The Strategic Case for U.S. Climate Leadership

In the United States, the case for greater action on climate change is typically made on environmental grounds. But there are equally compelling economic, geopolitical, and national security rationales for the United States to lead the world on climate policy. Even those who remain skeptical of the environmental urgency of the problem should recognize the overwhelming strategic advantages of U.S. climate action at home and abroad.

Those who oppose greater U.S. engagement and ambition have legitimate concerns. These concerns tend to fall into two buckets. The first is economic: the chief worry is that global climate solutions could put the U.S. economy at a competitive disadvantage with its trading partners and reduce American living standards. The second set is geopolitical: some observers wonder why the United States should reduce its own greenhouse gas emissions if other countries won’t do their part.

But a well-designed U.S. climate policy can replace national vulnerabilities with major strategic opportunities. We propose here an environmentally ambitious, economically sound, and politically feasible plan that situates the United States at the forefront of a clean energy future, enhances the competitiveness of U.S. firms, and allows all Americans to benefit directly from emission reductions. Such a plan would also speed up and strengthen the United States’ economic recovery once the immediate health concerns from the novel coronavirus outbreak subside.

Consider first the relationship between national climate policy and international competitiveness. Contrary to the traditional perception that more action on climate change would undermine American competitiveness, the lack of a coherent national climate policy now poses a significant risk to U.S. firms. That is because the current rules of global trade effectively subsidize carbon-intensive production overseas and prevent the United States from reaping the economic benefits of its competitive advantage in low-emission manufacturing.

The chief competitors to U.S.-based firms in China, India, Russia, and other countries generally operate under lax environmental standards and produce goods in a more carbon-intensive manner. Yet they currently pay no penalty for this. For example, China is now the world’s largest steel manufacturer, even though its average production of steel is more than twice as carbon intensive as the United States’. A similar pattern emerges in a variety of industries: motor vehicles, chemicals, even solar panels and agricultural products. In each case, U.S.-based firms compete on an unlevel playing field because the current rules of the game put them at a competitive disadvantage. Rather than lower U.S. climate ambitions, a better response would be to encourage U.S. trading partners to raise their standards or penalize them for their polluting ways.

Further misconceptions exist about technology. Republicans are right to focus on clean energy innovation as the key to reducing carbon emissions. Yet some conservatives seem not to realize that the United States is falling behind in the clean energy race. The innovation coming out of U.S. universities, national labs, and businesses is impressive, but too few of the results are being produced in the United States and too little of it is making its way into commercial applications.

Here, too, a comparison with China is revealing. China is now the world’s top producer, exporter, and user of wind turbines, solar panels, and batteries—the essential building blocks of a clean energy economy; the United States is in fourth place, trailing Germany and Japan. China also accounts for 60 percent of global electric vehicle sales, and the country has long-range plans in place to turn itself into the global leader in developing the fuels and cars of the future. The United States cannot remain the world’s foremost power if it is not also its leading energy innovator.

Another common misconception is that climate action in the United States is too expensive or risks undermining the U.S. economy. Thanks largely to the shale and fracking revolution pioneered in the United States, market prices for natural gas have fallen by 70 percent since 2008, so the cleanest fossil fuel is now also the cheapest fossil fuel. During roughly the same period, the cost of solar power dropped by nearly 90 percent, and the price of wind power dropped by 70 percent. By capitalizing on efficiency gains and replacing coal with natural gas and solar and wind energy, the United States has cut its greenhouse gas emissions by 12 percent since 2005, all while maintaining a vibrant economy.

Although the United States and its trading partners have a long way to go in reducing emissions, a fundamental paradigm shift is occurring. Climate action and economic growth, far from being mutually exclusive, are not only compatible but also increasingly interdependent.

The U.S. economy has prospered in recent decades because the U.S. public and private sectors were the first to embrace the communications and information technology revolutions. The transition to clean energy promises equally far-reaching economic advantages. Next-generation renewables and nuclear energy could substantially drive down the per-unit cost of electricity, just as the digital revolution drove down costs in recent decades. That is why China is investing so heavily in these sectors. And that is why the United States could be putting its global economic leadership position at risk if it continues to ignore this transformation.

Many corporate leaders have already come to this realization and are pushing for climate action, not just because their customers and shareholders are demanding it but also because of facts on the ground that are affecting their bottom line. The potential domestic economic toll of a warming planet is already difficult to ignore. Greater flooding, storms, wildfires, and droughts harm sectors as varied as real estate and agriculture. Today, taxpayer spending on federal disaster relief is almost ten times what it was three decades ago, after adjusting for inflation. Climate change will exact an ever-greater toll on the U.S. economy over the next several decades if emissions remain on their current course.

