Who Profits in a Post-American World? | Adam Posen

In Episode 441 https://hiddenforces.io/podcasts/who-profits-in-a-post-american-world-adam-posen of Hidden Forces, Demetri Kofinas speaks with Adam Posen, president of the Peterson Institute for International Economics, about the profound transformations underway in the global economy driven by America's transition away from being the world's primary insurance provider for international security to its exploiter-in-chief. In a recently published Foreign Affairs essay titled "The New Economic Geography: Who Profits in a Post-American World?" Adam compares America's role in the post-World War II era to that of an insurance provider, underwriting global security by protecting international shipping lanes, providing deep and liquid capital markets, and enforcing international laws and standards that have formed the bedrock of the last 80 years of economic growth and prosperity. Kofinas and Posen spend the first hour of this episode digging into Adam's insurance framework and why he believes the United States was the largest beneficiary of the system it created. They discuss some of the recent policy changes out of Washington and why they are transforming America's sphere of influence into something that looks more like a system of exploitation than a market for affordable insurance. Adam Posen draws implications for the continued role of US Treasuries as a global safe asset and whether a reduction of foreign capital flows into dollars will ultimately prove stimulative for the resurrection of industrial ecosystems that the administration has identified as vital to American national security and the long-term prosperity of the United States. The two also consider the degree to which the increased premiums that Washington is now charging its allies can be justified by rising risks in the international security environment and by the unpopularity among the MAGA base for foreign U. S. involvement. The second hour of their conversation turns to questions of execution—specifically, what is required for the successful implementation of a U. S. industrial policy. This includes a discussion about apprenticeships, skilled immigration, government-supported R&D, federal funding for university science and technology programs, and more integration and collaboration with allied economies. Posen and Kofinas also discuss why the use of tariffs, subsidies, and export controls—including the CHIPS and Science Act—implemented during both Joe Biden's and Donald Trump's administrations have underdelivered. They also examine why the current administration's trade policies have been oddly more accommodative toward China than toward America's closest allies and why this will ultimately prove to be a losing strategy in the long-term. Lastly, Demetri asks Adam for his view on what the recent battles between the Fed and the White House mean for the future of Fed independence and if Washington is laying the groundwork for a long-term rise in inflation expectations as it seeks to monetize its debt and deficits through an increasingly compliant and captured central bank. Subscribe to our premium content—including our premium feed, episode transcripts, and Intelligence Reports—by visiting HiddenForces.io/subscribe https://hiddenforces.io/subscribe. If you'd like to join the conversation and become a member of the Hidden Forces Genius community—with benefits like Q&A calls with guests, exclusive research and analysis, in-person events, and dinners—you can also sign up on our subscriber page at HiddenForces.io/subscribe https://hiddenforces.io/subscribe. If you enjoyed today's episode of Hidden Forces, please support the show by: Subscribing on Apple Podcasts https://podcasts.apple.com/us/podcast/hidden-forces/id1205359334, YouTube https://www.youtube.com/channel/UC8URhgYos5fjHqFSO4RSIEg, Spotify https://open.spotify.com/show/0TK6u251zGSlMgJKH6cOaP, Stitcher https://www.stitcher.com/podcast/demetri-kofinas/hidden-forces, SoundCloud https://soundcloud.com/hiddenforces, CastBox https://castbox.fm/channel/2629539, or via our RSS Feed http://hiddenforces.libsyn.com/rss Writing us a review on Apple Podcasts https://podcasts.apple.com/us/podcast/hidden-forces/id1205359334 & Spotify https://open.spotify.com/show/0TK6u251zGSlMgJKH6cOaP Joining our mailing list at https://hiddenforces.io/newsletter/ Producer & Host: Demetri Kofinas Editor & Engineer: Stylianos Nicolaou Subscribe and support the podcast at https://hiddenforces.io https://hiddenforces.io/. Join the conversation on Facebook https://www.facebook.com/hiddenforcespod/, Instagram https://www.instagram.com/hiddenforcespod/, and Twitter https://twitter.com/hiddenforcespod at @hiddenforcespod Follow Demetri on Twitter at @Kofinas https://twitter.com/kofinas Episode Recorded on 09/16/2025

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Demetri Kofinas?

  What's up everybody? My name is Demetri Kofinas and you're listening to Hidden Forces, a podcast that inspires investors, entrepreneurs, and everyday citizens to challenge consensus narratives and learn how to think critically about the systems of power shaping our world. My guest in this episode of Hidden Forces is Adam Posen, a leading macroeconomist and the president of the Peterson Institute for International Economics. In a recently published foreign affairs essay titled "The New Economic Geography: Who Profits in a Post-American World?", Adam compares America's role in the post-World War II era to that of an insurance provider, underwriting global security, protecting international

• 0:43Demetri Kofinas?

  shipping lanes, providing deep and liquid capital markets, and enforcing international laws and standards that have formed the bedrock for the last 80 years of economic growth and prosperity. We spend the first hour of this episode digging into Adam's insurance framework and why he believes the United States was unsurprisingly the single biggest beneficiary of the system it created. We discuss some of the recent policy changes out of Washington and why they are transforming America's sphere of influence into something that looks more like a protection racket than a market for affordable insurance. We connect this shift to the international role of US treasuries as a global safe asset, whether the increased premiums that Washington is charging its allies can be justified by

• 1:27Demetri Kofinas?

  rising risks, and whether a reduction of foreign capital flows into dollars will ultimately prove stimulative for the resurrection of industrial ecosystems that the administration has identified as vital to American national security and the long-term prosperity of the United States. The second hour of our conversation turns to questions of execution, specifically what is required for the successful implementation of a US industrial policy. This includes a discussion about apprenticeships, skilled immigration, government-supported R&D, federal funding for university science and technology programs, and more integration and collaboration with allied economies.

• 2:08Demetri Kofinas?

