Trump’s America

There’s nothing irrational about Donald Trump’s appeal to the white working class, writes Charles Murray: they have every reason to be angry

By Charles Murray

Supporters lined up before a campaign rally for Republican presidential candidate Donald Trump on Dec. 16, 2015, in Mesa, Ariz.

Supporters lined up before a campaign rally for Republican presidential candidate Donald Trump on Dec. 16, 2015, in Mesa, Ariz. Photo: Ross D. Franklin/Associated Press
If you are dismayed by Trumpism, don’t kid yourself that it will fade away if Donald Trump fails to win the Republican nomination. Trumpism is an expression of the legitimate anger that many Americans feel about the course that the country has taken, and its appearance was predictable. It is the endgame of a process that has been going on for a half-century: America’s divestment of its historic national identity.

For the eminent political scientist Samuel Huntington, writing in his last book, “Who Are We?” (2004), two components of that national identity stand out. One is our Anglo-Protestant heritage, which has inevitably faded in an America that is now home to many cultural and religious traditions. The other is the very idea of America, something unique to us. As the historian Richard Hofstadter once said, “It has been our fate as a nation not to have ideologies but to be one.”

What does this ideology—Huntington called it the “American creed”—consist of? Its three core values may be summarized as egalitarianism, liberty and individualism. From these flow other familiar aspects of the national creed that observers have long identified: equality before the law, equality of opportunity, freedom of speech and association, self-reliance, limited government, free-market economics, decentralized and devolved political authority.

As recently as 1960, the creed was our national consensus. Running that year for the Democratic nomination, candidates like John F. Kennedy, Lyndon B. Johnson and Hubert Humphrey genuinely embraced the creed, differing from Republicans only in how its elements should be realized.

Today, the creed has lost its authority and its substance. What happened? Many of the dynamics of the reversal can be found in developments across the whole of American society: in the emergence of a new upper class and a new lower class, and in the plight of the working class caught in between.

In my 2012 book “Coming Apart,” I discussed these new classes at length. The new upper class consists of the people who shape the country’s economy, politics and culture. The new lower class consists of people who have dropped out of some of the most basic institutions of American civic culture, especially work and marriage. Both of these new classes have repudiated the American creed in practice, whatever lip service they may still pay to it. Trumpism is the voice of a beleaguered working class telling us that it too is falling away.

Historically, one of the most widely acknowledged aspects of American exceptionalism was our lack of class consciousness. Even Marx and Engels recognized it. This was egalitarianism American style. Yes, America had rich people and poor people, but that didn’t mean that the rich were better than anyone else.

Supporters watched Mr. Trump speak at his election night watch party on Feb. 9  in Manchester, N.H.
Supporters watched Mr. Trump speak at his election night watch party on Feb. 9 in Manchester, N.H. Photo: Matthew Cavanaugh/Getty Images

Successful Americans stubbornly refused to accept the mantle of an upper class, typically presenting themselves to their fellow countrymen as regular guys. And they usually were, in the sense that most of them had grown up in modest circumstances, or even in poverty, and carried the habits and standards of their youths into their successful later lives.

America also retained a high degree of social and cultural heterogeneity in its communities.

Tocqueville wrote of America in the 1830s as a place where “the more opulent citizens take great care not to stand aloof from the people.” That continued well into the 20th century, even in America’s elite neighborhoods. In the 1960 census, the median income along Philadelphia’s Main Line was just $90,000 in today’s dollars. In Boston’s Brookline, it was $75,000; on New York’s Upper East Side, just $60,000. At a typical dinner party in those neighborhoods, many guests would have had no more than a high-school diploma.

In the years since, the new upper class has evolved a distinctive culture. For a half-century, America’s elite universities have drawn the most talented people from all over the country, socialized them and often married them off to each other. Brains have become radically more valuable in the marketplace. In 2016, a dinner party in those same elite neighborhoods consists almost wholly of people with college degrees, even advanced degrees. They are much more uniformly affluent. The current median family incomes for the Main Line, Brookline and the Upper East Side are about $150,000, $151,000 and $203,000, respectively.

And the conversation at that dinner party is likely to be completely unlike the conversations at get-togethers in mainstream America. The members of the new upper class are seldom attracted to the films, TV shows and music that are most popular in mainstream America. They have a distinctive culture in the food they eat, the way they take care of their health, their child-rearing practices, the vacations they take, the books they read, the websites they visit and their taste in beer. You name it, the new upper class has its own way of doing it.

Another characteristic of the new upper class—and something new under the American sun—is their easy acceptance of being members of an upper class and their condescension toward ordinary Americans. Try using “redneck” in a conversation with your highly educated friends and see if it triggers any of the nervousness that accompanies other ethnic slurs. Refer to “flyover country” and consider the implications when no one asks, “What does that mean?”

Or I can send you to chat with a friend in Washington, D.C., who bought a weekend place in West Virginia. He will tell you about the contempt for his new neighbors that he has encountered in the elite precincts of the nation’s capital.

For its part, mainstream America is fully aware of this condescension and contempt and is understandably irritated by it. American egalitarianism is on its last legs.

While the new upper class was seceding from the mainstream, a new lower class was emerging from within the white working class, and it has played a key role in creating the environment in which Trumpism has flourished.

Work and marriage have been central to American civic culture since the founding, and this held true for the white working class into the 1960s. Almost all of the adult men were working or looking for work, and almost all of them were married.

Then things started to change. For white working-class men in their 30s and 40s—what should be the prime decades for working and raising a family—participation in the labor force dropped from 96% in 1968 to 79% in 2015. Over that same period, the portion of these men who were married dropped from 86% to 52%. (The numbers for nonwhite working-class males show declines as well, though not as steep and not as continuous.)

These are stunning changes, and they are visible across the country. In today’s average white working-class neighborhood, about one out of five men in the prime of life isn’t even looking for work; they are living off girlfriends, siblings or parents, on disability, or else subsisting on off-the-books or criminal income. Almost half aren’t married, with all the collateral social problems that go with large numbers of unattached males.

In these communities, about half the children are born to unmarried women, with all the problems that go with growing up without fathers, especially for boys. Drugs also have become a major problem, in small towns as well as in urban areas.

Consider how these trends have affected life in working-class communities for everyone, including those who are still playing by the old rules. They find themselves working and raising their families in neighborhoods where the old civic culture is gone—neighborhoods that are no longer friendly or pleasant or even safe.