The United States’ lack of a coherent climate strategy also threatens its national security and, most important, its position and influence in the international arena. The national security implications of climate change are substantial. New research published in Nature Communications has estimated that rising sea levels will put up to 340 million people at risk of annual flooding or permanent inundation during the next 30 years, largely in Asian mega-cities. The World Bank, meanwhile, has found that increased flooding, as well as food and water insecurity, in Latin America, sub-Saharan Africa, and South Asia alone could generate an additional 51 million to 118 million internal “climate migrants” by 2050. This could profoundly destabilize countries around the world, particularly those with poor governance.

As water scarcity gets worse, control over this vital resource will become a growing source of conflict among states. The current tension between Egypt and Ethiopia over the Nile River foreshadows what might come. And the retreat of Arctic sea ice could change the balance of power among China, Russia, and the United States.

A relatively ice-free Arctic would not only open vast new mineral riches to China and Russia; it would also alter world trade routes between Europe and East Asia.

Competition in today’s multipolar world is characterized less by direct military confrontation among great powers and more by economic and diplomatic rivalry. Seen through this prism, the United States’ lack of a long-term climate strategy harms its ability to promote American interests on a rapidly evolving world stage. The United States risks becoming a bystander, as a prior world order that was overly dependent on Middle Eastern oil gives way to a new one dominated by clean energy.

The winner of the emerging clean energy race will determine the economic and geopolitical balance of power for decades to come. The United States faces steep competition in this field. Russia is one of the United States’ main challengers in energy; Moscow has flooded the world with cheap oil and gas through new pipelines and has unveiled a new generation of nuclear plants and fuel agreements with developing countries. Each such investment creates closer geopolitical relationships. Meanwhile, China and India are making major investments in renewable energy technologies (as well as coal-fired electricity). China, already a leading manufacturer of solar and wind technology, seeks to dominate the coming transformation in energy storage and delivery, as well.

At the same time, a lack of economic incentives to reduce carbon emissions in China, India, and other developing countries has resulted in an uneven playing field that forces carbon-efficient U.S. and European companies to compete directly with rivals that have far weaker environmental standards. The lower energy-production costs in developing countries lure global firms away from the United States and Europe. China is adding to the competition by promoting carbon-intensive industrialization in other emerging economies, often powered by new coal plants built through its Belt and Road Initiative. Such investments risk saddling poorer countries with rising carbon emissions. As if that were not enough, China and other emerging economies export their more carbon-intensive goods to the United States in what amounts to “carbon dumping.”

The European Union poses a different kind of challenge. For the past 15 years, the EU has limited emissions through a trading system that allows companies to emit greenhouse gases based on the number of allowances they have purchased within a limited, or capped, marketplace. It is now dramatically expanding its climate-related regulations and planning to tax energy-intensive imports.

The United States and the European Union should be working together to defend their collective advantage over more carbon-intensive competitors. Unfortunately, the regulatory burden Europe already imposes on U.S. firms will soon increase as the EU adopts tougher measures to combat climate change, sharpening transatlantic rivalries and reducing the opportunities for collaboration.

If Washington wants to avoid accepting new rules imposed by other countries, it should step up and set its own. Specifically, the United States needs to become the global front-runner in clean energy technologies and forge a U.S.-led climate alliance to advance its national interest. The country has everything to gain from positioning itself, as it so often has, at the head of the table.

An American-led global energy policy must be grounded in a coherent and cost-effective domestic climate policy. By default rather than by design, however, the United States has a national climate policy that leaves a lot to be desired and is clearly not getting the job done.

It consists of an array of federal climate regulations left over from previous administrations, many of them being unwound by the current one; a variety of federal tax credits and subsidies for both conventional and low-emission energy sources; a patchwork of state-based climate regulations and carbon-pricing regimes, which have proliferated in response to the retrenchment of federal policy; and a constellation of clean energy commitments and investments made by large companies, some of them aided by earlier federal subsidies and research investments. These four elements of U.S. climate policy ultimately leave all the key stakeholders in the debate dissatisfied—whether they be environmentalists, businesses, or voters of various political orientations.

The U.S. government has three main options for reducing emissions: regulations, subsidies, and carbon pricing. The United States has experimented with regulations and subsidies for many years, with mixed results at best. Economists have long maintained that carbon pricing, which involves placing a fee on emissions to reduce them and to drive investment into cleaner technologies, is the fastest and most cost-effective way to cut emissions.