  We also discuss why the use of tariffs, subsidies, and export controls, including the CHIPS and SCIENCE ACT, implemented during both Joe Biden's and Donald Trump's administrations, have under-delivered, and why the current administration's trade policies have been oddly more accommodative toward China than toward America's closest allies, and why that will ultimately prove to be a losing strategy for the long term. Lastly, I ask Adam for his view on what the recent battles between the Fed and the White House mean for the future of perceived Fed independence, and if we are laying the groundwork for a long-term rise in inflation expectations, as Washington will seek to monetize its debt and deficits through an increasingly compliant and captured central bank.

• 2:52Demetri Kofinas?

  If you want access to all of this conversation, go to hiddenforces.io/subscribe and join our premium feed, which you can listen to on your mobile device using your favorite podcast app, just like you're listening to this episode right now. If you want to join in on the conversation and become a member of the Hidden Forces Genius Community, which includes Q and A calls with guests, discounted access to third-party research and analysis, and in-person events like our intimate dinners and weekend retreats, you can also do that on our subscriber page. And if you still have questions, feel free to send an email to [email protected], and I or someone from our team will get right back to you.

• 3:36Demetri Kofinas?

  And with that, please enjoy this timely and wide-ranging conversation about the future of finance, security, and the global economy. My guest, Adam Posen.

• 3:50Demetri Kofinas?

  Adam Posen, welcome to Hidden Forces.

• 3:54Speaker 01

  Thanks for having me, Dmitry. I really appreciate the opportunity to be on Hidden Forces with you.

• 3:59Demetri Kofinas?

  It's my pleasure having you on, Adam. So as I was telling you, what prompted this conversation is an article you published in the September/October issue of Foreign Affairs Magazine titled "The New Economic Geography", in which you described the role played by the United States in the post-World War II order as being that of an insurance provider collecting premiums in exchange for underwriting global security. We are now, according to you, and as you wrote about in that piece, in a post-American world economy where Washington has gone from being an insurance provider to a kind of racketeer and extractor of capital.

• 4:37Demetri Kofinas?

  Maybe the best way to get us started is for you to elaborate on the argument that you put forward in this piece. What was that? And walk us through the reasons that you wrote it.

• 4:45Speaker 01

  Well, what I'm trying to do, Dimitri, is, as they used to say on The West Wing, "Look at the entire board." There's been a lot of focus on the bilateral trade conflicts, on US-China, but also on specific foreign policy things like NATO withdrawal informally. And what I'm trying to say is that there's a common pattern here. And then spin out, what are the economic and financial implications of that? And the common pattern is, as you said, that the US was providing a number of what people would often call public goods, or trading things for other countries' willingness to go along. But I think it's most useful to think of it as insurance. So imagine, you know, you're lucky enough to have a lot

• 5:30Speaker 01

  in Malibu, and you're going to build a beach house. But you're only going to build a beach house if you've got good insurance, against whether it's global warming, or wildfires, or whatever. And as long as the insurance is there, you invest in your property, and others around you invest. And then comes a point at which your insurer suddenly says, "Well, you should really hand me a little thing under the table if you want me to fulfill that claim. And, well, I'm going to triple your premium and cut your coverage. And if you don't, then I'm just going to walk away from the state. I'm not going to insure you." And that's essentially the shift that's going on. And so it becomes very expensive to maintain

• 6:14Speaker 01

  that beach house as a form of self-insurance. And so to make it more tangible, what the US was providing throughout, basically, the 40s until a few years ago, was security on the seas, that commerce could take place with very little piracy, security on the legal front, that most countries would adhere to some version of the US legal system and recognition of property rights, particularly enforcement of multinational companies' property rights, for good or for ill, that the dollar and the US Treasury market provided a place to allow safe liquidity. People could park money in dollars, people could take money in and out of dollars, or out of treasuries, without affecting the pricing, because it was so deep and liquid.

• 7:00Speaker 01

  And then, of course, trade, that there was rules of the game, dispute settlement, the US engaged in most favored nation status, meaning you would treat a bunch of countries the same and you'd be very clear about your deviations. And my argument is this was all in the US interest. This was a profitable business, essentially, being the world's insurer. And what the US got in return was very low interest rates, lots of extra investment in the US, both in treasuries and in foreign direct investment, outsized influence on business standards, technical standards, business committees, and even brands, the US being overrepresented for its economic weight, and ultimately insecurity having

• 7:43Speaker 01

  a great deal of sway over other countries, including our ability to garrison troops in forward positions in places like Japan, Korea, and Germany, which, if you go back to the American Revolution, isn't seen as us doing them a favor necessarily, it's as much a, an imposition. So I think this was a profitable model and it led to a better world. And I think that this has been coming apart for various reasons for several years under the first Trump and under Biden, but President Trump is explicitly repudiating it. And as you said, is moving to more of what we call protection in the movies model.

• 8:26Speaker 01

  You have a nice economy there, it would be terrible if something were to happen to it. I suggest you pay me some insurance, which isn't the same thing as real insurance.

• 8:36Demetri Kofinas?

  So foreign central banks holding in excess of dollar reserves or US treasuries is an obvious example, one example of how foreign countries were paying their premiums. What are some other good examples? I mean, you cited a few there that might be, but I would like to just be clear on what these are.

