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Meet Scott Bessent.
The signs marking projects funded by the current president’s infrastructure programs are all over the country.
A cynical optimist’s take on the Inflation Reduction Act.
On COP29 funding goals, congestion pricing, and the Cybertruck
Jesse and Rob download with Johns Hopkins professor Jeremy Wallace.
Whatever happens to the Inflation Reduction Act, high interest rates could still hurt.
Who will benefit most from repealing the Inflation Reduction Act?
For decades now analysts of various stripes have been predicting the end of America’s reign as the dominant world power. Some thought the war on terror, in which the U.S. spent on the order of $6 trillion turning half the Middle East into a Stygian wasteland, would crack it. Others thought the financial crisis of 2008 would sour the world on America-centered financial capitalism.
Yet nothing of the sort happened. America is simply so rich that it absorbed the burden of 20 years of war without even raising taxes. There was and is simply no alternative to the U.S. dollar for settling international transactions. The 2008 crash caused a run towards dollars, not away from them, and the U.S. Federal Reserve became the lender of last resort for half the planet — a role it replayed during the initial panic of the pandemic.
And under the Biden administration, American preeminence seemed to have gotten another lease on life. Thanks to his stimulus and industrial policy, the U.S. economy has recovered much faster than any other rich nation. The European Union is stagnating, struggling to escape from its lack of a coherent fiscal system and its decision to depend heavily on imported Russian fossil gas. China’s growth model has crashed into the middle income trap, as it struggles to pivot from an investment-driven model to a consumption-driven one.
That all changes with the second election of Donald Trump to the presidency. Him winning again, this time even the popular vote, has thrown radical uncertainty into America’s international standing — particularly when it comes to climate change and the green economy. It’s a golden opportunity for China, if it cares to seize it.
It has been obvious for years now that renewable energy and green industry are going to be the growth engines of the world economy for the rest of this century at least. Every fossil fuel power plant must be replaced with some combination of wind, solar, batteries, geothermal, or nuclear, and every power grid must be overhauled and upgraded to deal with the intermittency of renewables. All carbon-based industry and agriculture must be modified or replaced with electric-powered versions, requiring a lot more generation capacity.
It will be a transformation on par in significance with the original Industrial Revolution, requiring trillions in investment per year. Indeed, it is already happening around the world and, given the price trends of renewable energy, it is practically inevitable at this point.
China already has manifold advantages in this area. It is already the workshop of the world, accounting for almost a third of global manufacturing. It produces more than half of the world’s steel and two-thirds of its aluminum. It is also far ahead of anyone else in most green industry. It produces 80% of global solar panels, 80% of lithium-ion batteries, about 60% of wind turbines, and 58% of EVs. It also has installed more solar and wind, both onshore and offshore, than any other country by far.
Frankly, China was already positioned to more or less dominate the green energy and industry space. But under Biden, America has belatedly attempted to stand up a competing green manufacturing base, and it is working. Solar and battery investment is skyrocketing, as is manufacturing.
Trump has promised to flush all that down the toilet. He has promised to repeal the Inflation Reduction Act, the keystone Biden climate law, and gut the entire environmental protection apparatus. It’s an open question whether or not he will go that far, but if markets are any judge, the stocks of many American renewable and green industry companies plunged on the news of his victory. If Republicans win the House (which is not yet counted at time of writing), then I suspect at least a partial repeal of Biden’s climate achievements. That is basically what Trump did during his last term.
It might not even take that much. As Robinson Meyer outlines, Trump already strangled an incipient transition to EVs among U.S. automakers during his first term simply with some regulatory adjustments. The ongoing transition has been rocky for some companies, particularly Ford, and it would not take much to tip them back towards traditional cars.
If that happens then China will not have even a potential peer competitor — it will own more or less the whole green economy going forward. European, Japanese, and Korean companies might carve out a modest niche, but Africa, Latin America, and much of Asia will by and large be decarbonized and powered by Chinese products.
China has an even bigger opportunity when it comes to diplomacy. The keystone of American dominance is its alliance system. Its relationships through NATO and with New Zealand, Australia, Taiwan, Vietnam, Japan, and so on provides a public good of security in which those countries feel less need to spend hugely on defense, in return to submitting to U.S. control of global financial pipelines and other international institutions.
Electing a madman as president back in 2016 led many to question whether America was not too politically rotten to be trusted as world hegemon, and sure enough Trump, with his arrogant, erratic, and supremely transactional diplomacy, deeply alienated much of the EU, the most important ally. Biden successfully patched up the relationship, but a second Trump election could be the final straw. One election could be a fluke, but two is a pattern, and in any case Trump has suggested he might unilaterally tear up NATO. Frankly you’d be a fool to trust American diplomatic promises of any kind from now on, and a huge military buildup among jittery American allies is all but certain. As French President Emanuel Macron recently said at an EU summit, “We cannot delegate our security to the Americans forever.”
This in turn threatens international financial pipelines, either owned or regulated by the U.S. government, like Fedwire, CHIPS, Nacha, and SWIFT, that the U.S. uses for power projection. Sanctions against Russia, for instance, rely on other nations complying with American rules and surveillance on these systems.
Many, many countries are not going to be happy about the prospect of Donald Trump being able to set the rules and conditions on their international transactions. It will be a ripe opportunity for China to step in with an alternative system, and thereby knock out another pillar of American global power.
Let me emphasize that none of this is going to happen automatically. China, with its opaque and autocratic regime, has many serious domestic problems. As noted above, its domestic economy is struggling to rebalance towards consumption, and its population is rapidly aging. That said, the government recently announced a major stimulus package, which should boost consumption to some degree.
