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Where climate hawks meet China hawks.
Why are relations between China and the United States deteriorating? Why does the global outlook feel like it’s darkening? A few weeks ago, Brian Deese, President Biden’s former top economic aide, offered a theory on Shift Key, the podcast I cohost with Princeton engineering professor Jesse Jenkins.
We started by asking Deese whether the U.S. should import the cheap electric cars that Chinese companies are beginning to churn out by the millions.
He began by politely disputing the premise of our question. It was wrong to assume, he said, that China is a “market-based economy and a market-based actor.” It would even be wrong to assume we’re in “a balanced and sustainable global trading” system.
He continued:
In terms of the global trading system, we have this enormous imbalance because China has this enormous excess savings. And what they’re trying to do to try to solve the acute economic challenges that they face is to plow that into manufacturing with the explicit goal of trying to dominate — not just try to gain competitive edge, but dominate particular industries. And when they do that … they flood markets with cheap goods.
These “excess savings” impose their own burden on the United States, he said, so we can’t just accept the cheaper consumer goods and move on. “We, the recipient countries, end up paying a lot of the cost of those Chinese subsidies and those Chinese policies,” Deese said. “We end up paying by our own industries, our own capabilities being diminished and derogated in a way that they wouldn’t have that imbalance not existed.”
If these ideas seem to you to be coming out of nowhere, you are probably not alone. What could Chinese financial savings have to do with the success of its EV industry? But for people who have followed left-ish-wing arguments about trade and geopolitics over the past few years, what Deese is saying is immediately familiar. He is glossing a set of ideas argued most famously by the 2020 book Trade Wars Are Class Wars, by the finance professor Michael Pettis and the financial journalist Matthew C. Klein.
These ideas are widely understood in the world of heterodox economists who resist neoclassical approaches to the field but have received little airing in the broader press. Yet they are increasingly important to understanding how the Biden administration sees the world. As Dylan Matthews of Voxhas noted, the Biden administration can sometimes seem like a perplexing alliance of left-wing economic thinkers and China hawks. The Klein-Pettis book is the intellectual mortar fusing those two camps.
The book’s argument is nuanced and wide-ranging, but here is a brief summary. The global economy, Klein and Pettis argue, suffers from a destabilizing and dangerous imbalance, which, if left unchecked, could spiral into a global war. The cause of this imbalance is that since 1991, a handful of countries — notably China and Germany — have passed policies that depress their workers’ wages. These actions have included higher taxes, welfare cuts, lower environmental standards, and sometimes open graft, but they all achieve the same end: They impose great costs on the working class, artificially suppressing citizens’ income and reducing their quality of life, to the benefit of each country’s industrial leaders.
This, the “class war” of the book’s title, has rippled across the global economy in several ways. It has, first, allowed China and some European countries to build up a disproportionately large share of the world’s manufacturing industries. Since workers there are paid so much less than they would be elsewhere, companies are happy to relocate their factories to profit from cheap costs and (in China) low environmental standards. But because Chinese and German workers are systematically underpaid, they cannot afford what they are producing, thus forcing other countries to buy their artificially cheap finished goods. These are the titular “trade wars.”
This is not the end of the story. According to Klein and Pettis, China’s “class war” policies — such as its hukou system, which has created a roving migrant class within the country who lack access to welfare benefits — has artificially enriched its wealthy elite. These industrialists, executives, and officials cannot spend their money as fast as they earn it, meaning that they must save it. Specifically, they seek to save it in U.S. dollars, the world’s reserve currency, snapping up dollar-denominated bonds, stocks, and mortgages. This, in turn, drives up asset prices and generates artificial credit bubbles in the United States and its ally countries, as the world’s extra cash seeks a productive outlet somewhere in the American economy. And because global demand for U.S. financial products pushes up the cost of a U.S. dollar, it makes any goods produced in America more expensive, which further dings the competitiveness of American manufacturers versus their Chinese or German peers.