• 8:53Speaker 01

  So one of the other ways closely related was that even though it wasn't government-directed, it was encouraged that everyone was overweight in dollars. If you think about the US as a share of global GDP, or the US as a share of total investment, or the US as a share of total population, however you want to do it, the amount of money held in dollar assets is just an enormous multiple of that. And it's barely moved, even as China has risen, even as other countries have risen. That's being as a macroeconomist and former central banker, that's the biggest one. Additionally, we had trade deals that despite the things that the Trump administration

• 9:36Speaker 01

  says, and for that matter, some of the things that the Biden administration folks said, were actually very advantageous to the US. They tended to privilege US companies, they tended to create unequal access where the US had as much protection or more in terms of trade barriers to the countries we were going into, where the US had benefits in a system that favored intellectual property rights, that favored high-end goods, all of which went to the US. We had things like Boeing or military sales, which now of course get a bit mixed together,

• 10:15Speaker 01

  but also various industry products where the US standards were accepted and other countries didn't feel they had to have their own version, and that gave us disproportionate market share. So despite all the cursing about the trade regime, it actually was being paid in premia to the US. Additionally, there were direct premia, as I mentioned, where the US has been putting troops abroad in Okinawa, in the Rhine Air Force Base. The local countries have been providing a lot of money and support. Now, again, all these things, you can discuss repricing, you know, if the threat is bigger

• 10:57Speaker 01

  than it used to be because of China and Russia, or if the competition is harder for US brands. You can discuss repricing and still be an insurer, but you can't say you need to insure against me and still be an insurer.

• 11:11Demetri Kofinas?

  Yeah, that's actually a question I do want to ask, not yet, but I wanted to ask you about to what degree this reflects an honest repricing of risk. Something that you say in the piece that I really like is you draw a distinction between insuring against natural disasters and insuring against social systems or yeah, the difference between social science and natural science essentially, which is to say that when you provide insurance in the form of global security backing the international order, you're actually lowering the risk of the event happening in the first place. You aren't just spreading that risk around and making it more affordable, you're actually reducing the overall level of risk. And I'm curious, what quantitative evidence do we have that this insurance model both

• 11:55Demetri Kofinas?

  made risk more affordable for other countries and other corporations worldwide, but that it also lowered the overall amount of risk in the system?

• 12:04Speaker 01

  Thank you for bringing that out, Dimitri. I think that is an important distinction. In an economic system, but also in national security, if the US as a dominant power, as an economic hegemon, provides the insurance, they actually deter bad actions and they create senses of safety and investment. Whereas in global warming, barring some huge technological leap forward, Chubb Insurance or Liberty Mutual or whoever cannot change the underlying climate risks. And so some of the evidence for this is, first off, we saw a huge decline in the amount of interstate violence.

• 12:43Speaker 01

  There's still plenty of violence within states, but interstate violence has been much lower over the last 30 years, particularly since the fall of the Soviet Union. And it maps pretty well to which countries are in, or at least were in, the US security umbrella, which countries were essentially had policies. And you can see that the countries that have greater, or at least had, greater military alliances with the US and investment with the US ended up having better growth, all else equal. I mean, you look at Taiwan and Israel and whatever you think of their policies and

• 13:26Speaker 01

  their situation, they've both been star economic performers in high tech with huge returns for their people. And that totally is premised on the US security guarantees. Without that, never would have happened. So I mean, that's a case study, but there are other examples. We've seen this in the huge transformation in Eastern Europe. Now, most of that was a straight economic thing, that of course, they gave up communism. They went to capitalism. But additionally, as the Poles in particular, and some of the Baltic states are emphasizing right now, they were able to do this without fear and therefore invest more in their economies.

• 14:06Speaker 01

  And now they're having to invest more in self-defense, literally in military spending and diverting labor resources to military or security-related needs. So there's very clear markers here.

• 14:20Demetri Kofinas?

  No, that's a great example. The European social welfare state is a derivative of the American order. And would you argue the same thing is true of the European Union? That it could not have been possible without the US backing and without NATO?

• 14:33Speaker 01

  I think so. I mean, I feel very strongly so because it's one big event and it's so over-determined. It's harder to prove in that sense, but I know that the European founders and those who've led European integration through the years have certainly said that. And it totally makes sense to me.

• 14:51Demetri Kofinas?

  Have there been any attempts to quantify the extent to which global trade has grown in size as a result of these security guarantees and as a result of this insurance that the United States has provided? Or is that too tall a task to try and do?

• 15:05Speaker 01

  There's related issues. People in the past, there's related research, I should say. People in the past have been reluctant to make the tie that I make between the security and the economics, partly because it's sort of embarrassing. It used to be held because people would like to think it's all economically driven. And partly just because researchers tend to be siloed. If you're an economist, a trade economist, you look at trade. If you're a security risk. So there isn't much in the way of direct evidence, but there's clear indications that there was a huge acceleration in growth in international trade.

• 15:41Speaker 01

  After the Cold War. And there was another huge growth, particularly focused around the European Union and Japan in the 50s and 60s. And both of these were places, and it took place primarily in regions where the US was extending its security guarantee in a very big way. Now, China obviously rose up, and we never were, of course, talking about a security guarantee for China, but even within that, China did benefit from being able to piggyback on safety of the seas. They never bothered to have a navy of any size until very recently.

• 16:22Speaker 01

  They were able to piggyback on US property rights and legal precedents for international exchange. And there is a bunch of work suggesting, empirical research work suggesting that the WTO tends to, and free trade agreements tend to follow where trade already is strong. It's more about governing trade than opening markets, but then it reinforces the growth in trade. And again, that's a place where you can see the difference between when the US was pursuing trade agreements with other countries, multilateral trade agreements, the WTO was going forward,

• 17:06Speaker 01

  and over the last nine, 10 years where the US has not been doing that. And international trade continues to rise vis a vis China and some other deals. It hasn't gone, but it's clearly not going up at the same rate it was when the US was actively encouraging it.

• 17:24Demetri Kofinas?

  So let's go back to this question about risk repricing. To what degree do you think this reflects on honest repricing of risk that results not just from the rise of China and this new multipolar landscape, but also the fact that many in the United States, a critical number of people are fed up with the US's role internationally? And so there is an increased political cost to actually playing this role, and Trump's policies are a reaction to that. And to what degree is it price gouging? It is extractive? It is racketeering? And how do we differentiate between those two?