These major changes in American class structure were taking place alongside another sea change: large-scale ideological defection from the principles of liberty and individualism, two of the pillars of the American creed. This came about in large measure because of the civil rights and feminist movements, both of which began as classic invocations of the creed, rightly demanding that America make good on its ideals for blacks and women.

But the success of both movements soon produced policies that directly contradicted the creed.

Affirmative action demanded that people be treated as groups. Equality of outcome trumped equality before the law. Group-based policies continued to multiply, with ever more policies embracing ever more groups.

By the beginning of the 1980s, Democratic elites overwhelmingly subscribed to an ideology in open conflict with liberty and individualism as traditionally understood. This consolidated the Democratic Party’s longtime popularity with ethnic minorities, single women and low-income women, but it alienated another key Democratic constituency: the white working class.

Attendees listen as Donald Trump speaks during a campaign event in Manchester, N.H., on Feb. 8.
Attendees listen as Donald Trump speaks during a campaign event in Manchester, N.H., on Feb. 8. Photo: Victor J. Blue/Bloomberg News
White working-class males were the archetypal “Reagan Democrats” in the early 1980s and are often described as the core of support for Mr. Trump. But the grievances of this group are often misunderstood. It is a mistake to suggest that they are lashing out irrationally against people who don’t look like themselves. There are certainly elements of racism and xenophobia in Trumpism, as I myself have discovered on Twitter and Facebook after writing critically about Mr. Trump.

But the central truth of Trumpism as a phenomenon is that the entire American working class has legitimate reasons to be angry at the ruling class. During the past half-century of economic growth, virtually none of the rewards have gone to the working class. The economists can supply caveats and refinements to that statement, but the bottom line is stark: The real family income of people in the bottom half of the income distribution hasn’t increased since the late 1960s.

During the same half-century, American corporations exported millions of manufacturing jobs, which were among the best-paying working-class jobs. They were and are predominantly men’s jobs. In both 1968 and 2015, 70% of manufacturing jobs were held by males.

During the same half-century, the federal government allowed the immigration, legal and illegal, of tens of millions of competitors for the remaining working-class jobs. Apart from agriculture, many of those jobs involve the construction trades or crafts. They too were and are predominantly men’s jobs: 77% in 1968 and 84% in 2015.

Economists still argue about the net effect of these events on the American job market. But for someone living in a town where the big company has shut the factory and moved the jobs to China, or for a roofer who has watched a contractor hire illegal immigrants because they are cheaper, anger and frustration are rational.

Add to this the fact that white working-class men are looked down upon by the elites and get little validation in their own communities for being good providers, fathers and spouses—and that life in their communities is falling apart. To top it off, the party they have voted for in recent decades, the Republicans, hasn’t done a damn thing to help them. Who wouldn’t be angry?

There is nothing conservative about how they want to fix things. They want a now indifferent government to act on their behalf, big time. If Bernie Sanders were passionate about immigration, the rest of his ideology would have a lot more in common with Trumpism than conservatism does.

As a political matter, it is not a problem that Mr. Sanders doesn’t share the traditional American meanings of liberty and individualism. Neither does Mr. Trump. Neither, any longer, do many in the white working class. They have joined the other defectors from the American creed.

Who continues to embrace this creed in its entirety? Large portions of the middle class and upper middle class (especially those who run small businesses), many people in the corporate and financial worlds and much of the senior leadership of the Republican Party. They remain principled upholders of the ideals of egalitarianism, liberty and individualism.

And let’s not forget moderate Democrats, the spiritual legatees of the New Deal. They may advocate social democracy, but they are also unhappy about policies that treat Americans as members of groups and staunch in their support of freedom of speech, individual moral responsibility and the kind of egalitarianism that Tocqueville was talking about. They still exist in large numbers, though mostly in the political closet.

But these are fragments of the population, not the national consensus that bound the U.S. together for the first 175 years of the nation’s existence. And just as support for the American creed has shrunk, so has its correspondence to daily life. Our vaunted liberty is now constrained by thousands of petty restrictions that touch almost anything we want to do, individualism is routinely ignored in favor of group rights, and we have acquired an arrogant upper class. Operationally as well as ideologically, the American creed is shattered.

Our national identity is not altogether lost. Americans still have a vivid, distinctive national character in the eyes of the world. Historically, America has done a far better job than any other country of socializing people of many different ethnicities into displaying our national character. We will still be identifiably American for some time to come.

There’s irony in that. Much of the passion of Trumpism is directed against the threat to America’s national identity from an influx of immigrants. But the immigrants I actually encounter, of all ethnicities, typically come across as classically American—cheerful, hardworking, optimistic, ambitious. Keeping our national character seems to be the least of our problems.

Still, even that character is ultimately rooted in the American creed. When faith in that secular religion is held only by fragments of the American people, we will soon be just another nation—a very powerful one, a very rich one, still called the United States of America. But we will have detached ourselves from the bedrock that has made us unique in the history of the world.

Mr. Murray is the W.H. Brady Scholar at the American Enterprise Institute. His many books include “By the People: Rebuilding Liberty Without Permission” and “Coming Apart: The State of White America, 1960-2010.”


The Death of the Most Generous Nation on Earth

Little Sweden has taken in far more refugees per capita than any country in Europe. But in doing so, it’s tearing itself apart.

By James Traub 


The Swedish Migration Agency in Malmo, the southern port city on the border with Denmark, occupies a square brick building at the far edge of town. On the day that I was there, Nov. 19, 2015, hundreds of refugees, who had been bused in from the train station, queued up outside in the chill to be registered, or sat inside waiting to be assigned a place for the night. Two rows of white tents had been set up in the parking lot to house those for whom no other shelter could be found. Hundreds of refugees had been put in hotels a short walk down the highway, and still more in an auditorium near the station.

When the refugee crisis began last summer, about 1,500 people were coming to Sweden every week seeking asylum. By August, the number had doubled. In September, it doubled again. In October, it hit 10,000 a week, and stayed there even as the weather grew colder. A nation of 9.5 million, Sweden expected to take as many as 190,000 refugees, or 2 percent of the population — double the per capita figure projected by Germany, which has taken the lead in absorbing the vast tide of people fleeing the wars in Syria, Iraq, and elsewhere.