In short, over the past few decades, “the world’s rich were able to benefit at the expense of the world’s workers and retirees because the interests of American financiers were complementary to the interests of Chinese and German industrialists,” Klein and Pettis write. But note that there is a destabilizing cyclical mechanic to this story too: As China takes more global manufacturing, its excess savings build up further, which slosh around the global economy and generate larger and larger credit bubbles.
This is what Deese was referring to when he condemned China’s “enormous excess savings,” and this is why he identifies those savings as a key driver of China’s manufacturing boom. In the Klein-Pettis worldview, the underlying cause of the destructive tendency in the global economy is the way that its economy systematically steals from the poor and enriches the wealthy. As Deese told us:
China needs to decide if it loves this unsustainable, unbalanced, in many cases, illegal manufacturing strategy more than it hates the kind of domestic reforms it would actually need to take to boost domestic consumption, produce more balanced growth as it becomes a more mature economy.
This intellectual strain has long been present in the Biden administration’s thinking, but recently it has taken on a new prominence. On Wednesday, Treasury Secretary Janet Yellen warned China against flooding global markets with cheap green technology exports while speaking at a Georgia solar factory. “China’s overcapacity distorts global prices and production patterns and hurts American firms and workers, as well as firms and workers around the world,” she said.
Biden himself has even begun to sound this note. You can see the soft influence of Trade Wars thinking in his promise that Chinese electric vehicles will not overwhelm American automakers. “China is determined to dominate the future of the auto market, including by using unfair practices,” he said in a statement last month. “I’m not going to let that happen on my watch.”
For Klein and Pettis, and presumably for the Biden administration, these “unfair practices” can be relieved only by China allowing the consumption share of its economy to rise. They argue that China must stop plowing money into unsustainable investment projects and instead allow its economy to be piloted by consumers, not party officials.
That this would require revising the country’s political system, which concentrates power in the hands of the economic elite, is what makes it so unlikely. On the other hand, if China fails to reform its system, then the consequences could be even more painful: Klein and Pettis suggest that a similar dynamic among the late-19th century Great Powers led to World War I.
Ultimately, Trade Wars Are Class Wars does not predict what will happen. The authors are clear that America’s and China’s economic growth are not necessarily in conflict; only the current dynamic makes it seem so. But the book also suggests a few ideas that it does not fully articulate — presumably because Pettis, who is a professor at Peking University, lives in Beijing.
The biggest of these is that China’s political economy could metastasize into far more malign forms than it holds today. If you think about a country’s politics and economy as necessarily growing and changing together — its politics taking a form that its economics can tolerate, and vice versa — then China’s politics and economy are not necessarily destined to grow along a consumer-friendly path. Today, China produces more solar panels and electric cars than it can consume, and it must find a way to get rid of them. But there are other lines of business — and political styles — that have a demonically self-disposing tendency.
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Rob and Jesse go deep on the electricity machine.
Last week, more than 50 million people across mainland Spain and Portugal suffered a blackout that lasted more than 10 hours and shuttered stores, halted trains, and dealt more than $1 billion in economic damage. At least eight deaths have been attributed to the power outage.
Almost immediately, some commentators blamed the blackout on the large share of renewables on the Iberian peninsula’s power grid. Are they right? How does the number of big, heavy, spinning objects on the grid affect grid operators’ ability to keep the lights on?
On this week’s episode of Shift Key, Jesse and Rob dive into what may have caused the Iberian blackout — as well as how grid operators manage supply and demand, voltage and frequency, and renewables and thermal resources, and operate the continent-spanning machine that is the power grid. Shift Key is hosted by Robinson Meyer, the founding executive editor of Heatmap, and Jesse Jenkins, a professor of energy systems engineering at Princeton University.
Subscribe to “Shift Key” and find this episode on Apple Podcasts, Spotify, Amazon, or wherever you get your podcasts.
You can also add the show’s RSS feed to your podcast app to follow us directly.