• 18:01Speaker 01

  I think it's pretty easy to differentiate because ultimately where the Trump motivations come from and where a lot of people who, as you say, politically are very upset about US engagement is based on falsehoods. There is this claim that Japan or Germany or the UK or Korea or whoever have been free riding and getting fat off the US and it's simply false. These are win-win deals. People don't conceive of win-win deals anymore in this sphere and it's a shame, but it's still false. We know, and studies done here at the Peterson Institute by Gary Huffbauer and others as

• 18:43Speaker 01

  well as others outside, we know that households in the US, and this includes low-income households in particular, have gained enormously from the access to trade in terms of variety, price, purchasing power, sustainability of supply. And there are arguments to be made in a narrow national security sense that we had to be more careful about being single-source dependent like on Taiwan for semiconductors, but that's a limited set of issues. Similarly, the idea that, you know, other countries have been undervaluing their currencies, yeah, there's been a little bit of that and the Chinese, for example, certainly manipulated

• 19:28Speaker 01

  their currency in the first decade or so of the 2000s and I and colleagues spoke out against that. But, you know, it wasn't anything to compare with the fact that the US has had this exorbitant privilege of getting to issue ever-increasing amounts of US Treasuries at relatively low real interest rates. Our debt just kept getting piled into and that freed up money for investment, that attracted investment from around the world. So the set of accusations that are made about trade may be coherent, but they're on false premises. And I don't mean just trade. Obviously, we're talking about

• 20:12Speaker 01

  capital flows. And we're going to see this unwind because we're already seeing areas where the US had dominant standards in computer and internet setting of how people work together on health and safety issues, on distribution of cultural goods. And there was always going to be some waxing and waning of which pop your K-pop, J-pop, you know, cool Britannia 20 years ago. But the idea that the US held disproportionate sway is going to go away. So going back to where you started, which is repricing, I think the way you tell the

• 20:53Speaker 01

  difference between repricing and extortion is twofold. First is repricing, if my view, which is evidence-based, is right, that this is largely benefited the US, repricing should be a matter of very specific, limited increases. It's not like the Chinese threat suddenly exists now and didn't exist before, as opposed to complete jumps in what the pricing is, what are the demands extracted. And the second way in which you can tell it's more of a racket or a protection scheme is that it involves threats by the US in the form of the Trump

• 21:37Speaker 01

  administration, saying, you will lose market access, you will lose military cover, you will lose access to energy if you do not give us these things. And the final point, which is the two put together, is win-win insurance. People voluntarily pay for it. The Malibu house owner may may whine occasionally about rising insurance premium, but they pay it because it's in their interest. We're now in a situation where only the closest allies of the US are paying what the Trump people demand. China most certainly is not. India most certainly is not, because they feel they have no choice. It's being extracted

• 22:20Speaker 01

  from them. It's not a price that they would be willing to pay absent direct threats.

• 22:26Demetri Kofinas?

  Yeah, that's something I definitely want to get into because I want to maybe sort of think out loud about what the strategy actually is here, or if there isn't one, or if it's driven by political expediency. But let's go back to this conversation about the gains of globalization, because on one level, I agree with you. Certainly, the US economy has, as a whole, benefited from the post-Cold War era of accelerated globalization. But the primary problem, at least in my mind, has more to do with how those gains have been distributed. Now, this partly reflects the US's own gradual transformation over the period from being a capital-heavy to a capital-light economy, a trend that was

• 23:09Demetri Kofinas?

  already in place before China joined the WTO, for example, but one that accelerated and was aided by the growth in global trade and capital flows, along with the Internet Revolution and the investment opportunities that cropped up in low marginal cost businesses, which ended up attracting more foreign capital, fueling higher valuations, and importantly, gradually disempowering labor as a share of a company's cost structures. And that, in turn, has had a negative impact on the middle class. To what degree would you concede that? And what should have... Actually, let's not even focus on what should have been done. What should be done now? How should policymakers, in your view, deal with this reality that

• 23:53Demetri Kofinas?

  the United States, as a whole, has benefited from globalization, putting aside the national security arguments and the need to build redundancy in certain critical industries and to be able to produce, let's say, parts of the military supply chain that are vulnerable to disruptions in the event of war, putting all that aside. But just from a distributional gain standpoint, what should be or can be done to strengthen the social contract in America so that more of the gains of globalization accrue to a sufficient political majority, such that we don't continue to go down this road of populist discontent and protectionism and withdrawal? Again, assuming you even you even agree with that frame.

• 24:34Speaker 01

  Well, no, I agree with part of it, but I think you're making a connection, Dmitry, that a lot of people make that isn't justified. I mean, everything you said about the inequality and certain people in certain locations not doing as well in the last 20 years, or arguably more between the mid 80s and the 2008 crisis. As others, there is real evidence for that, and there's real evidence that the wealthiest and the highest income in the US have pulled ahead in a very big way. But you listed a bunch of things, all of which determined that, and none of which are due to globalization, per se. First is simply, we do not have a welfare state

• 25:19Speaker 01

  as generous, or as protective, or as well-funded as other countries, other advanced income, high-income countries. And that's a choice. That is something our Congress and our Presidents have repeatedly refused to do. And we see the pushback on Obamacare, for example. And we saw repeatedly Clinton attack welfare queens after Reagan attacked welfare queens. So, first point is simply, part of the bad outcomes are because the US has chosen through its political process to do that. And we can talk about why. But as many other countries, Europe, Japan, Korea, Canada, Australia, Singapore, have demonstrated,

• 26:03Speaker 01

  you can be much more open to trade and foreign investment than the US and have a much more inclusive welfare state, including education and insurance. So fundamentally, I think it's scapegoating. And there's a long history in the US and in Western politics more broadly, that populists like to scapegoat outside external forces, or racially different forces, or pernicious conspiracy forces, and not necessarily real forces.