That afternoon, in the cafeteria in the back of the Migration Agency building, I met with Karima Abou-Gabal, an agency official responsible for the orderly flow of people into and out of Malmo. I asked where the new refugees would go. “As of now,” she said wearily, “we have no accommodation. We have nothing.” The private placement agencies with whom the migration agency contracts all over the country could not offer so much as a bed. In Malmo itself, the tents were full. So, too, the auditorium and hotels. Sweden had, at that very moment, reached the limits of its absorptive capacity. That evening, Mikael Ribbenvik, a senior migration official, said to me, “Today we had to regretfully inform 40 people that we could [not] find space for them in Sweden.” They could stay, but only if they found space on their own.

Nothing about this grim denouement was unforeseeable — or, for that matter, unforeseen. Vast numbers of asylum-seekers had been pouring into Sweden both because officials put no obstacles in their way and because the Swedes were far more generous to newcomers than were other European countries. A few weeks earlier, Sweden’s foreign minister, Margot Wallstrom, had declared that if the rest of Europe continued to turn its back on the migrants, “in the long run our system will collapse.” The collapse came faster than she had imagined.

The vast migration of desperate souls from Syria, Iraq, and elsewhere has posed a moral test the likes of which Europe has not faced since the Nazis forced millions from their homes in search of refuge. Europe has failed that test. Germany, acutely aware that it was the author of that last great refugee crisis, has taken in the overwhelming fraction of the 1 million asylum-seekers who have reached Europe over the past 18 months. Yet the New Year’s Eve 2016 orgy of rape and theft in Cologne, in which migrants have been heavily implicated, may force Chancellor Angela Merkel to reconsider the open door. Her policy of generosity is now being openly attacked by her own ministers.

Most of Europe, and much of the world, has, as Wallstrom feared, turned its back. The ethnically homogeneous nations of Eastern Europe have refused to take any refugees at all; Hungary, their standard-bearer on this issue, has built fences along its borders to keep refugees from even passing through. Balkan countries, by contrast, helped migrants pass through their territories to the West — until mid-November, when they collectively began blocking asylum-seekers who did not hail from Iraq, Syria, or Afghanistan. England has agreed to take only those refugees arriving directly on its shores from the Middle East. Denmark has taken out ads in Arabic-language newspapers warning refugees that they will not be welcome, and has passed legislation authorizing officials to seize migrants’ assets to pay for their care. In the United States, where politicians eager to exploit fear of terrorism have found a receptive audience, Congress has sought to block President Barack Obama’s offer to accept a meager 10,000 Syrians.
And then there is Sweden, a country that prides itself on generosity to strangers. During World War II, Sweden took in the Jews of Denmark, saving much of the population. In recent years the Swedes have taken in Iranians fleeing from the Shah, Chileans fleeing from Gen. Augusto Pinochet, and Eritreans fleeing forced conscription. Accepting refugees is part of what it means to be Swedish. Yet what Margot Wallstrom meant, and what turned out to be true, was that Germany, Sweden, Austria, and a few others could not absorb the massive flow on their own. The refugee crisis could, with immense effort and courage, have been a collective triumph for Europe. Instead, it has become a collective failure. This is the story of the exorbitant, and ultimately intolerable, cost that Sweden has paid for its unshared idealism.
Stockholm residents take part in a candle light vigil to show their solidarity with refugees on Sept. 14, 2015. (Jonathan Nackstrand/AFP/Getty Images)

World War II created 40 million refugees. Many who made the treacherous journeys from the shattered cities and villages of Central and Eastern Europe were treated humanely; others, including many Jews, were sent back to their homelands, often to their death. When Europe reconstituted itself in the aftermath of the war, the obligation to accept refugees was embedded in such core documents as the Convention on Human Rights, the Refugee Convention, and the Universal Declaration of Human Rights. Signatories pledged not to turn back refugees with a “well-founded fear of being persecuted.” Organizations like the U.N. High Commissioner for Refugees were founded to ensure that states honored those commitments. The right to refuge was understood as a universal principle that all civilized states would honor; Europeans made good on this pledge when they welcomed hundreds of thousands who fled from Communist oppression in Eastern Europe. The United States, for its part, accepted nearly half a million people who fled Vietnam after the South fell in 1975.

Sweden did not need to sign treaties — though it did, of course — to demonstrate its commitment to refugees. Par Frohnert, coeditor of a book on Swedish refugee policy whose English translation is titled Reaching a State of Hope, says that while Sweden jealously guarded its ethnic homogeneity through the 1930s, in 1942 the country began admitting Norwegians fleeing the Nazis. Then came Estonians and other Balts, and then Danish Jews. As Sweden began to build its social democratic state after the war, the ready acceptance of refugees became a symbol of the national commitment to moral principle. Sweden built a system designed to deliver to refugees the same extensive social benefits that Swedes gave themselves — housing, health care, high-quality education, maternal leave, and unemployment insurance.

In the 1980s, Sweden accepted not just Iranians and Eritreans, but Somalis and Kurds. More than 100,000 former Yugoslavs, mainly Bosnians, came in the 1990s. By that time, Sweden was taking about 40,000 refugees a year. In recent years, the figure has been closer to 80,000 — slightly greater than the inflow to the United States, which of course also sees itself as the world’s shelter from tyranny, but has a population almost 35 times greater.

Somali refugees practice the winter sport of Bandy on Sept. 24, 2013, in Borlaenge, Sweden, after having formed a national Somali team in their adopted home. (Jonathan Nackstrand/AFP/Getty Images)
The system worked — or at least that was the Swedish consensus. In Stockholm I went to see Lisa Pelling, who studies refugee issues at the Arena Group, a think tank associated with Sweden’s largest trade union. Pelling had once served as international secretary of the Social Democrats’ youth wing, and is very much a part of the consensus-oriented progressive establishment that runs Sweden today. “When the Bosnians came,” she pointed out, “people thought they would bring their war to the Swedish suburbs. There were neo-Nazis marching in the streets. The economy was at the lowest point since the 1930s.” Nowadays, she says, the Bosnians “are ministers in our government, they’re our doctors, our neighbors.” Swedes feel especially proud that they have so successfully integrated a Muslim population. Pelling was confident that the new wave of Syrians, Iraqis, and the like would do just as well. It seemed almost impolite to point out that, on average, the Bosnians were better educated than the newcomers are, and practice a more moderate version of Islam.