Several of the candidates for the Democratic presidential primary voiced support for some form of carbon pricing. Yet they also proposed costly regulations and massive government expenditures that would hurt businesses and the economy. Through both their rhetoric and their policies, high-profile figures in the Democratic Party have gone out of their way to demonize the companies that provide most of the United States’ energy and that are among the largest investors in clean technology ventures.

Republican members of Congress, meanwhile, have started to signal that the era of climate denialism is over. Representative Kevin McCarthy of California, the House minority leader, has warned that the GOP ignores the climate issue at its own peril, and Mitch McConnell of Kentucky, the Senate majority leader, recently emphasized that the Republican Party needs climate solutions of its own. This represents a critical inflection point in the national climate debate.

Republicans still need to determine the cornerstone of their climate strategy. With the regulatory approach off the table, the GOP is leaning toward promoting clean energy innovation through tax credits and subsidies. So far, this has mostly taken the form of incremental proposals that do not add up to a coherent strategy.

Democrats and Republicans alike should accept the fact that neither regulations nor subsidies alone will get the job done and that compared with carbon pricing, these two instruments are much more expensive means of reducing emissions, requiring higher overall taxes and deficits. In the end, it is better to rely on the market rather than the government to determine winners and losers.

The time has come for both parties to embrace carbon pricing, which economists and business leaders consistently point to as the most business-friendly and environmentally ambitious way forward. The Republican Party, in particular, can play a major role in this transformation. As the party Americans most associate with business innovation and free-market solutions, the GOP is well positioned to set the terms of a cost-effective and politically viable climate policy breakthrough.

In February 2017, we outlined what came to be known as “the Baker-Shultz Carbon Dividends Plan.” Our starting premise was that Democrats and Republicans must work together with corporate America and environmentalists to find a market-based, small-government solution capable of overcoming the primary political obstacle to carbon pricing, the risk of harming American living standards. Our second premise was that in order to protect American jobs and competitiveness, the United States must give other leading emitters, such as China and India, a stark choice: do their fair share to reduce emissions or face economic penalties.

A broad coalition has since joined together to turn this plan into a detailed blueprint for bipartisan introduction, hopefully in the current Congress. This coalition includes 19 Fortune 100 companies; three leading environmental nongovernmental organizations; opinion leaders from across the political spectrum; and in the energy sector alone, five of the seven oil and gas supermajors, the largest solar company in the United States, and three of the nation’s leading utilities. Last year, our carbon dividends framework was also endorsed by over 3,500 U.S. economists, including the past four chairs of the Federal Reserve, 27 Nobel laureates, and 15 former chairs of the President’s Council of Economic Advisers, including all eight former Republican chairs.

The first pillar of this approach would be an economy-wide and revenue-neutral carbon fee. Carbon pricing of this sort would produce faster and greater emission reductions at a lower cost to the economy than regulations or subsidies. Studies show that reducing greenhouse gas emissions by deploying today’s most commonly used regulations and subsidies can cost, on average, between $100 and $600 per metric ton. These costs are largely hidden, contributing to the misallocation of capital.

By contrast, our transparent carbon fee would start at $40 per ton and increase by five percent per year above inflation. According to modeling by Resources for the Future, an American nonprofit that researches resource use and allocation, if the plan were enacted in 2021, it would cut U.S. carbon emissions in half by 2035 from 2005 levels. If cumulative U.S. carbon emissions were not on track to meet that objective after five years, then our annual carbon-fee escalator would automatically increase from its base rate of five percent per year to 7.5 percent per year, and then to ten percent per year if emissions were still not on track. The best modeling indicates that it is highly unlikely that this fee escalator would be triggered, but it is nevertheless an essential component of our approach.

The plan’s second pillar calls for returning the revenue from carbon fees directly to the American people in the form of quarterly checks, or dividends. A family of four would receive approximately $2,000 per year in carbon dividends in the first year, an amount that would increase over time as the annual carbon fee increased. According to a study produced by the Treasury Department in 2017, 70 percent of U.S. families—including the least well-off ones—would receive more, on average, in carbon dividends than they would pay in increased energy prices.

Using carrots is a much more effective way to build long-term support than relying on sticks. These provisions would align the economic interests of ordinary Americans with climate progress. And they would create a positive feedback loop: the higher the carbon fee, the lower the carbon emissions and the higher the dividend to all Americans.