• 26:34Speaker 01

  The second point, which a number of colleagues at the American Enterprise Institute and Cato Institute and others have made empirically, which I think bears mentioning, is the so-called middle class has reduced in size, but it's reduced in size more by more people moving up than by the number of people moving down. Again, doesn't say that there aren't people who are losing in the current situation. It just says that when they say, "Oh, you're ignoring what happened to the middle class," it's a little misleading. It is a very distinct, loud, upset, and they have a right to express however upset they are, of course, but it is a distinct, relatively small portion of the population.

• 27:17Speaker 01

  And so it should be doable to deal with that. And then the third point, which I think is really important on this, is that going to your thing about what could be done now, or how do we deal with national security, is you gotta look at a broader perspective in two senses. The first sense is some of the reason people are angry and some of the reason people are suffering in the US is because we fought a war of choice that lasted 20-plus years in Iraq and Afghanistan, and we injured a lot of people, and our health system, combined

• 27:59Speaker 01

  with that, led to a lot of opioid addiction and other drug addiction, and we have social media going on and a collapse of political bipartisanship, for want of a better word. And we did screw up in 2008, not because of globalization, but because we massively deregulated the financial system. And so there's a lot to be angry about. There's a lot to be angry about the people who fought in a war and came home damaged, and no war had some victory out of it. So a lot to be angry about, about how the 2008 financial crisis came about and how people were not held accountable in the financial sector, and there wasn't enough support for

• 28:44Speaker 01

  people if mortgage problems, for example. And there's a lot to be mad about before you even get to COVID. About the way our politics has gone. So it's not about people being mad. That's fine. It's about political exploitation that various people blame it on foreigners, blame it on trade, blame it on globalization, when it's really our own doing. And nobody wants to confront that. Nobody wants to be the one to say that. The second point, which is a more technocratic point, is dealing with the national security issue is much more legitimate in the sense of if you step back and you're unemotional, you can see where Washington elites blew it, myself included, that we didn't take into

• 29:29Speaker 01

  account essentially what we call concentration risk, that you become very dependent on one place, whether it's China, or Taiwan, or the Netherlands, whatever it is, for your supply of pharmaceutical goods, of semiconductors and magnets, whatever it is. And so it is worth interfering with the markets, raising taxation, doing investment subsidies, to make sure that those goods are supplied and provided. And that is the insight of the last 10 years that I think this backlash has rightly raised. But that's a very much more manageable problem.

• 30:12Speaker 01

  That doesn't take very much of the economy. And it's, again, it's not necessarily anti-trade, because if you have one plant in the US in a particular state, and they are guaranteed that they're going to be the one source of whatever it is, pharmaceutical inputs, rare earths in the US, and you say, oh, it's all domestic, it's safe. Well, then you're open to moral hazard, like with the banking system, like with Boeing airplanes, where they say, I'm too big to fail, so I don't have to do this. Well, you're open to political terrorism domestically, you're open to attack from foreign enemies.

• 30:52Speaker 01

  The point is to be diversified and diversified means both abroad and at home. If you're not diversified and you're concentrated at home, you're pretty much as vulnerable as you were when you were dependent on something abroad. So again, the national security is legitimate, but being anti-globalization doesn't necessarily advance it. The inequality is real and a lot of the pain and anger is real, but it's not a huge share of the middle class and it's not all attributable to trade and globalization. I realize I've gotten on long, but one more sentence. I looked at this a few years ago when I was asked to testify before a congressional committee on this.

• 31:32Speaker 01

  And for all the talk about these towns that, you know, get killed because their plants moved, because, you know, there was a big steel plant or a big auto plant and it closed. Most of the places we're talking about, Ohio, my second-tier cities, Buffalo and upstate New York, these are places where A, they were already losing jobs, losing the big plants 50 years ago. It wasn't because of the rise of China, it wasn't because of NAFTA. They were, I mean, I grew up in Boston area and the place was depressed and the textile plants that had been huge in Boston area in the early 20th century were long gone.

• 32:15Speaker 01

  And a lot of these companies and plants that moved, they didn't move abroad. They moved to the American South or they moved to the American Southwest. And so, again, the anger is misplaced in terms of identifying the causes.

• 32:31Demetri Kofinas?

  To the extent that the US industrial economy, the industrial part of the US economy has become less competitive, what would you attribute that to?

• 32:41Speaker 01

  I don't agree because as my colleague Robert Lawrence of Peterson and Harvard published in a book last year, the value added of the US in manufacturing has actually been stable to growing. We're not less competitive. We in fact are more productive. We're able, going with your point about lighter capital, we're able to produce more higher end stuff with fewer people.

• 33:05Demetri Kofinas?

  Right. So maybe I should be more specific. For example, let's take the work of Patrick McGee, whose book, Apple in China, we covered with him on this podcast not long ago, and which introduced me and our audience to the larger story of how Apple, through its investments in China, helped build up Chinese high-end manufacturing and create a flywheel of adjacent industries and sectors like, for example, battery manufacturing that have since accrued knowledge into electrical vehicle production, where the Chinese have gone from being a non-player to now dominating the space. What is it, do you think, about the way that we have conducted business in the United States

• 33:46Demetri Kofinas?

  in the last several decades? The regulations, the affordability of capital for capital-heavy industries? Although, the affordability of capital, again, which shouldn't necessitate that capital should go into high-margin capital-light.

• 33:59Speaker 01

  And it hasn't, because net inflows of capital, this is why we have a trade deficit. There's been huge net inflows of capital into the US. I mean, we're not net outflowing capital. We haven't for 50 years.

• 34:11Demetri Kofinas?

  Right, I agree, which is why I'm saying that the capital doesn't necessarily have to go to capital-light businesses, but it has. And so, does that just, in your view, reflect the higher profit potential of investing in software-as-a-service-type businesses or other low-margin cost enterprises? And is this, in your view, what has largely driven this change and led to the gradual offshoring of critical parts of the supply chain, whether it's in semiconductors or in the smartphone manufacturing ecosystem?