Here is an excerpt from our conversation:
Robinson Meyer: So a number of people started saying, oh, this was actually caused because there wasn’t enough inertia on the grid — that Spain kind of flew too close to the sun, let’s say, and had too many instantaneous resources that are metered by inverters and not by these large mechanical generators attached to its grid. Some issue happened and it wasn’t able to maintain the frequency of its grid as needed. How likely do you think that is?
Jesse Jenkins: So I don’t think it’s plausible as the precipitating event, the initial thing that started to drive the grid towards collapse. I would say it did contribute once the Iberian grid disconnected from France.
So let me break that down: When Spain and Portugal are connected to the rest of the continental European grid, there’s an enormous amount of inertia in that system because it doesn’t actually matter what’s going on just in Spain. They’re connected to this continen- scale grid, and so as the frequency drops there, it drops a little bit in France, and it drops a little bit in Latvia and all the generators across Europe are contributing to that balance. So there was a surplus of inertia across Europe at the time.
Once the system in Iberia disconnected from France, though, now it’s operating on its own as an actual island, and there it has very little inertia because the system operator only scheduled a couple thousand megawatts of conventional thermal units of gas power plants and nuclear. And so it had a very high penetration on the peninsula of non-inertia-based resources like solar and wind. And so whatever is happening up to that point, once the grid disconnected, it certainly lacked enough inertia to recover at that point from the kind of cascading events. But it doesn’t seem like a lack of inertia contributed to the initial precipitating event.
Something — we don’t know what yet — caused two generators to simultaneously disconnect. And we know that we’ve observed oscillation in the frequency, meaning something happened to disturb the frequency in Spain before all this happened. And we don’t know exactly what that disturbance was.
There could have been a lot of different things. It could have been a sudden surge of wind or solar generation. That’s possible. It could have been something going wrong with the control system that manages the automatic response to changes in frequency — they were measuring the wrong thing, and they started to speed up or slow down, or something went wrong. That happened in the past, in the case of a generator in Florida that turned on and tried to synchronize with the grid and got its controls wrong, and that causes caused oscillations of the frequency that propagated all through the Eastern Interconnection — as far away as North Dakota, which is like 2,000 miles away, you know? So these things happen. Sometimes thermal generators screw up.
Music for Shift Key is by Adam Kromelow.
Then again, there are reasons why he’d want to focus on existing generation.
Just how big is the data center boom, really? How much is electricity demand going to expand over the coming decades? Business plans, government policy, and alarming environmental forecasts are all based on the idea that we’re on an unrelenting ride upwards in terms of electricity use, especially from data centers used to power artificial intelligence.
It’s one reason why the new Trump administration declared in the first days of its return to power that the country was in an “energy emergency,” and hasbeen used as a justification for its attempted revival of the coal industry.
But one mildly dissenting voice came from a perhaps-unexpected corner: the power industry.
Constellation Energy’s Chief Executive Officer Joseph Dominguez spent a portion of the company’s quarterly earnings call Tuesday throwing lukewarm water on the most aggressive load growth projections, even as the company looks to profit from increased demand for the power that its over 30,000-megawatt, largely nuclear fleet serves.
Dominguez told his audience of investors and analysts that utilities and their power customers have been telling Constellation that “the same data center need is being considered in multiple jurisdictions across the United States at the same time, just like fishing. If you’re a fisherman, you put a bunch of lines in the water to try to catch fish, and the data center developers are doing exactly the same thing.”
This means that different electricity markets or utility territories could report the same future data center demand, when ultimately the developer will pick just one site.
Tallying the demand growth projections from a few large power markets — namely MISO, which largely serves the Midwest; PJM, which largely serves the East Coast; and ERCOT, the Texas energy market — which together “account for less than half” of U.S. power demand, Dominguez said, Constellation finds that they project “notably higher” demand growth than many third-party consultants and analysts foresee for the country as a whole.
“It’s hard not to conclude that the headlines are inflated,” Dominguez said. He further claimed that Constellation had “done the math,” and that “if Nvidia were able to double its output and every single chip went to ERCOT, it still wouldn’t be enough chips to support some of the load forecasts.”