Moreover, this approach would empower individual Americans to address climate change on their own terms. It is transparent and easy to understand, leaving decisions over energy choices to consumers and businesses. The fee would increase gradually, allowing people to adjust their habits. And it would incentivize conservation rather than imposing it. By contrast, regulations often take away people’s decision-making power, handing it to far-away bureaucratic agencies that are often unresponsive to local concerns.

The dividend would also make the plan revenue neutral. Any climate plan with a high price tag will set off partisan debates over how to pay for the changes and over the size of the government. By contrast, this plan would encourage a smooth transition to a low-carbon future by harnessing the power of the market and incentivizing the private sector to deploy its vast resources for innovation and investment.

A third pillar of the plan would involve significantly simplifying or eliminating regulations, which should be particularly appealing to Republicans. In the many cases in which the carbon fee would provide a more cost-effective policy solution, the fee should replace current and future regulations, which would no longer be necessary. For instance, it should supplant all current and future federal carbon regulations that apply to stationary sources of emissions, such as factories. Given that roughly two-thirds of U.S. carbon emissions currently come from such sources, this regulatory streamlining would provide significant benefits to businesses and the economy. Yet this is not a blanket deregulatory agenda; for example, it would not affect regulations covering other greenhouse gases, such as methane, or building and appliance standards, for which a carbon price is not as effective.

The plan would ultimately give businesses the predictability and flexibility they need to make long-term investments in a low-carbon future. Regulatory stability and a predictable price on carbon would spur clean technology innovation and investment by American companies. Government research and development is, of course, important in establishing a scientific foundation for technological innovation, and targeted subsidies can accelerate the pace. But a rising carbon fee is the most powerful tool to unleash the innovative power of the private sector. By making it profitable to reduce carbon emissions, such a fee would incentivize businesses across the economy to take their discoveries and use them to pioneer new clean industrial methods and energy sources. Once a technology had proved its commercial viability, the fee would propel its wide and rapid deployment.

The fourth and final pillar of this plan is a carbon tariff designed to level the international playing field by applying the domestic carbon price to energy-intensive imports. This would enable the United States to fully benefit from and leverage its competitive advantage in low-emission manufacturing over many emerging economies. As with the carbon fee, revenues collected from the tariff would be returned to the American people in the form of a quarterly dividend.

Our carbon dividends solution doesn’t appeal just to businesses and opinion leaders. When ordinary Americans hear about this approach, they like it, too. A recent survey by the research firm Luntz Global found that 66 percent of American voters would support the plan, as would an even larger share of voters under the age of 40 from both parties. The survey and research company Morning Consult recently polled Americans on all four pillars of the plan separately and found that roughly two-thirds of voters support each one. And both of the polls found that climate change is one of the rare national issues on which Americans truly want a bipartisan solution.

Climate change is the ultimate foreign policy challenge, because any viable solution requires all major countries to act in concert. A domestic reduction of U.S. carbon emissions will be of limited value if other nations, such as China—now the world’s top emitter—don’t do their part. The United States, accordingly, must complement a carbon dividends plan at home with an international strategy that accounts for the failures of global action so far.

The most successful global environmental treaty to date was the 1987 Montreal Protocol on Substances That Deplete the Ozone Layer, which protected the ozone layer by phasing out the production of chemicals responsible for its depletion. Two of us (Baker and Shultz) played significant roles in negotiating that agreement, which succeeded because it was balanced and bipartisan.

As the ozone science developed through the 1980s, so did the technological options to address it. That gave U.S. President Ronald Reagan and contemporaries such as British Prime Minister Margaret Thatcher the confidence to negotiate a gradual but binding agreement that would encourage the deployment of a substitute class of chemicals. The approach was unanimously ratified by the U.S. Senate. Reagan called it a “monumental achievement.” At the time, some environmentalists criticized the deal as too modest. But within just a few years, President George H. W. Bush was able to further increase its ambition, again with broad bipartisan support.

By contrast, 28 years of concerted international efforts—starting in Rio de Janeiro in 1992—to negotiate an effective treaty to reduce global greenhouse gas emissions have proved disappointing. In large part, this is due to the far greater diplomatic challenge of convincing the leading economies of the world to alter their fundamental energy uses, with all the attendant geopolitical and economic consequences.

The 1997 Kyoto Protocol was unsuccessful, mostly because its binding obligations applied only to developed countries and not developing ones, such as China and India; it was ultimately rejected by the U.S. Senate. The 2015 Paris agreement fared better by getting all parties to the same table. But its voluntary pledge-and-review system lacked an enforcement mechanism. In 2017, the United States decided to withdraw from the agreement.