• 34:42Speaker 01

  Smartphone, okay. So, I think, no disrespect to Mr. McGee and the others, but I think this is just another example of people missing the point. The only value in the iPhone. Is the intellectual property, the brand, the selling of the software, the brand loyalty, a little bit of the design. Smartphones are a low end product. They're things screwed in by very underpaid people in the backwaters of China or in developing countries because that's what it takes. And there's no native or legally documented American workers who would accept those jobs at those wages, and they shouldn't.

• 35:23Demetri Kofinas?

  So is that what it is? I'm glad that you said that. So is the argument that it's just been more profitable to organize the American economy?

• 35:31Speaker 01

  It's more efficient and more profitable. How much it's profitable depends on how much you're able to get monopolization, global economies of scale, how much competition there is. But there's no question it's more efficient, and this goes with what I was saying about how the income distribution in the US has changed. A larger proportion of the US workforce now is in higher end, more pleasant jobs. Doesn't mean there hasn't been a bulge in people who are not well looked after, not well paid, but the fact remains, this is because we've moved up the value chain. And this again is what Robert Lawrence talks about, that we're in a world where it's not

• 36:12Speaker 01

  just US and a few others moving up the value chain, and China to some degree, but in a world in which heavy stuff is less and less valuable. I mean, it's just cheaper to produce, it's not very scarce, it's not hard to make. And so there are a few things that we lost sight of the national security side, but again, it's really the low end semiconductors that our commodity products and Intel and Texas Instruments and others got out of because they weren't very profitable. It's the basic inputs, the pharmaceutical drugs, the feedstocks, which again, we should

• 36:54Speaker 01

  have been thinking Mexico should do that, India should do that, Israel should do that, whoever. We shouldn't be 90% dependent on China, but that doesn't mean we should be producing it at home. And so so many of these things, like solar. I mean, the problem with solar is basically the transistor radios of the 2020s. I mean, it's a low end product that's mass produced. It's useful, people want it. It would be nice if it was cheaper here and we let people buy it without putting up all kinds of tariffs on it. It'd be good for the environment. But it's not like there's good jobs in producing solar panels because that's not the technology.

• 37:34Demetri Kofinas?

  This is also true for refining rare earths, for example.

• 37:37Speaker 01

  Yeah, well, refining rare earths is slightly different, but it's basically the same. But it's more because refining rare earths, nobody's found a way to do it that isn't really messy in both the sense of the people working there are exposed to a lot of nasty stuff and there's a lot of environmental spill, negative spillovers around any rare earths processing or mine. So Canada has plenty of rare earths, but Canada's high enough up the income scale and values its environment enough, it chose not to keep the mines open and processing them. My colleague, Colin Hendricks, has written about this extensively, others have. You can read, there are ways of reducing the environmental costs, there are ways of

• 38:20Speaker 01

  pricing it higher to make sure you get alternative sources of rare earths. But again, this is not a business that smart money or skilled labor wants to be part of if it can avoid it.

• 38:33Demetri Kofinas?

  Right, so let's go back to that, to the conversation about the Apple iPhone, because you made a good point, you didn't use this exact example, but people in Texas, let's say, don't want to be screwing individual components into an iPhone.

• 38:47Speaker 01

  Yeah.

• 38:47Demetri Kofinas?

  Even though no one wants to do that, the larger macro effects is that in certain important industries, we end up losing critical parts of the supply chain. So then the question is, how do you reverse engineer that? If you identify certain industries, if we can agree on certain industries that are important or certain products or components that we need, how does a government go about shifting incentives to actually get investment dollars to go into those industries and to build competitive sectors? And what is the bottleneck to effectuate that?

• 39:16Speaker 01

  Dimitri, you've put your finger on a really critical issue. And so if you allow me, let me tell you a couple of stories related to that. So as you said, what happens if we could agree? And I wrote an article in Foreign Policy Magazine a few years ago, very critical of the Biden administration's industrial policy approach to this. And I'm not an anti-government person. I was considered pretty center-left prior to this period. But I was talking about the better and worse ways to do it. And I got a meeting with a senior staffer at the White House under Biden. And I talked with this person about, why can't we have a commission, you know, of engineers and experts or a set of data with a clear set of staff

• 40:00Speaker 01

  to decide what's a critical national security industry? Where are we dependent too much abroad? Where is it too concentrated? And this person, in a gentle way, laughed at me. And they said, there's no one in the government who has that interest. Because if the Defense Department says that, then they don't get to control and expand what everything is in that list. Or they get blamed because something was off that list. If you say that, then the Commerce Department, particularly under Trump administration, doesn't get to essentially sell exemptions and on an arbitrary basis decide, I like this industry. I think autos are really important. I don't think that's very important. And the president and the Commerce Department really want to keep that.

• 40:45Speaker 01

  And then you don't get Congress getting to make earmarks, or they don't make earmarks technically anymore. But anyway, getting to decide, I want this in this district. So there's a huge political incentive to not do this the right way. But in the past, in the 50s, 60s, 70s into the 80s, we did have expert commissions, some of them internal to the government, some of them with external people, which did make these kinds of determinations. It specifically respect to the defense industrial base and also things like the base closings. You know, how do you decide which military base is worth having? And so it's a doable problem, but it just requires the opposite direction of travel

• 41:29Speaker 01

  from where the Trump administration is going, which is having some amount, accepting that there are experts who may get it 90% right or 88% right, but better than having politically arbitrary choices. And that there's a fact base you can use to make these determinations.

