends continue to delude nobody but themselves that his legacy will land him in the history books alongside FDR and LBJ as a beloved, era-defining Progressive hero. His supposedly moderate priorities—infrastructure, family policy, and voting “rights”—have readily been exposed as deceitful partisanship and wasteful graft, and laden with power grabs so objectionable a senator of his own party had to distance himself to save face.
Further complicating his aspirational legacy, Biden is beholden to an eye-popping amount of dark money from leftist sources that propelled him to the White House in the first place. A careerist chameleon who knows the ultimate currency of the Washington favor economy is obedience to donors, he is obligated to indulge fringe priorities so repellent to the public that anti-police interest groups begged the White House to dial them back. Even with his public image plummeting from the self-made border crisis—now on pace to allow over 2 million illegal immigrants to enter and stay in the country every year—Biden acquiesced to bullying from activist groups (and NGOs whose lucrative business models depend on the public funding associated with high volumes of immigration) and raised the annual refugee cap.
As Biden’s early months lurched from one failure to stand up for our country to the next, it became clear that he is indeed era-defining, but not in the way his consiglieres would have hoped. Weak and negligent, derelict in the most basic duties a leader has to his people, licking ice cream to delight reporters as his homeland falls apart, Joe Biden is happily at your service as the concierge of decline.
The leader of the Free World routinely confounds with public with gibberish and outlandish assertions that the national press pretends not to notice. Last week, he attributed lower vaccination rates among black Americans to traumatic memories of “the Tuskegee Airmen,” apparently conflating the subjects of an infamous experiment conducted at the Tuskegee Institute with the squadron of World War II Army pilots. One day prior, he delivered a meandering disavowal of the Second Amendment, dismissing it as a gratuitous formality by insinuating the government could simply deploy “nuclear weapons” against rebellious armed citizens. The public, beseeched by the press to view Biden’s regime of managed decline as a return to normalcy, could be forgiven for wondering whether successful stewardship of a nation typically involves overt rationalizations for nuking one’s own citizens.
Essential elements of nationhood, including our borders, rule of law, energy pipelines, and food supply chains are disintegrating. Biden routinely appears apathetic, croaking “no comment” when a cyberattack took 45 percent of the East Coast’s energy supply offline—a response so lethargic it may have emboldened the cybercriminals who downed countless American facilities operated by the world’s largest beef supplier a few weeks later. With a resource as crucial as the food supply at risk, and minimal discussion on how to guarantee protection from such threats in the future, the White House again responded in almost ludicrously diffident fashion, weakly insisting they were “delivering a message” to Russia that if the hackers originated with them, that was very naughty indeed. The diplomatic decorum of managed decline forbids advocating too vociferously for our country’s interests. As its primary practitioner, Biden travelled halfway across the world to meet Vladimir Putin at the G7, handing over a list detailing our critical infrastructure sectors and politely requesting that he be kind enough not to hack those.
Back home, his staff obfuscates the fact that inflation is rising faster than nominal wages—meaning real wages are declining—and dismisses the higher prices burdening small businesses and families as a public relations inconvenience, even releasing a statement instructing the public to stop blaming them for high gas prices. Cities across the country are plagued with stomach-churning random assaults and open-air drug bazaars to such a degree the Democrats’ traditional media apologists are nervously signaling they cannot furnish effective propaganda to stave off a political backlash. Microchip shortages are roiling auto manufacturing and necessitating layoffs. In the face of record drug overdose deaths, his administration is offering subsidized drug paraphernalia to facilitate addicts’ injection of deadly narcotics. As the border crisis continues, the federal government rewards illegal border crossers with taxpayer-funded plane tickets to destinations across the country. Meanwhile, for citizens, the Biden administration is fixated on maximizing extractive, redistributive, and vengeful policies to “address” abstractions such as climate change, systemic racism, and the intelligence community’s latest absurd fiction designed to increase their budget, “terrorism from white supremacy.”
Despite his media portrayal as a great uniter, Biden cynically embraces talking points to divide Americans by race, encouraging citizens to blame each other for difficulties getting ahead instead of the destructive effects of policies he spent half a century voting for and now aims to revive. A long-time proponent of trade policies that dismantled our industrial base—sending millions of working-class jobs abroad—and of unfairly flooding the labor market with foreign workers, he appears committed to the belief that the inevitable decline in economic opportunity afflicting Americans of all races was in fact due to insufficient commitment to those policies instead of the other way around. Deploying theories of “systemic inequities” is a convenient pre-emptive strike for a man whose administration is officially forecasting economic decline.
In a demonstration of the sincerity of his administration’s commitment to black Americans’ success, his appointees congratulate themselves for frivolous interventions such as banning menthol cigarettes, but have little interest in addressing the fact that our public school system graduates a mere 7 percent of black 12th graders proficient in math. In fact, Biden’s most definitive contribution to the pitiful state of public education has been to assert in his State of the Union address that, when it comes to public education, “12 years is no longer enough” and “that’s why my American Families Plan guarantees four additional years of public education for every person in America.” Our concierge of decline does not demand higher-quality education—rather, he instructs Americans to spend four more years of their lives with the government’s educators, devoid of any obligation to the public to improve.
Such complacency in the face of deterioration is not only dysfunctional, but dangerous. Our adversaries are well aware: China’s delegation humiliated Biden’s Secretary of State and National Security Advisor to their faces on our own soil, asserting, “the United States does not have the qualification to say it wants to speak to China from a position of strength.”
To many Americans, the Biden Decline feels distinctly wrong. Do leaders who love their country typically stand idly by while so many urgent problems accumulate for their citizens? A president who supplants his obligations to the people with wildly impractical ideological fixations does not seem motivated to steward our country to success. He seems intent on ushering in an era of weakness that puts our country’s safety, prosperity, and future at risk. The American people are resilient, but the lengths to which our leaders have gone to subvert our country’s strength will require serious course-correction to return to fighting weight.