He argued that utilities tend to overstate load growth — an observation backed up by research from the Rocky Mountain Institute. “We get it,” he said. “Utilities have to plan to ensure that the system is reliable.” That frequently means erring on the side of having more generation and transmission to serve future demand as opposed to being caught short.
Dominguez is hardly the first voice to call into question load growth forecasts. Energy industry consultant Jonathan Koomey told Heatmap more than a year ago that “everyone needs to calm the heck down” about AI-driven load growth. Data center developers, chipmakers, and AI companies would likely find efficiencies to get more computing power out of less electric power, he predicted, similar to how the original data center buildout avoided catastrophic predictions of imminent power shortages and spiking electricity prices in the early 2000s.
Since then, demand growth projections have done nothing but rise. But even just a few weeks ago, Peter Freed, Meta’s former director of energy strategy, told Heatmap’s Shift Key podcast, “It is simultaneously true that I think this is going to be a really large demand driver and that we have bubble-like characteristics in terms of the amount of stuff that people are trying to get done.”
Now, to be clear, Dominguez has a reason to talk down expectations of future demand growth — and with it the expectation that there needs to be massive investment in new power plants. Constellation owns and operates a fleet of nuclear power plants, and is bringing on a gas-heavy fleet with its planned acquisition of Calpine.
Dominguez also said that new natural gas and renewables were likely to prove expensive to build.
“The cost of new entry, whether that be for combined cycle machines or solar with storage, has gone up substantially, as has the time to build and site these assets,” Dominguez said. “Now, at the end of the day, in a tightening market, we compete with the cost of new entry.”
This is halfway consistent with what other big players in the energy industry have been saying. John Ketchum, the chief executive of NextEra, which has a large renewables development business,has been telling anyone who will listen that the way to meet urgent load growth is with renewables and batteries, as they can be built cheaper and faster than natural gas, let alone nuclear.
Dominguez’s take, however, is that it’s all quite expensive and lengthy considering the likely level of need.
“When I listen to some of the comments on these calls, I just have to tell you, folks, I think the load is being overstated. We need to pump the brakes here.”
On defending wind, Russian gas, and NREL layoffs
Current conditions: A state of emergency is in effect in Manitoba, Canada, due to multiple wildfires • 17 million people in the south-central U.S. are at risk of severe storms on Tuesday • The Interior Department has reportedly suspended air quality monitoring for National Parks, including California’s Joshua Tree, where the AQI today is moderate.
Attorneys general from 17 Democratic states and Washington, D.C., filed a lawsuit on Monday challenging President Trump’s executive order pausing approvals, permits, and loans for onshore and offshore wind projects. The lawsuit argues that Trump exceeds his authority with the indefinite pause, which threatens “thousands of good-paying jobs and billions in investments, and … is delaying our transition away from the fossil fuels that harm our health and our planet,” in the words of New York Attorney General Letitia James, who is leading the coalition.
In a response to the lawsuit, a White House spokesperson told The Associated Press that “the American people voted for the president to restore America’s energy dominance, and Americans in blue states should not have to pay the price of the Democrats’ radical climate agenda.” As my colleague Emily Pontecorvo has written, however, state climate goals “become nearly impossible if no additional [wind] projects are able to get through the permitting process until at least 2029,” with New York state’s especially in jeopardy after the administration ordered the halt of construction on the fully permitted Empire Wind project south of Long Island.
The European Union plans to announce on Tuesday a 2027 deadline for companies to end any remaining energy contracts with Russia, the Financial Times reported Monday. Though the EU’s use of Russian oil and coal virtually ended with sanctions after the invasion of Ukraine in 2022, Europe still bought 49.5 billion cubic meters of Russian gas through pipelines in 2024, and another 24.2 billion transported on ships as liquified natural gas, per Rystad Energy (though some of that LNG was resold). Another way of looking at it: “The EU purchased a total of [$26 billion] in Russian energy in 2024, exceeding its military assistance to Ukraine last year,” Bloomberg writes, with imports accounting for about 19% of the bloc’s total gas purchases.