• 41:50Speaker 01

  So I think people make it to be a bigger problem than it is. And so, and, and so then everybody says, well, but you need these

• 42:04Speaker 01

  nests or networks or, or local environments of, of many companies in a given industry to have all the spillovers in the supply chain. And that's right as far as it goes. But the U. S. Has historically been better at doing that than any other country, basically, or certainly as good as Germany or China until very recently. And you can make it happen. So then comes your point, which is what can you do? Well, that's where you do start doing government expenditure. And instead of playing games where the Biden administration was scared to ask for deals out of Congress and wanted to attach all these riders and to how they allocate money,

• 42:49Speaker 01

  or the Trump people want to do it with private companies and extracting something again for that, even from domestic companies. You know, you can do it by straight up subsidies. You can do it by investment in particular R and D. You can do it by funds to universities instead of trying to shut down our universities, which are the engine for the last 80 years of our technological progress. You can put funding that goes to research in these particular areas and it will naturally spin off into these fields. And you can make deals again with countries that are

• 43:28Speaker 01

  friendly, have military alliances that were at least in a win-win insurance relationship with the U. S. And say, we going to give you a long contract to produce X. But we're not doing any of that.

• 43:45Demetri Kofinas?

  So maybe two questions. Let me see how I can segment them. One is that the Biden administration seemed to have attempted to do some of those things. I'm curious to know where you feel they fell short. And then the other ride along question is specifically having to do with chip fabrication, because I think the CHIPS Act was arguably the single biggest piece of industrial policy legislation of the Biden years. How has that gone, do you think? How is that going? And how have some of those dynamics and misincentives that you talked about earlier shown up in our attempt to rebuild chip manufacturing in the United States?

• 44:20Speaker 01

  So I would refer your listeners and you to, obviously, there's that Chip Worrice book, which was marvelous. But I would also refer you, our listeners and you, to my colleagues at the Peterson Institute, Chad Bound and Mary Lovely, both of whom have done extensive work on this. And what we've found is, or what they've found, is that these tariffs and subsidies have not generated very much new production in the US. And this was partly predictable because it requires a lot of investment, as we're seeing now with the LG, Hynek's.

• 45:01Demetri Kofinas?

  You're talking, just to be clear, you're also talking about tariffs and subsidies that go back to the Biden years as well?

• 45:05Speaker 01

  Yes, yes, yes, yes. Yeah, sorry to be unclear. Yes, that's what I meant. That were part of the whole.

• 45:09Demetri Kofinas?

  Right. Most people, a lot of people don't know that we had tariffs before Trump.

• 45:12Speaker 01

  Oh, yeah. No, no. Trump put on a huge amount of tariffs. Biden kept them all and added a few more, and then Trump put on a huge amount more tariffs. But the Biden administration certainly supported the tariffs. And, you know, it didn't really work so well. And so Chad Bound, B O W N, who I mentioned, served in the Biden administration for a little while as the chief economist of the US State Department. And he worked very hard in trying to make these things work in practice. And this goes to my broader argument in the New Economic Geography and in a couple of previous pieces in Foreign Affairs, that businesses and companies have agency. I mean, it doesn't mean you can't affect them

• 45:52Speaker 01

  by law, you can't affect them by subsidies, but this is where the so-called neoliberal economists have a point, that you can't by dictat, just tell people you have to invest here and it works. That's not even a question of obsessively believing in markets, that's the reality. That's why the Soviet Union didn't work. That's why these attempts at import substitution policies in Latin America and India for decades failed. And so you have to go at it with a more humble attitude. You have to go at it with a recognition that building these capacities takes time, and therefore you need to make trade deals and stockpile

• 46:33Speaker 01

  and purchase agreements and figure out what your needs are, much more immediate term. And in the end, again, I don't mean you should let business rip off the American people or be laissez faire, but you have to be more pro-business investment in the sense of recognizing their incentives. And the Biden administration totally messed that up because they attached all these things to the policies and they allocated them to states where there were not necessarily the workforces needed to get the chips plants built. And they ran

• 47:15Speaker 01

  an anti-immigration policy that wouldn't let us import the skilled labor, even if only temporarily to train the American labor to do it, because even good construction people, it's a very different skill to build a semiconductor fab or related industries.

• 47:31Demetri Kofinas?

  I mean, that was also reported in the press that TSMC was frustrated with the quality of the workforce that they were dealing with.

• 47:37Speaker 01

  Absolutely. Yeah, and so you would like to think about this again as a springboard that as we did with Toyota and Honda plants in the 80s in the US, that you transfer technology, know-how, skill by bringing in willing foreign investment. And we've seen this now get even worse with the events over the last couple of weeks of the Trump administration interfering with the Korean semiconductor plants, you know, in which these were workers who were brought in actually on legitimate visas, a few of whom had overstayed or something, but which were just there temporarily to build the plant. And the anti-immigration,

• 48:22Speaker 01

  anti-globalization, stick it to the foreign companies backfired.

• 48:27Demetri Kofinas?

  So I'm scribbling down some notes here because I don't want to forget this question I have, but let me ask you this other question. So do you think that that reflects, this is something I'm very curious about, specifically this, some of these policies around both tariffs and also visas, immigration, do you think this reflects a worldview or a doctrine on the part of the Trump administration? Or is this something that's politically expedient and appeals to the base, and that's why they're doing stuff like this? I'm curious, is there any way to really know an answer to that question?