Policymakers should be cautious about adding more to the national debt and the money supply.
The sharp increase in consumer prices this spring may be a blip but may also be a sign that inflation is returning as a chronic problem. For those of us who can accurately recall the 1970s economy, it is a frightening prospect. Everyone else would benefit from reading contemporaneous news coverage.
Recent events call into question pronouncements of the leading Modern Monetary Theorists who thought that the U.S. could sustain much larger deficits without triggering major hikes in the cost of living. Instead, it appears that the traditional rules of public finance still hold: deficit spending financed by Federal Reserve money creation is inflationary.
Analogies between today’s situation and the 1970s are not quite on target. By the early 70s, inflation was well underway. Instead, we should be drawing lessons from the year 1965, when price inflation began to take off. Prior to that year, inflation seemed to be under control with annual CPI growth ranging from 1.1 percent to 1.5 percent annually between 1960 and 1964 — not unlike the years prior to this one.
Like 2021, the post-election year of 1965 saw the inauguration of an ambitious unified Democratic government. That year, Congress enacted Medicare and Medicaid, began providing federal aid to local school districts, and greatly expanded federal housing programs. At the same time, the Johnson administration was expanding U.S. involvement in Vietnam, increasing the defense budget. The federal budget deficit expanded from $1.6 billion in the 1965 fiscal year (which ended on June 30 in those days) to $27.7 billion, or 3% of GDP, in fiscal 1968.
Although the Federal Reserve made some attempts to ward off inflation, it generally accommodated the government’s fiscal policy according to Allan Meltzer’s detailed history of this period published by the St. Louis Fed. Between calendar years 1965 and 1969, annual CPI growth surged from 1.6 percent to 5.5 percent, setting the stage for the Nixon administration’s closure of the U.S. Treasury’s gold window and imposition of wage and price controls. Inflation reached double digits in 1974 and again between 1979 and 1981. Notably, these were also recession years, refuting the fallacy of the Phillips Curve, which depicted a supposed policy trade-off between inflation and unemployment. By the early 1980s, we had ample evidence that ill-considered policies could give us a combination of high inflation and unemployment, known back then as “stagflation.”
This policy mix was also not great for equity investors. The Dow Jones Industrial Average moved sideways during the inflationary period, closing at the same level in December 1982 as it did in January 1966. One lesson from that period was that high interest rates can be bad for stocks.
That may be one reason the Fed remains reluctant to allow interest rates to rise today. Although messaging from the latest Federal Open Market Committee meeting showed greater willingness to normalize interest rates, action is not expected until 2023.
Rate hikes may bring other worries for the Fed in today’s environment. Given the large volume of variable rate mortgages and corporate loans outstanding in the U.S. today, a rise in interest rates could push highly indebted homeowners and companies into bankruptcy, potentially triggering a recession. The federal government would have to roll over its record stock of short-term debt at higher interest rates, ballooning its interest expense and potentially crowding out more popular spending priorities.
But if private capital is to continue participating in debt capital markets, such as those for corporate bonds and bank loans, interest rates will have to rise to compensate them for the loss of purchasing power on their principal.
Although annual growth in CPI fell sharply after 1982, it is not strictly correct to say that inflation was defeated. Except for a few years around the turn of the century, the federal government continued to run deficits, a portion of which were monetized. Notably, the government began running trillion dollar deficits, and the Fed drove interest rates down to near zero during the Great Recession, but CPI growth remained muted.
But CPI does not tell the whole story. Some sectors of the economy have experienced substantial inflation, but they are not fully incorporated in the consumer price index. Home prices, healthcare costs and college tuition all soared in recent decades. Meanwhile, apparel and consumer electronics remained affordable due to globalization and improved technology.
Back in the 1970s, most of the world was not part of the global economy. Eastern Europe was in the Soviet bloc, while China, Vietnam and India had yet to become major exporters. As more low-cost producers of goods and services came online during the 1980s and 1990s, prices were pushed downward (often and regrettably at the expense of American manufacturing jobs). The trend toward developing countries joining the international trading system and producing inexpensive consumer goods is now over. Indeed, the recent increase in protectionism is, if anything, rolling back the wave of international price competition.
On the other hand, technological improvements may continue to shield us from inflation in certain sectors. For example, the displacement of human cashiers by automated check stands might restrain price hikes at the big box retailers, supermarkets, fast food chains and other establishments that can afford to invest in them. Smaller businesses, facing higher wages, may have to try to pass them through to consumers in the form of higher prices. Already in some parts of the country, restaurants are trying to recoup costs without raising prices on their menus by adding various surcharges ostensibly tied to specific costs.
It is possible that inflation is now moving from assets and human-intensive services to consumer products, but we will need several months of additional data to know for sure. Meanwhile, policymakers should be cautious about adding more to the national debt and the money supply.
America’s high national living standards lead us to consider things like abundant access to clean water, comprehensive cellular service, and a reliable electric grid commonplace. Much of the rest of the world regards them as luxuries unavailable to many people.
Consequently, we tend to think about these things only when they don’t work. Cloudy water creates a crisis. A cell phone outage leaves us stranded. Failures in the power market leave us, literally and figuratively, in the dark about what to do.
The critics of how the market allocates the distribution of electric power allege competition would lead to more brown- and blackouts. Despite abundant evidence they are wrong, they don’t trust the competitive market system to keep the lights on. Even now they’re waging a campaign to upend the market structure in places like my home state of Virginia, where competition has overall helped maintain reliable and affordable electricity.
Electricity generators in the United States operate under different structures, dictated by state and the federal governments. Historically, utilities have been integrated vertically, creating geographic monopolies on the production and sale of electric power. Unified ownership of the different parts of the supply chain – generation, transmission, and distribution of power – by a single producer/distributor creates exclusive service territories with captive customers.