A new, more robust and realistic diplomatic strategy is now needed to address climate change. The United States should use its dominant position in the world economy, together with its extensive network of international alliances, to persuade other countries, particularly China and India, to do their fair share. The combination of a domestic carbon fee and a carbon tariff can be used to encourage Washington’s closest trading partners to join a carbon customs alliance. Such an alliance would have a harmonized carbon price among its members, paired with a common trade policy applied to countries outside the alliance.

The United States’ natural partners for an alliance of this sort are Canada, the United Kingdom, and the EU, which already have significant carbon-pricing measures in place and have expressed a clear interest in carbon tariffs. Each may hesitate to go it alone in imposing its own individual carbon tariff due to the risk of igniting a trade war. But given the importance that U.S. allies now attach to climate change, there is good reason to believe that if the United States led the way, they would join.

Together, the North American and European economies make up nearly half of the world’s GDP, giving them considerable market influence over other economies. That influence could grow even further if Japan, Mexico, South Korea, and members of the Association of Southeast Asian Nations joined the alliance. The very threat of being locked out of such a carbon customs alliance might be enough to move the largest emitters, including China and India, toward a similar regime.

An international climate alliance of this size would do more than just shape the rules of trade governing carbon-intensive goods. It would also partly determine which economies will dominate the energy industries of the future. Naturally, those economies inside the coalition would have the upper hand in any international competition. It would be in China’s strategic interest to join, rather than resist, a climate alliance whose price of membership was harmonizing its domestic carbon price with that of its trading partners. China is already experimenting with a domestic carbon price, so this idea is hardly far-fetched. Beijing, after all, would likely understand that it would enjoy greater energy security inside such an alliance than it would outside it.

In the meantime, climate policy does not need to become another source of conflict between China and the United States. In fact, the two great powers could use the climate as a means of cooperating to bring greater prosperity to the world. As China emerges on the world stage, both China and the United States would do well to focus on areas of mutual benefit, even as both sides position themselves for the future.

The world faces a global challenge of uncertain and potentially enormous consequence that is within humanity’s innovative capability to solve. Yet not a single major power is implementing adequate solutions, because none has found a viable political, economic, or international formula. The carbon dividends program we propose offers the best solution to resolve this impasse. Domestically, it would enable environmentalists, businesses, and political leaders to forge a lasting pact that leaves the majority of American families economically better off.

Internationally, only a U.S.-led climate alliance can muster enough economic leverage to compel China, India, and other major economies to join, face carbon tariffs, or ultimately risk being shut out of the world’s largest market. The United States must lead the way.

Source: The Strategic Case for U.S. Climate Leadership

The Pandemic Won’t Make China the World’s Leader

Early this year, as the novel coronavirus began to spread in China, the predictions were immediate and stark: the outbreak was China’s “Chernobyl moment,” perhaps even “the beginning of the end” for the Chinese Communist Party, with geopolitical consequences that, at a time of growing U.S.-Chinese tension, would play to Washington’s considerable advantage. But then, almost as quickly, the predictions went into reverse. As China appeared to contain the spread of the coronavirus while the United States and Western Europe suffered large outbreaks of their own, the pandemic and the resulting global recession were said to mark a geopolitical reordering that would leave China as the victor. Beijing certainly saw such an opportunity, launching an international campaign stressing the failures of democratic governance and casting itself as the leader of the global pandemic response.

But it is doubtful that Beijing’s gambit will succeed in turning a pandemic that likely started in a Chinese city into a major step in China’s rise. There are real limits to China’s capacity to take advantage of the current crisis—whether through disingenuous propaganda or ineffective global action. And just as the potential for China to benefit from the coronavirus is too easily overstated, the ability of the United States to show global leadership even after its initial missteps is too easily discounted. As deeply flawed as Washington’s response to the pandemic has been so far, the United States’ power—distinct from any particular president—rests on an enduring combination of material capabilities and political legitimacy, and there are few signs that the pandemic is causing power to shift rapidly and permanently to China’s side of the ledger.

China’s initial propaganda offensive was stunningly aggressive, but it now appears clumsy and unlikely to work. The Chinese Communist Party’s narrative is limited by the simple fact that too many people know about the outbreak’s origins in Wuhan and Beijing’s bungled initial response—in particular, its efforts to suppress information and silence many of the doctors who first warned of the emergence of a dangerous new virus. In the face of calls for greater transparency, Beijing ejected American journalists working for The New York Times, The Washington Post, and The Wall Street Journal. On Twitter, a spokesperson for China’s foreign ministry accused the U.S. military of bringing the coronavirus to Wuhan. Although Beijing has backed away from this reprehensible claim in recent weeks, its approach has a whiff of desperation, which hints at Beijing’s own insecurity about the mishandling of the outbreak.