Sweden is the only country I have spent time in where the average person seems to be more idealistic than I am. Solicitous volunteers waited to help asylum-seekers at the central train station in Stockholm even though virtually all refugees were being processed in Malmo — where the Red Cross operated a far larger set-up behind the train station. Everyone seemed calm, cheerful, organized. When I worried out loud that the country was racing off a cliff, I would be reassured that Sweden has done this before and that somehow or other it would do it again. It was a given that Sweden had benefited from its commitment to providing shelter to those in need. Aron Etzler, secretary general for the Left Party — formerly the Communist Party — told me that refugees “helped us build the Sweden we wanted.” He meant both that refugees had become good Swedes and that the social democratic model was unthinkable without the commitment to accepting them. But wouldn’t the job of integrating the new wave of asylum-seekers be vastly harder, more disruptive, and more expensive? “A strong state can take care of many things,” Etzler reassured me.

The Oresund Bridge between Denmark and Malmo, Sweden, at sunset on Jan. 3, 2016. (Johan Nilsson/TT/AFP/Getty Images)

Yet the past may be a poor guide to the present. The 160,000 asylum-seekers who came to Sweden last year is double the number it has ever accepted before. I met many critics who were prepared to raise impolite questions about whether Sweden could afford to lavish generous benefits on so large a population, whether it could integrate so many new arrivals with low levels of skills, whether a progressive and extremely secular country could socialize a generation of conservative Muslim newcomers. And that was before Cologne.
Diana Janse, a former diplomat and now the senior foreign policy advisor to the Moderate Party (which Swedes view as “conservative”), pointed out to me that some recent generations of Swedish refugees, including Somalis, had been notably unsuccessful joining the job market.

How, she wondered, will the 10,000-20,000 young Afghan men who had entered Sweden as “unaccompanied minors” fare? How would they behave in the virtual absence of young Afghan women? But she could barely raise these questions in political debate. “We have this expression in Swedish, asiktskorridor,” she said. “It means ‘opinion corridor’ — the views you can’t move outside of.” Merely to ask whether Sweden could integrate Afghans today as it had Bosnians two decades before was to risk accusations of racism. 

In the weeks before I arrived in Sweden, the government had begun making modest adjustments to its refugee policy. Despite the European Union’s Schengen legal regime permitting free travel between 26 countries, Sweden instituted a temporary (and thus Schengen-compliant) program to check the documents of everyone reaching its border by train, and a fraction of those arriving by car. This had no effect on refugee numbers, though it did have the bureaucratic virtue of channeling virtually everyone through Malmo, the first city in Sweden that anyone arriving by car or train from Denmark would reach.

Police escort refugees from the Hyllie train station in Malmo to the Swedish Migration Agency on Nov. 19, 2015. (Johan Nilsson/AFP/Getty Images)
The refugees were greeted in Hyllie, the first station across the Danish border, by several dozen border police officials, unarmed, male and female, flawlessly proficient in English, and exceptionally polite. There, the refugees were escorted upstairs to a line of waiting buses, which took them to the Migration Agency office in Malmo. The office is staffed by squads of helpful young people, as well as translators who speak Arabic, Dari, Pashto, Somali, and Tigre — the chief language of Eritrea.

Nervous refugees brandished crumpled papers at anyone who looked official. I spoke to an Iraqi, Walid Ali Edo; or rather, I spoke to Edo’s uncle, Fares Krit, who had emigrated to Sweden years earlier, and translated for him. Edo was a Yazidi from Mosul. The Yazidis practice a syncretic faith that the Islamic State regards as a heresy far worse than Judaism or Christianity. When the Islamic State extremists reached the area in June 2014, they began systematically killing Yazidi men and raping and enslaving women. Edo, his wife, and his three small children raced out of town, and then trudged 50 miles north to Dohuk in Iraqi Kurdistan.

Over the course of a year, they had made their way to Diyarbakir, in southeastern Turkey, paid $3,000 to be smuggled by boat to Greece, and then crossed Europe by foot, car, and train. Krit persuaded them to come to Sweden.

I asked Edo why he didn’t stay in Diyarbakir. Krit relayed my question, and then replied, in a whisper, “He says, `I can not live with Muslims.’” I pointed out that Diyarbakir was a largely Kurdish city. Krit, amused, said to me, “You have the black dog and the white dog, but they’re both dogs.” Given Swedish hypersensitivity to ethnic stereotyping, I’m hoping that Edo did not try out that expression at his asylum interview.

When I arrived at the migration office a little past noon, 50-odd people stood on a line that snaked outside the building in order to be interviewed, while another 200-300 asylum-seekers stood or sat inside, waiting to be assigned a bed for the night. Some recent arrivals had to wait a day or two — but no longer — to be processed. Refugees in Germany have rioted at food lines, while conditions at the refugee camp in Calais, France, known as “The Jungle” are notoriously dismal. The atmosphere in Malmo, by contrast, was remarkably calm and quiet. Nobody shouted; I don’t recall hearing a child cry. The Swedes were efficient and extraordinarily protective of their charges; I had had to wear down several officials just to gain the right to talk to refugees, whose privacy they feared I would violate. The interview line moved smartly. Officials had abandoned an earlier effort to gain background information about applicants; now interviewers simply asked their name, date of birth, and home country, and took a photograph and a set of fingerprints.

From there the refugees would be sent to a temporary facility in Malmo until long-term space opened up, a period which had stretched to as long as two weeks. At that point they would be sent to a converted hotel, dormitory, sports facility, or barracks somewhere in Sweden to wait for adjudication of their application for asylum. Karima Abou-Gabal of the Migration Agency told me that they had begun sending asylees to Boden, in the remote north. “It is getting dark and cold,” she conceded.

Nevertheless, Sweden has promised to take care of every refugee while their application for asylum is pending; the backlog has grown to a point that that process can take over a year. During that period, according to the Migration Agency’s website, “the applicant is entitled to accommodation if they cannot arrange it themselves, financial support if they have no money, and access to emergency medical and dental care and to health care that cannot be postponed.” Their children have the same access to education and health care that Swedish children enjoy.

Refugees play outside a shelter in Sundbyberg, northwest of Stockholm, on Oct. 13, 2015. (Jonathan Nackstrand/AFP/Getty Images)
The Swedish Migration Agency is responsible for deciding who does and does not receive asylum.

The agency assumes that anyone fleeing Syria has a well-founded fear of persecution or death, and thus automatically accepts such applications. Large majorities of Iraqis and Afghans are also accepted. Sweden does not take economic migrants; for this reason, authorities deny almost all migrants from Albania or Kosovo. At the same time, Sweden has made only the most modest efforts to ensure that rejected applicants actually leave. Many — no one seems to know how many — remain, living in the shadows. That may now change. In late January, the country’s interior minister instructed the Migration Agency to deport approximately one-half of applicants who are now expected to be turned down. People like Diana Janse believe that Sweden must find the hardness of heart to carry out such orders, if it is to care well for those who remain.