Economics teaches that monopolies are bad, even at the state level. Dependence on a single source for anything leaves customers without the freedom to decide what’s best. Competition is the consumer’s friend. Just look at the explosion in services offered by the telephone companies thanks to the competition created by the breakup of Ma Bell.
The explosion in content creation driven by the internet is analogous to what might happen to power generation if competitive pressures were introduced to the generation of electricity in states currently lacking choice. There are nuances of course but, in general, the restructuring of power markets would end the distribution monopolies. Existing utilities would maintain control on distribution networks, but in most cases will be separated from the generation of power.
Currently, there are seven Regional Transmission Organizations (or RTOs) and Independent System Operators (or ISOs) in the United States that run competitive wholesale power markets. They facilitate open access to power transmission and operate the transmission system independently of, and foster competition for, electricity generation among wholesale market participants.
In short, they replace the cost-based regulatory model with a market-based competitive model, functioning as “power pools” from which multiple independent utilities can draw and share reserves to make power cheaper for you and me. Over time, they have evolved to optimize generator output over wide geographic regions – again, generally reducing consumer costs.
According to U.S Energy Information Administration data, between 1997 and 2017, increases in retail electricity prices in states with competitive electric markets and monopoly states were about the same, while customers in monopoly states saw a slightly higher percentage increase in rates. A Retail Energy Supply Association found that customers in states that still have monopoly utilities saw their average energy prices increase nearly 19 percent from 2008 to 2017, while prices fell 7 percent in competitive markets over the same period.
In competitive markets, electricity is purchased at market-determined wholesale prices. Customers, you and me, can choose a provider rather than be required to purchase our electricity from our local utility. The monopoly system, equally or more expensive from a price perspective, is often tainted by political corruption and scandal. In the last year or so, scandals involving utilities seeking to influence legislation or secure taxpayer bailouts led to the toppling of the top lawmaker in both the Ohio and Illinois House of Representatives.
“Pick a year, and you will find some scandal among monopoly utilities. The corruption shows no sign of slowing down. Instead, the breadth, depth, and cost of such scandals only seem to multiply,” the Conservative Energy Network notes.
It’s time to pull the plug on the old system. Competition in the electricity market produces cost savings for customers, improves service and reliability, and encourages innovations leading to environmental benefits. The drive to gain new customers that comes once a restructured, competitive wholesale market for electricity is introduced – and which several states are in the process of creating – empowers customers, reduces costs, and keeps the lights on.
The advertised purpose of the “Endless Frontier Act” is to increase high tech competition with China. This, of course, is a goal that every American should be able to get behind. However, the advertised purpose of the bill, as laudable as it may be, is not actually what the bill will do. In other words, the “Endless Frontier Act” was sold under false pretenses and using fabricated promises.
If the Senate were serious about helping America win the high tech competition with China, it would do a number of important things, including, but not limited to: (1) protect our nation’s intellectual property from theft and abuse by the Chinese; (2) make our tax code more competitive; (3) allow research and development costs to be deducted more easily thus encouraging capital investment in high tech solutions; (4) review and reform our regulatory regime that in many cases is outdated and hindering the development of new technologies and making us less competitive.
But the Senate isn’t considering any of that. Instead, their so-called plan is to spend about $110 billion in taxpayer dollars via government grants to promote new technologies to be administered by the National Science Foundation. In other words, a government agency with a horrific record of waste, fraud and abuse is going to decide what technologies look most promising and then hand out taxpayer dollars to give them a boost. This sounds like the Solyndra scandal on steroids.
So in an era when our national debt has been rapidly increasing at unsustainable rates, we are going to borrow even more money from China and become even more indebted to China — all for the purpose of being more competitive with China. Let that sink in.
But the problem doesn’t end there. The truth is the National Science Foundation (NSF) has a horrible record of waste. The NSF has funded a project to develop a robot that could fold a towel in 25 minutes. A child could fold a whole load of towels in 25 minutes, but for this stupidity you paid $1.5 million. They’ve funded studies of shrimp running on a miniature treadmill. That wasted $500,000 of your hard earned dollars. They’ve spent millions studying what motivates individuals to make political donations. They’ve spent millions studying if athlete’s perception that the basketball rim is as large as a hula-hoop, or that a baseball is as large as a grapefruit, or a golf hole appeared as big as a manhole cover impacts the athlete’s performance.
As Senator Rand Paul (R-KY) highlighted on the floor of the Senate, the NSF spent $700,000 that had been allotted to study autism to listen to a tape of Neil Armstrong’s first moon walk. They wanted to determine if he said “one small step for man …” or “one small step for a man …” It took them a year and $700,000 of your money to determine that they couldn’t tell. And that was money that was supposed to be spent on autism. The NSF also spent half a million dollars developing a climate change themed video game to help children feel more alarmed.
Government is inherently wasteful. For example, our government spent over $40 million building a natural gas station to refuel cars that run on natural gas in Afghanistan to help them reduce their carbon footprint. Yet Afghanistan is a nation where the annual income is about $800 and often cook their food on open fires, and few drive any sort of car, much less a natural gas powered car. Any high schooler could have told you that building a natural gas station in a nation that doesn’t have many cars is a dumb idea.
Government has funded studying whether you and I are more or less likely to eat food that has been sneezed or coughed on by someone else. You and I could answer that question for free. We’d prefer food that hasn’t been sneezed on — even before the pandemic. But government bureaucrats spent $2 million to get the same answer.
So now we are going to rely on these same government bureaucrats to make sure we compete in the high tech arena with the Chinese and we will borrow the money that these bureaucrats decide to spend from the Chinese. What could possibly go wrong?!
I have grown to expect liberals to gladly fund such utter foolishness from our paychecks. But it isn’t just them, there were 19 Republicans who voted for this insanity: Blunt (MO), Capito (WV), Collins (ME), Cornyn (TX), Crapo (ID), Daines (MT), Graham (SC), Grassley (IA), McConnell (KY), Murkowski (AL), Portman (OH), Risch (ID), Romney (UT), Rounds (SD), Sasse (NE), Sullivan (AK), Tillis (NC), Wicker (MS), and Young (IN).