Global skepticism extends, with good reason, to China’s coronavirus statistics. Indeed, while China’s official tally of new COVID-19 cases indicates effective containment (by March 19, the number of new local infections had fallen to near zero), some in China fear that the central government has simply stopped reporting all the test results in order to keep its official count low and to maintain the narrative that it has won the war against the virus; it wouldn’t be the first time Beijing has suppressed unfavorable data.

Some leaders, of course, are embracing Beijing’s narrative and applauding its methods in combating the outbreak—including officials in Cambodia, Iran, Pakistan, and Serbia. But few of these governments have been newly persuaded by recent Chinese messaging; they have a long record of accepting Chinese political narratives and economic assistance, often at the service of their own power at home. Indeed, some early recipients in Europe of Chinese-made testing kits and protective equipment rejected them as substandard. Just this week, Finland’s prime minister fired the head of the country’s emergency supply agency for spending millions of euros on defective Chinese facemasks.

Meanwhile, other leaders are already pushing back against China’s attempt to rewrite the global narrative about its COVID-19 response. European Union High Representative for Foreign Affairs Josep Borrell openly criticized Chinese efforts as “a struggle for influence through spinning and the ‘politics of generosity.’” Leaders in Brazil and India, who are facing challenges at home, have quickly turned to criticizing China and eschewing its aid. In Africa, public attention has been riveted by stories of widespread racism against African expats in southern China. And even before the pandemic started, Beijing faced a large trust deficit among its Asian neighbors. A survey of public opinion in six Asian countries, conducted by the Pew Research Center between May and October 2019, and published in late February, found significantly higher percentages of people held favorable views of the United States when compared with China.

In pushing its narrative of triumph against the coronavirus, Beijing’s approach will be compared not only to that of the United States but also to the impressive actions of many Asian countries, including several democracies. Beijing failed badly at first—due to a striking and predictable lack of transparency—and Washington is failing now. But democratic South Korea and Taiwan have performed better than both. South Korea’s impressive testing and contact-tracing regime and Taiwan’s early detection and containment efforts reflect both their governance choices and their ability to learn from past experience with pandemics. Citizens and governments looking for models are more likely to choose those democratic successes than China’s vaunted authoritarian alternative and draconian containment efforts—the real costs of which remain unknown.

Moreover, China’s economy can’t ride to the rescue as it did during the global financial crisis. Although there is a partial uptick on the supply side as Chinese factories reopen, the demand side drivers for China’s growth are in real trouble. China’s economy is too dependent on external demand from the United States and Europe to become the sole savior of the global economy. The 12 countries hardest hit by the virus today account for about 40 percent of China’s exports. Many of these countries are also China’s top suppliers of intermediate goods. China’s economy will not be able to return to its prior growth trajectory of some five to six percent annually until the economies of the United States and the European Union recover, as well.

Chinese policymakers will have to hold back some of their domestic stimulus efforts until that happens, knowing such stimulus will have a limited impact if global demand is down. Funding another credit-fueled stimulus as the Chinese did in 2008–9 is off the table due to China’s high overall debt levels and the real risk of triggering a collapse of its financial system. In this crisis, the American and Chinese economies must sink or swim together.

In the middle of a global crisis, the pressures to forecast the long-term, strategic implications of the emergency are legion. The problem with drawing early conclusions is that they are often wrong: analysts focus on the immediate consequences of recent events and discount the structural features of global order.

To be sure, there has been a catastrophic failure of U.S. political and diplomatic leadership in the current crisis that could cost the United States dearly in lives and international influence over the coming months. But to argue that this may portend a “Suez moment” for the United States, as Kurt M. Campbell and Rush Doshi recently did in Foreign Affairs, goes too far.

It is worth examining the Suez analogy more closely. The British intervention in the Suez in 1956 was the last gasp of an empire that had long since lost the power and legitimacy to impose its will on its former colonial states. The United States had surpassed the United Kingdom on every diplomatic, economic, and military metric a generation before the Suez crisis. China’s rising military and technological power today is impressive, but China’s currency does not approach the hegemony that the dollar enjoyed in 1956 or that it enjoys today. Indeed, the United Kingdom’s share of global GDP at that time was only a fraction of the United States’ today. As the Chinese Leninists would say, the international correlation of forces in 1956 were decidedly not in the United Kingdom’s favor.