Sweden has traditionally interpreted the standards for asylum far more liberally than most of its neighbors have. Since 2005, Sweden has accepted those fleeing persecution by nonstate actors as well as governments, and has permitted all asylees to bring in a wide range of family members. (This rule, too, has recently been tightened.) The Migration Agency accepts applications from thousands of people from Eritrea, a nation that is autocratic but currently peaceful. When I asked Pierre Karatzian, a spokesman for the Migration Agency, why Eritreans qualified, he said that many Eritreans flee the country rather than face the draft; if Sweden returns them, they will face arrest. This, however, permits the authoritarian Eritrean government to play a cynical game in which they let citizens flee and then demand that they pay a tax on their relatively lavish earnings abroad — a kind of involuntary remittance. (I was told that Eritrean embassies track down citizens abroad and demand payment.) The system guarantees a perpetual flow of Eritreans.

Afghanistan poses a particularly thorny problem. Afghans have lately swelled the great river of refuge-seekers. The country is so profoundly insecure that many of its 32 million citizens might have a colorable claim to asylum. Germany, terrified at the prospect of new millions on the march, has said that it will not grant asylum to those from relatively safe parts of Afghanistan; it now accepts slightly less than half of Afghan applicants. By the end of 2015, far more Afghans than Iraqis were applying for asylum in Sweden; many were unaccompanied minors, placing them in a specially protected category. Sweden has extraordinary laws protecting minors: Refugees who arrive without parents are taken into the country’s social services bureaucracy, operated by each municipality though financed by the federal government.

Swedish Red Cross members wait to welcome refugees in Malmo central station, on Sept. 10, 2015. (Recep Yasar/Anadolu Agency/Getty Images)

While I was in Malmo I paid several visits to a huddle of trailers just behind the central train station, where the Red Cross had set up a welcome center for minors. One of the volunteers was a Farsi-speaking Iranian who served as a translator for the Afghans. Most of them, he said, had grown up in northeastern Iran, to which their families had fled in recent years in order to escape the violence in Afghanistan. There they lived as stateless people, generally unable to find jobs or go to school. Lisa Pelling, the refugee advocate, had told me that Iran forced the Afghans to serve in the war in Syria. Others repeated this story. This seemed unlikely, since few of the refugees seemed to be Shiites, and Iran’s Shiite rulers would hardly hand weapons to Afghan Sunnis — especially to fight Syrian Sunnis. (Nevertheless, a recent report from Human Rights Watch concludes that Iran has paid some  migrants to fight in Syria, and has threatened others with deportation if they did not agree to do so.)

Whether from Afghanistan or Iran, these were still children who had experienced a world of suffering. Valdana Andersson, an official at Malmo’s Social Services Agency, told me that many said they had been sexually abused by older men as part of Afghanistan’s tradition of bacha bazi, or “boy play.” Did that qualify them for asylum status? Legally, it didn’t matter, since Sweden provides asylum to virtually anyone who arrives as an unaccompanied minor.

Some of them, however, were certainly not minors. Since they arrived without documents, officials simply accepted their word for their age. Denmark, among others, mandates age-testing, a somewhat rough-and-ready system using measurements of bone density. In Sweden, however, doctors have largely refused to apply the test, arguing that it is inexact and that, in any case, such tests constitute an invasion of privacy. Andersson said to me that a “minor” who looks to be 30 or so will be told, “You cannot share a room with the boys. You have to go to the Migration Agency and find a [new] room with them.”

Back at the Red Cross station, opinion was surprisingly anti-refugee, including  among volunteers. The translator said that he did not believe many of the new arrivals would ever be able to integrate into Sweden’s liberal, individualistic society. A border policeman told me, “Last summer, my grandmother almost starved to death in the hospital, but the migrants get free food and medical care. I think a government’s job is to take care of its own people first, and then, if there’s anything left over, you help other people.” I had heard the same view a few months earlier in Hungary, the country in Europe most outspokenly hostile to refugees — the anti-Sweden. Europe has not experienced economic growth in almost a decade. One could hardly think of a worse moment to ask citizens to make sacrifices on behalf of outsiders. In the United States, where growth has been more robust, the fountain of charity has run dry as well.                                            

A firefighter hoses down the smoldering remains of a refugee shelter believed to have been set ablaze by arsonists on Oct. 20, 2015, near the town of Munkedal. (Adam Ihse/AFP/Getty Images)

I had, it turned out, arrived in Sweden at the very moment when the supply of goodwill was petering out. A poll in early November found that 41 percent of Swedes thought the country was taking too many refugees, up from 29 percent in September. Other surveys have found that older, less educated people had more negative views of refugees than younger, better educated ones. A few extremists have taken matters into their own hands: In October, arsonists attacked five structures set aside for refugee housing. Swedish authorities have become so jittery that I was not allowed to see any of the facilities for minors in Malmo, lest I give inadvertent clues to the address. When I said to Paula Bieler, a member of Parliament from the anti-immigrant Sweden Democrat party, that most Swedes seemed to welcome refugees, she rejoined, “Mostly the Swedes who haven’t met them. It’s the top politicians and journalists who live in the center of Stockholm.” That’s hyperbolic; Swedes have proved remarkably willing to accept a burden most other Europeans wish to shuck. Nevertheless, the intelligentsia generally view the refugees as a new contribution to Sweden’s tapestry of diversity, while ordinary Swedes may think in more prosaic terms.

The reaction against the refugees has put wind in the sails of the Sweden Democrats, as it has all over Europe. Far-right parties now rank first in polls in France, Switzerland, Austria, and elsewhere. A poll last August found that slightly more Swedes identified with the Sweden Democrats than any other. This has terrified both the ruling Social Democrats and the Moderates, who have forged a tight alliance in order to keep the Sweden Democrats from power.

Like other right-wing parties in Europe, the Sweden Democrats have tried in recent years to move away from their thuggish and quasi-fascist origins. Bieler, the daughter of Polish Jews, recoiled when I compared the party to France’s National Front, a party drenched in anti-Semitism. But the Sweden Democrats have taken a hard line on the refugees. Last November, a group of party members traveled to Lesbos — the Greek island which serves as the main transit point for refugees coming from Turkey — to distribute leaflets contradicting Sweden’s welcoming embrace. The leaflet warned that Swedish society would never accept forced marriages and polygamy — transparent code for “Islam” — and that refugees would be housed in tents and then deported. This last prediction may well prove accurate.