Those who voted for this bill will undoubtedly defend their vote telling you that they want America to compete and win against China in the high tech arena. We all would like that! But let’s try something novel. Let’s do things that would actually help our innovators innovate; and help our businesses and industries compete and win. Also let’s not put a wasteful and often silly government agency in charge of the program. Instead, let’s unleash America’s entrepreneurial and innovative spirit. And let’s not borrow the money from the very nation we claim to be trying to out compete.
A leading liberal think tank analysis shows the Biden overall tax plan would shred the president’s 2020 campaign pledge that taxes would not be increased “by one thin dime” for anyone making less than $400,000 a year.
According to the Tax Policy Center, if Biden’s combined tax initiatives became law this year, 75 percent of middle-class families would see the amount they pay in taxes increase in 2022, and that 95 percent of middle-class families would pay more in taxes by 2031. At the same time, Biden Treasury Secretary Janet Yellin is refusing to rule out the restoration of special interest tax breaks that would disproportionately benefit the ultra-wealthy.
Testifying recently before the House Committee on Ways & Means, Yellin refused to say whether the president and his advisers would move ahead on demands by Democratic governors like Andrew Cuomo (NY) and Phil Murphy (NJ) and members of Congress from the blue states that state and local tax payments be made fully deductible on federal returns once again. The provision known as SALT was capped from the tax code in the 2017 Tax Cuts and Jobs Acts as a “pay for” that made it possible for other rates to be reduced.
When asked whether Biden would support eliminating the cap if it was included in any compromise infrastructure package. Yellen said, “I’m not going to negotiate here on behalf of the president.”
Biden policies, some lawmakers say, are forestalling the onset of a full-blown recovery caused by the pandemic-related lockdowns that plunged the U.S. closer to financial disaster than at any time since the so-called great recession of 2008.
“Through the first five months of this year, the Biden Administration added 500,000 fewer jobs than the last five months of 2020 – some of which were during the height of Covid cases and deaths. A half-million jobs short. And due to inflation, real wages have declined since President Biden took office,” Brady said in a statement.
The White House has repeatedly denied this is because the enhanced unemployment benefits authorized at the beginning of the lockdown period have been allowed to continue. A study recently published by the Committee to Unleash Prosperity’s Steve Moore, Casey Mulligan, and E.J. Antoni shows the relationship between the two to be direct and economically harmful, a view shared by Federal Reserve Chairman Jerome Powell who has made clear he believes these benefits have discouraged workers from returning to work and harmed recovery.
While Biden policies may be cooling job growth here at home, they’d incentivize job creation and fuel an expansion overseas – especially if the president’s agreed-upon among the G-7 plan for a global minimum corporate tax is eventually adopted.
The 15 percent GMT, which must be approved by Congress before becoming law, would make it better to be a foreign worker or company than an American one. If it’s imposed, it would incentivize U.S. companies to move U.S. jobs overseas and to “offshore” themselves which, before the 2017 Tax Cuts and Jobs Act’s creation of a global intangible low tax income provision was a common occurrence in the American market.
The proposal the Biden administration has endorsed holds out the prospect of a global tax code in which American companies operating overseas have to pay higher taxes than their foreign competitors. This would give foreign competitors an advantage to target American companies and jobs and erode the U.S. tax base. As Brady described it, The White House is “leading a global race to the bottom” for America’s competitiveness and our workers.
California’s high tax, generous welfare state policies, and the dominance of progressive politics have combined to create an environment causing voters to leave the state at can only be described as an alarming rate. For the first time since statehood in 1850, California is losing rather than gaining a congressional seat as a result of the decennial census and the ensuing reapportionment of the 435 districts in the U.S. House of Representatives among the 50 states. It’s an alarming reality for the state Ronald Reagan and his sunny optimistic brand of growth-oriented conservatism once called home.The economy is in the doldrums, and not just because of the strict lockdowns instituted by Democratic Gov. Gavin Newsom in the face of the coronavirus pandemic. Even with that, the state budget surplus for 2021 is projected to exceed $75 billion which, instead of being returned to the taxpayers through tax relief, is likely being socked away for the day when it’s needed to bail out the generous social welfare programs and government employee pensions the Democrats trade in exchange for votes to keep them in power.“California used to be a place where everyone wanted to live, but now California has become a place where people want to leave,” Brandon Ristoff, a policy analyst with the California Policy Center told Center Square driven out by “bad policies on the economy, education and more.” State-to-state migration data recently released by the U.S. Department of Internal Revenue (IRS) shows a net loss of nearly 70,000 households plus – which works out to about 165,000 taxpayers and their dependents – between 2017 and 2018.If that’s not bad enough, lawmakers in Sacramento now must worry about the impact of their departure on future budgets since they took nearly $9 billion in adjusted gross income with them when they left, The Epoch Times reported.Like New York City, California working hard to drive its tax base out of the state. Longtime residents are retiring elsewhere. Younger voters are leaving to pursue job opportunities in other states. Major businesses are relocating. Too many people, especially those who make up the middle class, are adversely affected by the high cost of living there – especially the housing market which is soaring to unaffordability for so many people – are now finding the Golden State an impossible place to live.Where are they going? Texas and Nevada – which have no state personal income tax, and Arizona – where the governor and members of the GOP-controlled state legislature are exploring ways to get rid of it.
-Texas experienced a net inflow of 72,306 taxpayers and their dependents, and a gross income boost of some $3.4 billion.
-Nevada welcomed 49,745 California taxpayers and their dependents, along with a gross income of $2.3 billion.
-Arizona saw an estimated 53,476 Californians relocated to Arizona, bringing with them around $2.2 billion in gross income.