• 48:56Speaker 01

  Historians will eventually know, and possibly some serious political reporters will try to disentangle. But my experience in Washington over the years and my research as a social scientist of political economy is that, Dmitry, when a major government pursues a policy, it's got multiple motivations because it's got multiple constituencies. And the policies that get pursued tend to be the ones that serve many purposes at once. So under the Biden administration, Jake Sullivan and Jennifer Harris at the NSC basically tried before they got in to reverse engineer a policy that was, this

• 49:40Speaker 01

  will appeal to the voters in these districts in Wisconsin, Pennsylvania, Ohio, and it will address the legitimate national security problem, and it will look good to undercut Trump's populism with Biden's populism, and it will mistakenly

• 50:00Speaker 01

  Reinforce our need to get heavy industry back in the US and, and, and, and they reverse engineered this whole thing and it turned out, and part of it was, again, to say, we're not going to be dictated to by economists, by certainly market-based economists, because we just know what's possible. And it all blew up because it was this jury-rigged crazy thing and that didn't recognize economic reality. And that's part of why we had inflation and part of why it didn't work. And so then, under Trump, I think all things are in play again. I think there is a genuine worldview on the part of Trump and several of his cabinet officials and several of the people around him, that the world has been screwing over

• 50:42Speaker 01

  the US, that foreign migrants have been screwing over the US, that our allies have been free riding and screwing over the US, and we will have to take that on. And I think there is also a group of people who say this plays really well in Peoria and this helps Trump win. And I think there's a group of people who say this is really great because then we can sit on top of decisions about tariffs and exemptions and subsidies and extract value either for our personal gain or for the US government or for particular companies.

• 51:22Speaker 01

  And it happens to bear some relevance to a legitimate concern which we keep coming back to, which is the national security need to diversify sources of critical inputs. And so all four of those, plus some other stuff, is in play. And I don't think anybody can in real time disentangle this. And I mean, the same is true, I mean, I hate to make this analogy, but the same is true with the rise of fascism in Italy, in Germany, in Japan, in the 20s and 30s, and for that matter, in France, that partly was a bunch of people who believed that whether it was Jews or gays or foreigners or gypsies or

• 52:07Speaker 01

  whoever were the source of our problems. And a bunch of people said foreigners after World War I ripped us off, or the imperialists, in the case of Japan, ripped us off. And there were a bunch of people who said, wow, this, you know, bad things are happening. People are angry. Is a really good way to mobilize them to vote and support my party? And there were a bunch of people involved in these governments who got rich because the government intervening in this way in the economy made them a place where they could run a protection racket. So as a forecaster, which is part of my day job is I'm a macroeconomic forecaster and I used to do that as a central banker. I keep telling people, if you're trying

• 52:50Speaker 01

  to forecast, don't get into all these games. Is it Besant? Is it Lutnik? What do they really believe? Are they up? Are they down? Who's in the White House that day? It doesn't give you any reliable information for forecasting. Maybe in history, this will get unwound. But for the time being, just take it as given. There are multiple reasons why they're on this path. None of them necessarily mean that it's the right path for the American people or the American economy. But this is the path they're on and there are multiple forces urging them in that direction.

• 53:24Demetri Kofinas?

  That's a great analysis. I also think, I can't speak to Imperial Japan, but certainly an interwar France and Germany, the collapse in social trust and institutional authority played a very big role. And I think that's something that we see here rather concerningly.

• 53:38Speaker 01

  I've heard you discuss that with previous guests and I very strongly believe that. And I don't pretend to be expert on that. What I just keep trying to push back on this point is there is an assumption made by a lot of people, including a lot of economists, that if people are angry, it must be for economic reasons. People may, even if they say it's for economic reasons, people may be angry because of all these other factors. And it's very deep seated. And so just because people say they're angry about economics doesn't mean that's the real cause.

• 54:10Demetri Kofinas?

  No, I agree with that. Actually, you know, I just recorded an episode with Paul Kingsnorth. I don't know if you know who that is, but I think an important source of the problem is, as he would describe it, a collapse in culture. And as I've described that in terms of a collapse in identity and who we are, what we stand for, how aligned are the outcomes of our economy or the outcomes of our politics with what we say we stand for, our sense of justice and reciprocity. So Adam, I'm going to move us to the second hour. I want to dig in a little bit more into this conversation about industrial policy because it seems to me that the two This is my sense, but I could be wrong. The two most difficult or challenging and also important areas to focus on are creating,

• 54:52Demetri Kofinas?

  one, a flywheel of reigniting a flywheel of expertise in these lost sectors because that seems to be a real challenge. When I speak to people that work in these industries, it's hard to find people. A lot of these are apprenticeship-type learning environments where it's not like you can go get a degree and acquire the requisite skills. And the other is this challenge of creating a commercial ecosystem that supports and feeds into these, let's say, in this case, chip fabrication. I also want to talk a little bit about what the Trump administration's China policy is. I did a dinner in DC for our Jings community some months ago, and it was, the joke ended up being that the dinner was supposed to be about the Trump administration's China policy. And at the time, and I still am, not clear entirely on what that policy is, and it almost

• 55:34Demetri Kofinas?

  feels like we've gone after our allies and hit them heavy with tariffs, and in part because those are easy pickings because they have nowhere to go. They're kind of in the cage, they're stuck with us. We have a lot more leverage over them. Exactly. And so I'm curious to understand what exactly the policy is with China. And then maybe we'll have a chance also to talk about what this means for treasuries, what this means for global safe assets. And also, last question, maybe to talk about the Fed and what is going on there exactly? I know that's something that you've covered and talked about. For anyone new to the program, Hidden Forces is listener-supported. We don't accept advertisers or commercial sponsors. The entire show is funded from top to bottom by listeners like you.

• 56:14Demetri Kofinas?

  If you want access to the second hour of today's conversation with Adam, head over to hiddenforces.io/subscribe and sign up to one of our three content tiers. All subscribers get access to our premium feed, which you can use to listen to the rest of today's conversation on your mobile device using your favorite podcast app, just like you're listening to this episode right now. Adam, stick around, and we're going to move the rest of our conversation onto the premium feed. If you want to listen in on the rest of today's conversation, head over to hiddenforces.io/subscribe and join our premium feed. If you want to join in on the conversation and become a member of the Hidden Forces Genius Community, you can also do that through our subscriber page.

• 56:56Demetri Kofinas?

  Today's episode was produced by me and edited by Stylianos Nicolaou. For more episodes, you can check out our website at hiddenforces.io. You can follow me on Twitter @Kofinas and you can email me at [email protected]. As always, thanks for listening. We'll see you next time.