Unlike Americans, Swedes do not raise the subject of terrorism when they question the virtues of accepting asylum-seekers. I arrived in the country days after the Paris attacks, and I expected to hear a pitched battle over the dangers to national security posed by the newcomers.

Scarcely anyone raised the issue. Sweden has not suffered a serious attack on its soil; the national mood could change very quickly if it did. But the issue that is raised — in Sweden as in Germany, Hungary, and all over Europe — is national integration. How will adding 150,000 refugees from very different cultures change Sweden?

Paula Bieler of the Sweden Democrats describes herself as a “nationalist” who fears that an increasingly multicultural Sweden is in danger of losing its identity — “the feeling that you live in a society that is also your home.” Bieler objects, not to immigrants themselves, but to the official state ideology of integration, which asks Swedes as well as newcomers to integrate into a world that celebrates diversity, and thus casts Sweden as a gorgeous mosaic. Are native Swedes to think of their own extraordinarily stable thousand-year-old culture as simply one among many national identities? Thomas Gur, a widely published critic of Sweden’s open-door policy, says that it is precisely this reaction that accounts for the popularity of the Sweden Democrats.
There are more visceral fears, which cannot be raised inside the opinion corridor. “You cannot talk about concepts like marriage, shame, honor,” says Gur. “You cannot talk about social trust.” The fear is that the recent generations of refugees have become isolated from Swedish life, as has happened with North Africans in the French banlieues, the slums that have become incubators of alienation for many North African immigrants. Gur says that 20 years ago, Sweden had just three residential areas where significant numbers of citizens did not work and did not have access to good schools — the indispensable instrument of social mobility in Sweden’s high-tech economy. That number, he says, has now reached 186. I visited several of these areas in Malmo, and they looked vastly cleaner, smaller, and safer than any American inner city. But for Sweden, it’s something new, and troubling.

What is certainly true is that refugees take far too long to join the workforce and remain unemployed in far larger numbers than native Swedes. Tino Sanandaji, an economist and critic of refugee policy who has become so unpopular at his university that he asked me not to name it, says while 82 percent of adult Swedes are in the workforce, only 52 percent of immigrants from non-Western countries are — a gap that has grown rapidly in recent years. (Since virtually all Swedish immigrants arrived as refugees, the two words are often used interchangeably.) While only one-fifth of Swedes fail to graduate from high school, the figure for immigrants is one-third. Sanandaji points out that the consequence for Sweden’s generous state is a sharp increase in welfare payments, 60 percent of which go to immigrants. Sanandaji predicts that the new refugees will have an even harder time adjusting than their immediate predecessors have. Despite widespread reports that Syrian refugees are drawn largely from the educated middle class, statistics compiled by the Swedish Migration Agency show that half the new arrivals do not have a high-school degree, and one-third have not progressed beyond ninth grade. The figures are yet higher for the Afghan unaccompanied minors.

An observation that is now taken for granted in the United States — that values matter, that they are transmitted culturally, that they can be only partly changed by social institutions — is treated in Sweden as a form of racism, as well as an implicit admission of failure. Low levels of achievement aren’t “in people’s DNA,” said Aron Etzler of the Left Party. “People change, cultures change.

Society is there to give people the tools.” Swedes have good reason to have faith in their social democratic model, and they seem confident that it can do again what it has done before. Virtually everyone I spoke to on the pro-refugee side insisted that Sweden was not paying a price for its open-ended commitment to refugees, but rather gaining a benefit, albeit a long-term one. I often asked what this new generation of newcomers was going to do for work. Sweden has virtually no space for unskilled workers; I’ve never seen a more automated, do-it-yourself economy. (You don’t just check yourself in at the airport; you scan your own suitcase.)

The answer was always the same: Sweden’s “aging population” would provide vast job opportunities in personal health care. Maybe that’s true, though old people in Sweden seem awfully self-sufficient. You can’t push someone’s wheelchair if they’re going to cross the street on their own.

       Refugees register at a central mosque in Stockholm on Oct. 15, 2015, after arriving there by bus from Malmo. (Jonathan Nackstrand/AFP/Getty Images)

Even before Sweden slammed on the brakes, it seemed that the country had posed for itself a test that it could not pass, and could not acknowledge that it could not pass. The financial costs, even for one of Europe’s richest countries, were daunting. Sweden expects to spend about 7 percent of its $100 billion budget next year on refugees. The real number is somewhat higher, since the costs of educating and training those who have already received asylum are not included in that figure. It is, in any case, double the 2015 budget. Where will the additional funds come from? It’s not clear yet, but since the cost of caring for refugees is considered a form of development assistance, Sweden has already cut 30 percent of its very generous foreign aid budget, which largely goes to fortify the very countries from which people are now fleeing, to help make up the difference. Other European donors, including Norway, have done so as well.

The refugee issue has split Sweden’s genteel consensus as no other question has in recent memory. As Ivar Arpi, a columnist at the daily newspaper Svenska Dagbladet and an inveterate critic of the country’s refugee policy, said to me, “People have lost friends over this; families are divided against one another. I’ve had agonizing discussions with my mother and my little sister.” It is very hard to find a middle ground between “we must” and “we can’t.” One of the few people I spoke to who was seeking one was Diana Janse of the Moderates. I asked her if she feared that Sweden was in the process of committing suicide. “It’s an open question,” Janse replied. She worried that the costs of Sweden’s generosity were only beginning to come due, and no one cared to tally them. She had just learned that since the right to 450 days of parental leave per child enshrined in Swedish laws also applies to women who arrive in the country with children under seven, refugees could qualify for several years’ worth of paid leave — even without working, since unemployed women also receive maternal benefits. She was convinced that Sweden needed to end the practice of giving Swedish social payments to refugees, not only because it was unaffordable, but because Sweden had no interest in out-bidding its neighbors to woo refugees.

At first the Swedish government made several very modest concessions to this ugly reality. In November, Prime Minister Stefan Lofven disclosed that migrants would no longer be granted permanent asylum, and thus no longer become eligible for the massive package of social benefits that comes with it. Applicants, if approved, would receive a three-year temporary residency permit with the possibility of renewal. Refugees could still bring in spouses and children under “family reunification” policy, but those relatives would not qualify for social benefits. In late December, Sweden finally threw in the towel. Henceforth, no one would be permitted to enter Sweden without proper identity documents. The new regulations, no longer described as temporary, violated the Schengen regimen; soon after, Austria imposed similar rules. The refugee crisis has, at least temporarily, ended free movement across borders, one of the signal achievements of the European Union.