Some policymakers still refuse to believe tax rates matter, that they have no incentive effect. Economist Arthur Laffer – developer of the famous “curve” that bears his name – proved they do. California has a state-local effective tax rate of 11.5 percent, the 8th highest in the nation in 2019 according to a recent Tax Foundation study. The effective state-local tax rate in Texas is 8 percent, in Nevada, it’s 9.7 percent, and in Arizona it’s 8.7 percent, making them (in order) 47th, 45th, and 29thout of 50.A 2018 Cato Institute report also showed the relationship between state-local tax effective rates on out-of-state migration. Tax-related motivations could be inferred from the Census Bureau data, The Epoch Times reported, citing the think tanks’ observation that some of the questions asked of people choosing to relocate show the incentive effect at work.“The Census Bureau does not ask movers about taxes. But some of the 19 choices may reflect the influence of taxes. For example, people moving for housing reasons may consider the level of property taxes since those taxes are a standard item listed on housing sale notices. Similarly, people moving for new jobs may consider the effect of income taxes if they are, for example, moving between a high-tax state such as California and a state with no income tax such as Nevada,” CATO said.If California doesn’t change its ways soon, it may find it has taxed its way into default. Illinois and New Jersey are in similar straights. There’s a lesson here for Democrats and Republicans in Washington who, despite the apparent end of the pandemic, still spend like there’s no tomorrow. If they continue to do that, there won’t be.
America’s financial elite is helping to finance America’s prime strategic adversary.
As a new, more skeptical consensus about America’s economic relationship with Beijing emerges in Washington, Wall Street is growing more tightly integrated with China than ever before. The disconnect highlights one of our nation’s biggest vulnerabilities in our confrontation with China over who will determine the course of the 21st century.
American capital markets are the most open, liquid, and valuable in the world. They are also increasingly a source of funds for China’s most strategically important companies. Chinese companies that produce surveillance technology and weapons of war that could one day kill Americans finance their investments with Wall Street capital.
Historically, both Republicans and Democrats have been weak when it comes to identifying and correcting these kinds of problems. Politicians in my own party have too often been reluctant to intervene over concerns about the “free market.” But things are changing. Faced with the catastrophic impacts of deindustrialization, which has choked opportunity for the American working class, and a growing reliance on an authoritarian regime, more of my colleagues in the GOP have awakened to the dangers of economic policymaking that prizes short-term economic efficiency over all else.
American capital markets are increasingly a source of funds for China’s most strategically important companies.
But just as many Republicans have grown more skeptical of big business’s cozy relationship with Beijing, large swaths of America’s financial and corporate sectors are making a play for a new base of political support—this time complete with deep-blue, progressive social stances on hot-button issues in our politics.
It’s the height of hypocrisy. U.S. corporations with lucrative business ties to the Chinese Communist Party will boycott states here over anti-abortion laws, while Beijing systematically sterilizes Uyghur women. They routinely inflame divisive race issues within the U.S. while marginalizing African American actors or erasing Tibetan characters to keep Chinese audiences happy.
And in instances when the U.S. government has acted, our financial sector, fearful of losing out on a lucrative investment opportunity, often intervenes to protect state-tied Chinese firms. For example, after the Trump administration called for the delisting of Chinese companies tied to Beijing’s military from the stock market last fall, it was Wall Street that initially went to bat to ensure that three Chinese telecommunications firms complicit in state censorship, China Telecom, China Mobile, and China Unicom, were spared. (After several reversals and a failed appeal process, the three ended up recently delisted.) And just this month, the Biden administration allowed one of China’s biggest companies, Xiaomi, to relist on U.S. exchanges.
Democrats should be skeptical of the opportunistic progressive social stances in our finance and tech sectors. The presence of a diversity and inclusion czar does nothing if a company is profiting off of slave labor in Xinjiang.
More fundamentally, Wall Street advances the goals of the CCP with its investment in China, which needs American capital to grow its economy. As China has evolved from an export-driven economy to one reliant on state-led investment, it needs foreign investment to help pay for its debts. Investing in China funds the Chinese companies powering Beijing’s economic strategy and industrial policy.
In 2019, the United States became a net investor in China for the first time in history. How did this happen? The answer lies with the fund managers. As China has “opened” its market to American financial companies and sought the listing of its businesses on American stock exchanges, the portfolios of American investors have been increasingly invested in Chinese companies. Many well-meaning Americans may inadvertently be propping up a genocidal regime because Wall Street does it for them.
Furthermore, Chinese firms listed on U.S. securities exchanges are widely shielded by their government from the full oversight of American financial regulators, putting teachers’ pensions and retirees at risk.
Thankfully, there are legislative solutions that both Republicans and Democrats should be able to support. First of all, we should ban any U.S. investments in Communist Chinese military companies. This is part of the reason why I first introduced my Taxpayers and Savers Protection (TSP) Act in 2019—to ensure the retirement savings accounts of federal workers and service members didn’t end up invested in Chinese companies tied to the People’s Liberation Army or engaged in human rights abuses.
In instances when the U.S. government has acted, our finan-cial sector often intervenes to protect state-tied Chinese firms.
Similarly, no Chinese company on the U.S. Department of Commerce Entity List or the U.S. Department of Defense list of Communist Chinese military companies should be allowed to access U.S. capital markets—a move that could simply be accomplished by passing my American Financial Markets Integrity and Security Act.
We can also require increased scrutiny of activist investors in companies tied to national-security work or supply chains—particularly ones related to China—through my Shareholder National Security Awareness Act. Finally, we must ensure that Chinese companies, the only ones in the world that routinely skirt U.S. regulatory oversight, are no longer welcome to publicly list on U.S. stock exchanges.
Americans from across the political spectrum should feel emboldened by the growing bipartisan awakening to the threat that the CCP poses to American workers, families, and communities. As we deploy legislative solutions to tackle this challenge, Democrats must not allow our corporate and financial sectors’ leftward shift on social issues to blind them to the enormity of China as a geo-economic threat.