The proposed measures will need to be approved by a majority of EU member states and the European Parliament before they can be adopted, according to FT. Without Russian LNG, Europe is expected to turn to the U.S. to meet its energy needs.
Share of European Union gas demand met by Russian supply, 2001-2024
IEA
More than 100 employees at the National Renewable Energy Laboratory lost their jobs in a round of layoffs on Monday, Mother Jones reports. The cuts included non-probationary employees, or those who’ve worked at the Department of Energy division for over two years.
Though NREL has more than 3,000 employees on staff, sources who spoke with Mother Jones described the cuts as “rather haphazard and unorganized,” while others stressed that “if I am suddenly the only person on my team, I can’t handle that work.” The layoffs also notably come after President Trump’s “skinny” budget proposed $15 billion in cuts to Infrastructure Investment and Jobs Act funding. The White House Office of Management and Budget has said that the budget aims to reorient the Department of Energy’s funding away from “unreliable renewable energy” and “toward research and development of technologies that could produce an abundance of domestic fossil energy and critical minerals, innovative concepts for nuclear reactors and advanced nuclear fuels, and technologies that promote firm baseload power.”
The Federal Emergency Management Agency plans to end door-to-door survivor outreach in disaster areas for the upcoming hurricane and wildfire seasons, Wired reported Monday, based on a FEMA memo dated May 2. Previously, the agency would canvass disaster survivors to inform them about how to register for federal aid, a policy that one emergency management coordinator told Wired was critical given how many survivors don’t get adequate information about recovery resources otherwise. Instead, FEMA’s memo said the agency will “focus survivor outreach and assistance registration capabilities in more targeted venues.”
Last year, Republicans on the Oversight Committee singled out FEMA’s outreach program over alleged “widespread discrimination against individuals displaying Trump campaign signs on their property” in the wake of Hurricane Milton. The White House’s budget has also cited FEMA for supposedly “skipping over homes when providing aid.” But the Trump administration has also sought to pare back the agency aggressively: Earlier this year, it denied a request for federal aid from Arkansas’ Republican Governor and former White House Press Secretary Sarah Huckabee Sanders after severe tornadoes that left more than 40 people in the region dead, arguing the disaster was not “beyond the capabilities of the state, affected local governments, and voluntary agencies” to address.
Kevork Djansezian/Getty Images
The Los Angeles Dodgers have faced calls from activists and fans to end their sponsorship deal with Phillips 66’s 76 gas station brand — but the partnership might face a natural end due to the Olympics coming to L.A. in 2028, Legal Planet reports. Dodger Stadium will be an official Olympic venue during the summer games, and its 76 gas ads will violate the Olympic Charter prohibiting “commercial installations and advertising signs … in the stadia, venues or other sports grounds.”
The Dodgers are under mounting pressure to drop the Phillips 66 partnership even earlier. There are 76 gasoline ads “plastered throughout the ballpark, from the visiting team’s bullpen to the ribbon board screens lining the stands … Even the on-deck circles on the field, where batters prepare to hit, are orange-and-blue 76 logos,” the Los Angeles Times’ Sammy Roth wrote last year in a column calling for the team to break up with the oil company. As of November, the Houston-based energy company was facing six counts of violating the U.S. Clean Water Act by illegally discharging 790,000 gallons of wastewater from its Carson refinery into the L.A. County sewer system. “The lead up to the 2028 Olympic games period would seem to be a natural time for the Dodgers to reset a marquee sponsor for years to come — and to do so on their own terms — or else be forced to by Olympic rules,” Legal Planet writes.
“C’mon Ford, c’mon GM, c’mon Chrysler, let’s roll again/Build something useful that people need, build us a safe way for us to be/Build us something that won’t kill our kids, that runs real clean, that runs real clean.” —Lyrics to Neil Young’s new single “Let’s Roll Again.”