That is not the case today for the United States. Even as the United States stumbles in the current crisis, Beijing faces internal and external challenges that stem from its choices about economic and political governance at home and global governance abroad. There is scant evidence that China’s authoritarian model today has more attraction than the democratic norms embraced by many of China’s neighbors. The twenty-first century is hardly certain to be “the Chinese century,” no matter what the United States does. Rather, it is more likely to be an Asian one given the effective and efficient governance demonstrated in recent weeks, in addition to the region’s substantial and growing contributions to global innovation, productivity, and growth.

Although China’s position of global leadership is hardly assured, the United States should not be complacent—far from it. There may not be a shift of power to China, but there is an ongoing crisis of American leadership, as Campbell and Doshi rightly note in their piece in Foreign Affairs. It is essential that the United States reestablish competent leadership on this pandemic at all levels. The world clearly needs a global system of surveillance, detection testing, and pharmacological response. So far, China’s rhetoric and diplomacy have generated limited gains, but the United States and its allies must remain vigilant lest Beijing further expand its role in global governance and institutional design at a time when Washington is stepping back.

Previous global and regional crises dating back to the 1950s offer important lessons for restoring U.S. leadership. Indeed, many enduring patterns of cooperation and institutional development have grown out of moments of great duress: the United States’ security treaties with Australia, Japan, and others were signed at the height of the Korean War; the Quad framework with Australia, India, and Japan was organized in less than 72 hours in response to the 2004 tsunami; the G-20 leaders gathered for the first time in November 2008, in the midst of the 2008 financial crisis. Even after the 1997–98 financial crisis, when the United States and the International Monetary Fund demanded tough conditions that alienated much of Asia as Beijing won points for not devaluing its currency, the long-term result was more resilient and market-based economies in the region, not a shift to Chinese-style state capitalism.

If the United States is in strategic competition with China, then effective U.S. leadership should be at the service of building something positive out of the crisis rather than trying to use it to isolate and alienate Beijing. The failure of the G-7 foreign ministers to reach agreement on a joint statement (because the U.S. delegation insisted on calling the novel coronavirus the “Wuhan virus,” going against the guidelines of the World Health Organization and the positions of Washington’s closest allies) hardly constitutes an example of effective leadership.

For decades, the United States has maintained power, credibility, and influence not only by virtue of its size and capabilities but also by attracting other nations to its vision for security and prosperity. A United States that is churlish and defensive about China right now is not a United States that will earn respect among its friends and allies. A United States that learns from the experiences of Germany, South Korea, Taiwan and others in pandemic management; that embraces practical and meaningful cooperation with China; and that engages with global organizations, such as the WHO, to help them reform is a United States that can use the pandemic as an opportunity to remind the world of what American leadership looks like.

Source: The Pandemic Won’t Make China the World’s Leader

Can Southeast Asia Fend Off the One-Two Punch of COVID-19?

Even the best performers in Southeast Asia—Singapore and Vietnam, both of which attacked the virus early—have seen a new spike in cases recently.

While preparing for a new wave of infections, these countries also face enormous damage to their economies, which are centered on tourism and export-oriented industries like manufacturing. They are also largely dependent on trade with China and other developed countries where demand has taken a hit from the pandemic.

Whether Southeast Asia can reduce the virus’s economic damage while also protecting their populations’ health will offer lessons for other low- to middle-income countries battling this pandemic.

Source: Can Southeast Asia Fend Off the One-Two Punch of COVID-19?

CARES Act: Why the rollout of the $2 trillion stimulus was a mess

The CARES Act—Coronavirus Aid, Relief, and Economic Security Act—allocates funds for large business, small businesses, airlines, and individuals. Individuals can request $1,200, more if they have children under 18. The bill also increases unemployment benefits—providing an additional $600 on top of what people can get from their state.

But a complex web of bureaucratic requirements means that lots of people won’t be getting what they need anytime soon, and maybe not at all.

As of this writing, only half of an anticipated 150 million payments have made it into people’s accounts.

There are myriad reports of people receiving “status not available” messages from the IRS portal when trying to see when they might get their checks. Others weren’t even able to log in.

Source: CARES Act: Why the rollout of the $2 trillion stimulus was a mess

Treasury Secretary Says Electronic Stimulus Payments ‘More Secure,’ But Are They? | Nextgov

Straub notes aspiring impersonators already have access to many consumers’ personal identifying information, or PII, through social engineering or from purchasing it on the dark web.

“A fraudster could easily open a bank account online in the target’s name and use the bank account for the funds to be deposited,” he said. “It would be too new for anyone to detect and the funds would get funneled out. We have already seen this happen when criminals who have someone’s PII file tax returns before the actual person does—stealing their refunds.”