U.S. Representatives Steve Scalise (R-La.) and David B. McKinley, P.E. (R-W.Va.) introduced a resolution that, if passed, would express the sense of Congress that a carbon tax would be detrimental to the United States economy and harm working-class Americans the most.
This is self-evidently true. In fact, it is so obviously true, a reasonable person might ask why such a resolution is even necessary. Do we really need a resolution that is as obvious as the sun rises in the east?
Sadly, even though the resolution’s point — that carbon taxes are harmful — is painfully obvious, the resolution is necessary. There are many voices on the national stage that support virtually any new tax and particularly any energy tax. The Biden administration has made it clear it considers the energy sector the enemy — killing pipelines, proposing new taxes, and advocating for new burdensome regulatory regimes and mandates. But this is counterproductive!
A carbon tax — no matter who they tell you will pay it — will hit the economy hard and will hit lower-income Americans the hardest. A carbon tax would increase the cost of everything Americans buy — from groceries, to electricity and gasoline, to home heating in the winter, to everyday household products. Moreover, having a reliable source of affordable energy is foundational to a strong job market and strong economic growth. The rich don’t need a strong job market or strong economic growth to build a better future for themselves and their families. They’ve already got that. But the working middle class and the working poor need a robust jobs market and economic growth to push wages higher.
The additional costs imposed on the working class by a carbon tax are difficult to bear. Their budgets are already tight. Are they going to go to work less often or heat their home less in the winter? They are kind of stuck. If you increase their energy costs, they have to give up other necessities. And if you damage the economy, their hope for better times and brighter days ahead evaporates. That’s way too high a price to pay for whatever false promises the elites are offering.
America achieved energy independence when only a few short years ago, it was widely perceived that we would always be forced to import energy and rely upon energy from hostile nations. Energy independence had obvious economic benefits, but it also had national security benefits. For much of the last two generations, American foreign policy had to worry about keeping the oil flowing from the Middle East. Given the volatility of the region, that often forced some unpleasant foreign policy considerations on American policymakers. But with energy independence, hostile powers could no longer hold us hostage or use energy as a leverage point. Thus, we were more secure. A carbon tax would put all of this at risk.
Some privileged elites see their support for a carbon tax as some sort of virtue. And they think it makes them look good. But what is there to feel so superior about in forcing working-class Americans to pay higher energy bills, transportation costs, and higher costs for food and household items — all while also being forced to suffer lower or suppressed wages?
This resolution tells Congress and the Biden administration that Americans expect accountability in their government. The Biden Administration is attacking energy through its attempts to force us into expensive electric vehicles and to use legitimate infrastructure needs as cover for redistributing taxpayer money to favored technologies like windmills and solar panels. This is all reminiscent of Solyndra, which gave away hundreds of millions of taxpayer dollars to well-heeled political donors in the guise of energy policy but was ultimately a boondoggle and nothing more.
Rather than trying to use energy policy as a way to push Americans into the buying preferences of a few political elites, let’s unleash the power of the free market and human creativity! We can have reliable, affordable energy and a clean environment. But only if we allow and encourage innovation, rather than imposing government mandates and taxes.
Several of the Biden administration’s key climate goals — particularly steps to reduce U.S. greenhouse gas emissions in the power and transportation sectors — are likely to be held hostage by China. A shift away from fossil fuels to renewables to produce electricity, and the deployment of more electrical vehicles on America’s roadways, depends upon batteries. Since China currently controls the entire life cycle of battery development, the Biden administration needs a strategy to mitigate China’s dominant position. While the president’s special envoy for climate, John Kerry, hopes to approach climate as a “critical standalone issue,” the fact is that geopolitics will shape the choices President Joe Biden will have to make. The Biden administration will not be able to “compartmentalize” its climate policies from the overall U.S.-Chinese relationship. China’s strength in the new green industries presents a strategic challenge.
Energy storage has been called the “glue” of a low-carbon economy, enabling the greater use of intermittent power sources such as wind and solar. The World Economic Forum argues that batteries are a critical factor in reaching the Paris Agreement goal of limiting rising temperatures to 2 degrees Celsius. By 2030, it stated, batteries could enable 30 percent of the required reductions in carbon emissions in the transport and power sectors.
Batteries and Bottlenecks
The battery supply chain is complex, but it can be reduced to four key elements: mining the critical minerals, processing them, assembling the battery parts, and recycling.
Under its “Go Out” investment strategy, China has spent the last two decades solidifying control over the main critical minerals for battery cells — lithium, cobalt, and graphite. Beijing now controls some 70 percent of the world’s lithium supplies, much of which is located in South America. More than two-thirds of the world’s cobalt reserves are found in the Democratic Republic of the Congo, and China has secured control over 10 of the country’s 18 major mining operations, or more than half its production. Beijing is also the world’s largest consumer of cobalt, with more than 80 percent of its consumption being used by the rechargeable battery industry. Graphite is the largest component by volume in advanced batteries, but spherical graphite, the kind that makes up the anode in electrical vehicle batteries, must be refined from naturally occurring flake graphite. And China produces 100 percent of the world’s spherical graphite.BECOME A MEMBER
Second, China has developed the largest minerals processing industry in the world. After these critical minerals are mined from the earth, they must be separated, processed, refined, and combined. This process is dirty and environmentally unfriendly. Lithium-ion batteries contain hazardous chemicals, such as toxic lithium salts and transition metals, that can damage the environment and leach into water sources. This is likely a key reason why few processing facilities are located in North America. The critical minerals the United States does mine are often shipped back to China for refining.
According to Benchmark Mineral Intelligence, Beijing also controls 59 percent of global lithium processing, 65 percent of nickel processing, and 82 percent of cobalt processing. And an important aside is that China produces roughly 90 percent of the magnets needed for the motors of electrical vehicles.