If China wanted to replace the dollar as reserve currency, it would have to give up capital controls and currency management, which would require even more wrenching reforms. Similarly, if it wants a lot of uptake on an alternative payments system, it would be well advised to not give in to its usual habit of totalitarian police state surveillance.
But the opportunity still remains. America has been one of the luckiest countries in world history — blessed in its geographic position, resource base, and with a 160-year record of not suffering major wars on its territory. But with sufficient stupidity, even the largest advantages can be canceled out. Electing one of the worst people in the country to the presidency, again, might just do it.
Let us consider the issue of nuclear energy.
The next Trump administration is ramping up, and we are beginning to get a sense of what it might look like.
But before we get any further from the election, I want to note the one thing we absolutely know about the Trump administration’s policy: It constantly contradicts itself. In order to win, Trump has made an overlapping and contradictory set of promises to his stakeholders and supporters.
In the world of energy policy, nuclear energy is the most glaring example. Robert F. Kennedy, Jr., who Trump has said will have a major role in overseeing the nation’s public health, is a lifelong opponent of nuclear power. Before his current Trumpist turn, his environmental career’s crowning achievement was helping to shut down Indian Point Energy Center, a nuclear power plant that generated enough zero-carbon electricity to meet a quarter of New York City’s power needs. That closure — which was celebrated by some environmental groups — substantially increased New York’s natural gas consumption, raising the state’s emissions of climate pollution.
Vice President-elect JD Vance, meanwhile, has spoken much more favorably about nuclear energy. He sometimes frames nuclear energy as the one climate solution Democrats won’t pursue without fully conceding that climate change is a problem requiring solutions. As he told the podcast host Joe Rogan earlier this year, “If you think that carbon is the most significant thing — [that] the sole focus of American civilization should be to reduce the carbon footprint of the world — then you would be investing in nuclear in a big way.” (In reality, as I wrote last month, Democrats at the national level became startlingly pro-nuclear during this election cycle.)
Musk, for his part, is so pro-nuclear that while interviewing Trump and Kennedy in the past year, he interjected to express support for nuclear. “I do want to voice my opinion that, in my opinion, actually nuclear is very safe,” he told RFK last year. “If you look at the actual deaths from nuclear power, they’re miniscule compared to certainly any fossil fuel power generation.” (He is totally correct about that.) “I would actually — although this does go against a lot of people’s views — I’m actually a believer in nuclear fission,” Musk added.
Trump, meanwhile, has swung around on the question. The first Trump administration passed a number of pro-nuclear policies and sought to elevate the small modular reactor industry. As recently as August, Trump said that nuclear energy was “very good, very safe.” But that month he also equivocated about its safety. “They talk about climate change, but they never talk about nuclear warming,” he told Musk. He also pondered whether nuclear energy has a branding problem because it shares a name with nuclear weapons. (I am indebted to HuffPo’s Alex Kauffman, who indispensably tracked Trump’s shifts of mood on this issue.)
Finally, the officials Trump is likely to bring in to oversee energy policy — people like Doug Burgum, the North Dakota governor who could become energy czar — hold a more traditionally Republican pro-nuclear view.
Some of this incoherence might be intentional. Kennedy seems to have struck a deal with Trump over some aspects of energy policy. During his victory speech on Tuesday, Trump even told RFK, “Bobby, stay away from the liquid gold” — implying a transaction where RFK gets control of health policy while leaving energy untouched. But does that extend to other parts of the energy agenda?
I point to this because it illustrates what’s coming — the messy mix of interpersonal rivalries, shoot-from-the-hip reversals, and traditional Republicanism that will actually determine the output of Trump’s policy process. And nuclear is not even the most glaring question about the Trump administration’s energy and economic policy. Trump says he wants to bring back U.S. manufacturing, and Vance has said that the U.S. should solve climate change by investing in domestic manufacturing: “If we actually care about getting cleaner air and cleaner water, the best thing to do is to double down and invest in American workers and the American people,” he said at the VP debate.
This is more or less the exact goal of the Inflation Reduction Act, Biden’s signature climate law, which incentivizes companies to manufacture solar panels, wind turbines, and electric vehicles domestically. This law has helped underwrite dozens of new EV and batteries factories in Georgia, North Carolina, Michigan,Texas, and Arizona — the battlegrounds of modern American politics. Yet the Trump administration has committed to repealing or freezing the IRA.
Likewise, Musk has promised to slash “at least $2 trillion” from the federal budget. But that seems virtually impossible without cutting defense, Social Security, and Medicare — programs that Republicans or Trump have promised to leave intact. (Mississippi Senator Roger Wicker, the incoming Senate armed service committee chair, wants to massively increase defense spending.) Will it accept the local economic pain, the dozens of canceled investments, that will follow that repeal?
The unignorable fact of the Trump administration is that its plans, at least as viewed today, do not really hang together. Trump has been swept into power promising low prices and an end to inflation, but his centerpiece economic policies are likely to reduce the low-end labor supply (through mass deportations) while increasing the cost of goods (through economy-wide tariffs). Perhaps these policies will not affect the economy as economists expect — I remember enough of the first Trump administration to know that catastrophic expert predictions do not always come true.
But perhaps they will. When asked what the hardest thing was about being prime minister, the British politician Harold Macmillan is said to have replied, “Events, dear boy, events.” With Trump, we can be certain that some of those coalition-splitting events will spring from his own messily managed coalition.