Straub said more sophisticated hackers could also create and use “synthetic identities” to trick the IRS into misdirecting the stimulus payments online.

This would be especially easy, he said, “if the criminals have already filed taxes on behalf of a fake identity.”

The IRS has long struggled to prevent identity thieves from collecting their victims’ legitimate tax refunds.

Source: Treasury Secretary Says Electronic Stimulus Payments ‘More Secure,’ But Are They? – Nextgov

The coronavirus economic crisis will slam states and cities across America | Vox

The global pandemic and accompanying economic crisis have knocked states and cities across the country back on their heels. States are hemorrhaging money to stand up medical systems and field unemployment claims while watching their revenue plummet. People have been ordered to stay at home, meaning sales tax revenues are way down, and as layoffs take hold, revenue from income tax is falling as well.

Tax Day for 2019 filings has been delayed until July, another blow to state budgets. Lost tourism seasons represent money lots of places won’t get back.

Governors and state lawmakers, many of whom are faced with constitutional balanced budget requirements, are going to have to make big cuts fast, unless the federal government does more to step in.

Source: The coronavirus economic crisis will slam states and cities across America – Vox

The new role of monetary policy in the Covid-19 crisis and its climate application | Basil Oberholzer

What the US central bank has been doing to address the coronavirus crisis is precisely what is needed to tackle climate change.

In this regard, the US Federal Reserve at least partially succeeded in raising the federal-funds rate, which had been zero. Yet while some central banks were able to do likewise, others were stuck at record-low levels. In particular, the European Central Bank’s interest-rate target still remains in negative territory. In any case, while ‘normalization’ had started, interest rates remained far from their pre-crisis levels.

This was before the coronavirus spread across the world. Anyone who thought that the financial crisis had forced central banks in advanced economies to go to the limit of extraordinary measures has been disabused. Strict measures to reduce social interaction were imposed to prevent national health systems from breaking down and to minimize fatalities and humanitarian tragedies.

But, in addition, to mitigate the devastating economic impact of supply-chain interruption, policies unimaginable a few weeks previously began to be implemented.

Source: The new role of monetary policy in the Covid-19 crisis and its climate application – Basil Oberholzer

What’s Wrong With the Air Force’s ‘Connect Everything’ Project | Defense One

In a sharply critical report, a government watchdog has slammed the Air Force’s far-reaching plan to connect sensors on fighters, drones, ships and weapons into a single cloud-based network. According to the Government Accountability Office, or GAO, no one knows how much the thing will cost, how well it will integrate with other services, or if it will even work.

Air Force Chief of Staff Gen. David Goldfein last year directed billions of dollars to be shifted toward networking its weapons. A central element of that effort is the Advanced Battle Management System, or ABMS — billed as the backbone of a fully-connected military able to fight and win with ultra-fast data and decision making. To do so, the Air Force planners have promised a t more modern, less bureaucratic approach to acquiring tech, with far fewer pre-written requirements.

But that effort is missing some key things to bring it to life, like a cost estimate and schedule, an analysis of how much it will cost to sustain, and a plan to buy mature technologies and make sure they work, GAO said, in a report out Thursday.

Source: What’s Wrong With the Air Force’s ‘Connect Everything’ Project – Defense One

The Owner’s Manual for Trump’s New Air Force One Cost $84 Million | Defense One

President Donald Trump’s much-touted $4 billion deal with Boeing for two new Air Force One aircraft didn’t include a key item: the instruction manuals.

The cost of these flight and maintenance manuals: $84 million, according to a U.S. Air Force contract announcement posted Wednesday evening.

The technical manuals will include more than 100,000 pages with the specifications for flying the plane as well as fixing it, according to people familiar with the high-profile project. The new manuals aren’t expected to be finished until January 2025, according to the Air Force’s announcement.

Source: The Owner’s Manual for Trump’s New Air Force One Cost $84 Million – Defense One

Trump guidelines on reopening economy let governors make final decision | TheHill

President Trump on Thursday evening unveiled guidance for a phased reopening of parts of the U.S. economy that leaves the final decisions up to governors.

The 18-page document, which was obtained earlier by The Hill and distributed to governors during a conference call Thursday afternoon, recommends that states see a downward trajectory in the number of confirmed coronavirus cases as well as flu-like symptoms before they move to lift stay-at-home orders and other restrictions meant to curb the spread of the virus.

Source: Trump guidelines on reopening economy let governors make final decision | TheHill