As early as 2008, China announced billions of dollars in infrastructure investments in the Democratic Republic of the Congo, by far the world’s largest cobalt producer, in exchange for mining rights. The partnership continues to flourish. In January of this year, the Democratic Republic of the Congo formally joined China’s “One Belt One Road” initiative. The Chinese mining company Tianqi Lithium has acquired stakes in major mines in Chile and Australia, giving it effective control over nearly half the current global production of lithium. China controls even more market share in the refining and processing parts of the mineral supply chain. Together, these state-backed investments have given Chinese battery makers like Contemporary Amperex Technology Co. Limited (CATL) an advantage over Japanese and American competitors.
Third, once these minerals are processed, they are packed into battery cells, which are combined into modules and which, in turn, are wrapped into battery packs. This process takes place in dedicated battery factories called “gigafactories.” Like the rest of the battery supply chain, very few of these specialized factories are located in North America. About 136 of the 181 lithium-ion battery gigafactorieseither planned or under construction worldwide are, or will be, located in China. Just 10 are planned for the United States. An important step in the right direction is General Motor’s consideration of building a second battery factory in the United States — it already has a new facility online in Ohio — but the United States needs to do more.
Finally, once batteries have reached the end of their life cycle, the critical minerals in each cell can be reused. But China dominates the battery recycling industry as well. This is partially because China has built infrastructure to recycle lithium-ion batteries for consumer electronics. In 2019, around 70 percent of lithium-ion batteries were recycled in China and South Korea. And because China is by far the world’s largest electric vehicle market, it will remain a key contributor to lithium battery waste — thus allowing Beijing to recycle at scale.
China has been strategic about building up its recycling capabilities, requiring manufacturers of electric vehicles to be responsible for setting up facilities to collect and recycle spent batteries. As a part of this initiative, automakers were required to establish a maintenance service network to allow consumers to repair or exchange old batteries.. Going forward, recycling will only become more important. By 2030, 11 million metric tons of lithium-ion batteries are expected to reach the end of their service lives. Eventually, a robust recycling process could offer a way for countries to mitigate some Chinese-controlled bottlenecks in the supply chain. But taking advantage of this will require environmentally friendly recycling facilities in the United States.
Commanding Heights: Technology and Leverage
China’s dominance across this supply chain should come as no surprise. As in other key economic and technology sectors such as flexible manufacturing, solar panels, and wind turbines, China has achieved dominance by careful planning and investments — as well as unfair practices such as those that led to the dominance of China’s solar panel manufacturing industry. (And it’s worth noting that this issue became one of the most contentious issues between the European Union and China as well.) In addition, many pointed to China’s massive intellectual property theft as a key contributor to its dominance in these key sectors.
Because China takes a strategic national approach, it has been particularly good at identifying key foundational sectors or platforms to grow or control, thereby increasing its economic and geostrategic power. For example, it has used its dominance in financial technologies across Asia to increase the power of its surveillance state by collecting the data associated with payments. It has prioritized 5G, and, with state financing and other forms of support, it has built out its network and is far ahead of the United States in land stations. Notably, this 5G infrastructure will have direct relevance to China’s ability to develop autonomous vehicles, since self-driving vehicles and other platforms, like drones, depend upon the fast connectivity 5G networks provide. (And autonomous vehicles are closely related to the electrical vehicle industry.)
Beijing’s “Made in China 2025 plan,” announced some six years ago, called for major advances in semiconductor fabrication and provided more than $150 billion to support that goal. Some recent reports suggest that China aims to produce some 70 percent of its domestic chip needs within China by 2025 and to reach parity with international technologies five years later. As Jonathan Ward has pointed out, “the mastery of advanced technologies and the creation of a powerful industrial base for civilian and military purposes” are essential pieces of China’s global strategy and activities. While the United States now increasingly recognizes this reality — with legislation such as the Creating Helpful Incentives to Produce Semiconductors for America Act (CHIPS for America Act), as well as executive branch attention by both Presidents Donald Trump and Joe Biden — there remains a far gap between strategy development, desired outcomes, and actual implementation.
Advanced energy is another key platform. Thus, it is not surprising that the “Made in China 2025” plan also included “new energy vehicles” and “new energy” as one of its 10 areas of focus. Beijing considers advanced batteries and electric vehicles a key strategic sector worthy of extensive industrial planning. One report noted that, in the science and technology sector alone, the Chinese Communist Party has issued as many as 100 plans. Several of these, including its 2011 strategic emerging industries plan, focused on key strategic sectors, including the “new energy automobile industry.” In 2017, General Secretary Xi Jinping released an Outline of the National Strategy for Innovation-Driven Development that includes differentiated strategies to produce “modern energy technologies.” And China is using its “One Belt One Road” framework to make strategic investments around the world and vertically integrate its supply chain for battery production.
The Chinese Communist Party has recognized that pressure to address climate change will prompt a shift toward renewable energy around the world. With a regulatory push across Europe, some expertsanticipate that, by 2040, about 70 percent of all vehicles sold in Europe across different segments will be electric. Others believe that the global electric vehicle market — about $250 billion today — will grow to almost $1 trillion by 2027.
China has positioned itself well for this transition. On the one hand, China will have the benefit of cheap fossil fuels. China will not even begin to reduce its own carbon emissions for another 40 years, until 2060. It continues to build coal plants around the world. (In 2016 alone, Chinese development banks invested $6.5 billion in coal infrastructure overseas, mostly in neighboring developing countries). On the other hand, the Chinese Communist Party has positioned itself at the center of a global energy revolution.
If anyone has doubts about the determination with which this might unfold, China’s automobile market was virtually nonexistent until the early 1990s but surpassed the United States in 2009 to become the world’s largest.