Since many refugees arrive without passports or other valid forms of identification, the new rules sharply curtailed the number of asylum-seekers arriving overland who would be permitted to enter the country. Cross-border immigration has, in fact, come to an almost complete stop. Sweden now accepts only those refugees arriving directly from Turkey, Lebanon, and Jordan, and cleared by the U.N. refugee agency. After taking 160,000 refugees — 30,000 less than the maximum it had projected — Sweden had finally run out of room, money, and patience. Even that wasn’t the final sign of Sweden’s reluctant regression to the European mean, for in January came the announcement that 80,000 refuges would face deportation.

At this moment, it is literally impossible to imagine a solution to the crisis. Unless the negotiations now underway between the Assad regime and the Syrian rebels miraculously succeed, the flow of refugees from Syria will not diminish. The Russian bombing of civilian centers in Syria is bound to further swell the ranks, as will the Iraqi campaign to retake Sunni regions — eventually, and above all, Mosul — from the Islamic State. The refugee tide may not even have crested. Despite freezing weather and high seas, 67,193 migrants crossed the Mediterranean to reach Europe in January — 13 times as many as the year before. Deaths at sea around Greece and Italy totaled 368. In all likelihood, more people will cross into Europe, and more will die trying, than was the case in 2015. The International Monetary Fund now estimates that an average of 1.3 million migrants will arrive in Europe in both 2016 and 2017.

    Hungarian police guard a border fence against refugees trying to pass through from the Serbian town of Horgos on Sept. 16, 2015. (Armend Nimani/AFP/Getty Images)

A kind of hydraulic catastrophe is now building up over Europe and North Africa. The valves of refugee admission in Europe and the United States are closing while the taps in the Middle East remain wide open. The flow is now backing up in Greece, where tens of thousands of refugees have been trapped. Greece and other Balkan states are, at least intermittently, permitting refugees from Syria, Iraq, and Afghanistan to continue moving westwards. But they won’t find a welcome there. An EU plan to distribute 160,000 refugees equitably among member states has failed so miserably that only 272 were relocated in the last four months of 2015. Only Germany is still accepting large numbers; and Chancellor Angela Merkel, who has personally championed the open-door policy, is increasingly isolated inside her own country and even her own party. The swift rightward movement of European politics has convinced many centrist and let-wing political leaders that a generous policy towards refugees will cost them their office.

Either the taps must close, or the valves must open. By far the likeliest outcome is that Europe will close off its borders to refugees arriving overland, accepting only those vetted by U.N. officials and arriving directly by airplane from Turkey, Jordan, and Lebanon — as Canada agreed to do in November.
Turkey already shelters more than 2.5 million Syrian refugees, and cannot be expected to simply continue absorbing millions more.
And the rest? They will back up at various European borders. New arrivals may be blocked in Turkey. This is precisely what most of the critics in Sweden advocate for. It is also what the European Union itself now foresees as the best solution to the problem. Late last year, the EU agreed to pay Turkey $3.2 billion to expand care for refugees and stem their onward flow. Turkey already shelters more than 2.5 million Syrian refugees, and cannot be expected to simply continue absorbing millions more. Many are bound to be turned back at the border. There is simply no getting around the fact that if other nations declare that they are full, tens or hundreds of thousands of people will be trapped in the maelstrom of Syria and Iraq, while countless others will continue risking their lives in desperate Mediterranean crossings.

The Swedes responded because they could not accept that outcome. They had no special obligation to act; they did so because they believed it was right. They had behaved admirably; even the hypocrisy of political correctness — their opinion corridor — may have been an indispensable adjunct to national self-sacrifice. Then, as a consequence, they were inundated, forcing a step back from the moral precipice. Can we blame them? No more than an individual can be blamed for declining to act heroically.

Yet it need not have ended this way. If their neighbors had pitched in, Sweden could have afforded the price of its remarkable generosity. At the Davos forum in January, Swedish Prime Minister Stefan Lofven, said bluntly, “We are a continent of 500 million people; we could easily handle this task if we cooperated, if we met this as a union and not as individual member states.” But Europe did not cooperate. Already the Schengen rules lie in tatters. The refugee crisis threatens European foundations as even the recent euro crisis did not. “If we cannot handle this as a European union,” Lofven went on to predict, “the European Union in itself is at risk.”

Something even greater is at risk. The Europe that rose from the cataclysm of World War II understood itself not simply as a collection of peoples, white and Christian, but as a community of shared values. The refugee crisis has forced Europeans to choose between the moral universalism they profess and the ancient identities they have inherited. Eastern Europe has already reasserted its status as a white, Christian homeland — just as many people in the Middle East have reclaimed the sectarian identities they had seemed prepared to discard.

Now the Europe where the Enlightenment was born may well be making the same choice. The Muslim influx threatens Europe’s liberal, secular consensus; but rejecting the refugees also shakes one of the great pillars of that consensus. Europe may fail on both counts, driving the refugees from its doorstep while succumbing to right-wing nationalism. Americans have no reason to be complacent. It is all too possible that we will do the exact same thing.

James Traub (@jamestraub1) James Traub is a contributing editor at Foreign Policy, a fellow at the Center on International Cooperation, and author of the forthcoming book John Quincy Adams: Militant Spirit.