Rewiring the global energy economy around China would provide Beijing with massive economic benefits. Experts have pointed out that China’s focus on energy security and technological self-reliance are key factors informing Beijing’s aim to reach carbon neutrality by 2060. Chinese ministries have estimated that achieving this goal could lead to over RMB 100 trillion ($14.7 trillion) in investments over the next 30 years.
As a result, China has made significant advances in energy storage, leading Europe’s top automakers to move most of their research and development operations to China. Since 2018, the largest European carmakers (BMW, Daimler, FCA, Groupe PSA, Renault, Volkswagen, and Chinese-owned Volvo) have chosen Chinese partners for 41 cooperation projects. And European carmakers have also directly invested in their own research and development centers in China, establishing nine such centers since 2018.
Whatever the real intentions behind General Secretary Xi’s effort to put China at the center of an “an ecological civilization,” it is shortsighted and ahistorical to think that China will not use this leverage. It has done so in the past. In 2010, a Chinese fishing boat rammed two Japanese coast guard vessels in the contested waters of the East China Sea. When Tokyo arrested the fishing boat’s captain, the Chinese Communist Party retaliated by placing an embargo on rare earth sales to Japan.
More recently, in June 2019, Chinese state-controlled media threatened disruption of rare earth supplies to the United States — this time targeting U.S. defense contractors. The threat noted that “military equipment firms in the United States will likely have their supply of Chinese rare earths restricted.” This past February, China threatened to use export controls to cut off U.S. access to the equipment used for processing rare earths, a ban that would be as devastating as cutting off production of rare earths themselves. And Australia is feeling such pressure as China has restricted imports of Aussie beef, wine, and barley — and reduced the flow of Chinese students to Aussie universities — unless Australia submits to a list of 14 politicaldemands by Beijing.
This behavior is consistent with China’s use of “sharp power” — diplomatic, economic, or technological coercion — to pursue its policy objectives. This fall, China passed its first unified export control law, allowing the Chinese Communist Party to control the export of items including very broadly defined “dual-use goods” to specific foreign entities. As the Merics institute has pointed out, any exports that fall under “overall national security” — and the law appears intentionally vague — could be prevented, thus allowing Beijing to retaliate against countries or companies for policy disagreements or geopolitical reasons. Given Beijing’s designation of the electric vehicle and battery sectors as strategic industries, the Chinese Communist Party could potentially weaponize key bottlenecks in the supply chain against the United States.
For much of 21st century, the United States was dependent upon the Middle East for oil. As the Biden administration seeks to shift to renewables and reduce carbon emissions through the deployment of more electric vehicles, it should not trade one dependency for another. As one expert group put it, the modern-day arms race revolves around super-sized lithium-ion battery cell manufacturing facilities and the mineral supply chains to support them.
Any successful effort to “position America to be the global leader in the manufacture of electric vehicles and their input materials,” as Biden has stated, cannot be based on a dependency on the United States’ most serious competitor. Rather, the United States should understand that American efforts will be contested — even if they are intended to help the “global good” of reduced carbon emissions. It is highly unlikely that Beijing, which has been working for years to “seize the commanding heights” in critical technologies such as batteries, will easily watch as its advantages melt away. In the eyes of the Chinese Communist Party, the battery race means that China and the United States are locked in a battle over market share and access to scarce resources.
Chinese Foreign Ministry spokesman Zhao Lijian has already reminded U.S. leaders that U.S.-Chinese cooperation in specific areas is interrelated and subject to the overall U.S.-Chinese relationship. Maintaining dominance in battery production — particularly as the world increasingly relies on batteries — provides Beijing with valuable geopolitical leverage. While the Biden administration would like to compartmentalize climate change and geopolitics, the likelihood of China not doing so is high.
Moreover, as Biden seeks to build technology alliances with Europe and other allies to counter China, China’s efforts will constrain his leverage. With European electric vehicle manufacturers dependent upon China, it is hard to imagine that the Chinese Communist Party will not use these dependencies to ask for concessions in other domains.
To avoid a potentially debilitating dependence on China, then, the United States should treat clean energy technologies as a competitive space.
The Biden administration cannot afford to start from scratch and should build on the work of its predecessor. As it begins its new supply chain review, of which advanced batteries are one part, it should keep in mind the lessons of the Obama era battery initiative. In 2009, the Obama administration announced $2.4 billion in funding to produce next-generation hybrid electric vehicles and advanced battery components. One goal at the time, was to “end our addiction to foreign oil” through a plan that “positions American manufacturers on the cutting edge of innovation and solving our energy challenges.” As part of this, the Department of Energy offered up to $1.5 billion in grants to U.S.-based manufacturers to produce these batteries and their components. So what happened to these efforts and others like it over the past decade? Without setting forth what went right and what went wrong, it is hard to see how new initiatives can make progress.
How will Biden’s current efforts to use green technology to stimulate the economy differ from past failed efforts? Despite a string of incentives in the stimulus act in 2009, the solar supply chain largely moved to China after that country’s government invested heavily in the industry.
In addition to specifying lessons learned from past efforts, any future policy initiatives should take advantage of existing recent efforts. For example, Ellen Lord, the former undersecretary of defense for acquisition and sustainment, devoted significant time to identifying investment priorities, including the battery network. Since it takes five to seven years from the start of planning a battery-manufacturing plant and setting up a pilot production line to reach full operational capacity of a gigawatt factory that can produce several gigawatt-hours per year, the administration needs to concentrate some of its efforts on existing facilities, while encouraging new investments by U.S.- and foreign-owned suppliers.
The Biden team will also need to make choices, and fight for them internally. If the United States is to increase its processing of minerals for batteries in the United States, it will need to overcome the fact that such processing facilities are environmentally challenging. That tradeoff is worth it.
The new administration can make progress on its climate goals, but doing so will require a serious dose of climate realism, as well as a concomitant commitment to competitive policies to achieve U.S. independence from China in battery technology and manufacturing.