China Slowdown

China’s Great Game: Road to a new empire

FT series: A modern Silk Road is Beijing’s signature foreign policy

by: Charles Clover and Lucy Hornby

“The granaries in all the towns are brimming with reserves, and the coffers are full with treasures and gold, worth trillions,” wrote Sima Qian, a Chinese historian living in the 1st century BC. “There is so much money that the ropes used to string coins together rot and break, an innumerable amount. The granaries in the capital overflow and the grain goes bad and cannot be eaten.”
He was describing the legendary surpluses of the Han dynasty, an age characterised by the first Chinese expansion to the west and south, and the establishment of trade routes later known as the Silk Road, which stretched from the old capital Xi’an as far as ancient Rome.
Fast forward a millennia or two, and the same talk of expansion comes as China’s surpluses grow again. There are no ropes to hold its $4tn in foreign currency reserves — the world’s largest — and in addition to overflowing granaries China has massive surpluses of real estate, cement and steel.
After two decades of rapid growth, Beijing is again looking beyond its borders for investment opportunities and trade, and to do that it is reaching back to its former imperial greatness for the familiar “Silk Road” metaphor. Creating a modern version of the ancient trade route has emerged as China’s signature foreign policy initiative under President Xi Jinping.
“It is one of the few terms that people remember from history classes that does not involve hard power … and it’s precisely those positive associations that the Chinese want to emphasise,” says Valerie Hansen, professor of Chinese history at Yale University.
Xi’s big idea
If the sum total of China’s commitments are taken at face value, the new Silk Road is set to become the largest programme of economic diplomacy since the US-led Marshall Plan for postwar reconstruction in Europe, covering dozens of countries with a total population of over 3bn people.
The scale demonstrates huge ambition. But against the backdrop of a faltering economy and the rising strength of its military, the project has taken on huge significance as a way of defining China’s place in the world and its relations — sometimes tense — with its neighbours.
Economically, diplomatically and militarily Beijing will use the project to assert regional leadership in Asia, say experts. For some, it spells out a desire to establish a new sphere of influence, a modern-day version of the 19th century Great Game, where Britain and Russia battled for control in central Asia.
“The Silk Road has been part of Chinese history, dating back to the Han and Tang dynasties, two of the greatest Chinese empires,” says Friedrich Wu, a professor at the S Rajaratnam School of International Studies in Singapore. “The initiative is a timely reminder that China under the Communist party is building a new empire.”
According to former officials, the grand vision for a new Silk Road began life modestly in the bowels of China’s commerce ministry. Seeking a way to deal with serious overcapacity in the steel and manufacturing sectors, commerce officials began to hatch a plan to export more. In 2013, the programme received its first top-level endorsement when Mr Xi announced the “New Silk Road” during a visit to Kazakhstan.
Since the president devoted a second major speech to the plan in March — as concerns over the economic slowdown mounted — it has snowballed into a significant policy and acquired a clunkier name: “One Belt, One Road”. The belt refers to the land trade route linking central Asia, Russia and Europe. The road, oddly, is a reference to a maritime route via the western Pacific and Indian Ocean.
In some countries Beijing is pushing at an open door. Trade between China and the five central Asian states — Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan — has grown dramatically since 2000, hitting $50bn in 2013, according to the International Monetary Fund. China now wants to build the roads and pipelines needed to smooth access to the resources it needs to continue its development.
Mr Xi started to offer more details about the scheme earlier this year with an announcement of $46bn in investments and credit lines in a planned China-Pakistan economic corridor, ending at the Arabian Sea port of Gwadar. In April, Beijing announced plans to inject $62bn of its foreign exchange reserves into the three state-owned policy banks that will finance the expansion of the new Silk Road.
Some projects, already on the drawing board, seem to have been co-opted into the new scheme by bureaucrats and businesspeople scrambling to peg their plans to Mr Xi’s policy.
“They are just putting a new slogan on stuff they’ve wanted to do for a long time,” says one western diplomat.
"It’s like a Christmas tree,” says Scott Kennedy, deputy director at the Center for Strategic and International Studies in Washington. “You can hang a lot of policy goals on it, but no one has done a proper economic analysis. The government money they are putting in is not enough; they hope to bring in private capital, but would private capital want to invest? Will it make money?”
As well as offering a glimpse of China’s ambition, the new Silk Road presents a window into how macroeconomic policy is made in Beijing — often on the hoof, with bureaucrats scurrying to flesh out vague and sometimes contradictory statements from on high. “Part of this is top down, part of this is bottom up, but there is nothing in the middle so far,” says a former Chinese official.
“The rest of the bureaucracy is trying to catch up to where Xi has planted the flag,” says Paul Haenle, director of the Carnegie-Tsinghua Center in Beijing. “This is something that Xi announces and then the bureaucracy has to make something of it. They have to put meat on the bones.”
Some clues emerged in March when the powerful National Development and Reform Commission, China’s central planning body, published a clunky document, “Visions and Actions on Jointly Building Silk Road Economic Belt and 21st-century Maritime Silk Road”. It provides a great deal of detail in some places — such as which book fairs will be held — but is patchy in others, like which countries are included. Peru, Sri Lanka and even the UK are included in some versions of semi-official maps but left out of others.
A complete list appears to exist, however. On April 28 the commerce ministry announced that Silk Road countries account for 26 per cent of China’s foreign trade, a remarkably precise statistic.
However, a request from the Financial Times for more specific details on the list of nations went unanswered.
There is also no indication yet of how it will be run — through its own bureaucracy, or as separate departments in different ministries and policy banks. With foreign governments and multinational banks eagerly following the Delphic utterances from Beijing to understand what it means, the vagueness and confusion has not gone unnoticed.
“If we want to talk to the Silk Road,” says a diplomat from a neighbouring state, “we don’t know who to call.”
As the country’s economic interests expand abroad, its massive security apparatus and military will probably be pulled into a greater regional role. China has no foreign military bases and steadfastly insists that it does not interfere in the domestic politics of any country. But a draft antiterrorism law for the first time legalises the posting of Chinese soldiers on foreign soil, with the consent of the host nation.
China’s military is also eager to get its share of the political and fiscal largesse that accompanies the new Silk Road push. One former US official says he was told by senior generals in the People’s Liberation Army that the One Belt, One Road strategy would have a “security component”.
Projects in unstable areas will inevitably test China’s policy of avoiding security entanglements abroad. Pakistan has assigned 10,000 troops to protect Chinese investment projects, while in Afghanistan, US troops have so far protected a Chinese-invested copper mine.
Port construction in countries like Sri Lanka, Bangladesh and Pakistan has led some analysts to question whether China’s ultimate aim is dual-use naval logistics facilities that could be put into service controlling sea lanes, a strategy dubbed the “String of Pearls”.
Achieving the trust of wary neighbours including Vietnam, Russia and India is not a given, and is consistently being undermined by sustained muscle flexing by China elsewhere. In the South China Sea, for example, naval confrontations have increased in the face of aggressive maritime claims by Beijing.
Exporting overcapacity
Lenin’s theory that imperialism is driven by capitalist surpluses seems to hold true, oddly, in one of the last (ostensibly) Leninist countries in the world. It is no coincidence that the Silk Road strategy coincides with the aftermath of an investment boom that has left vast overcapacity and a need to find new markets abroad.
“Construction growth is slowing and China doesn’t need to build many new expressways, railways and ports, so they have to find other countries that do,” says Tom Miller of Beijing consultancy Gavekal Dragonomics. “One of the clear objectives is to get more contracts for Chinese construction companies overseas.”
Like the Marshall Plan, the new Silk Road initiative looks designed to use economic treats as a way to address other vulnerabilities. China’s western frontiers and its central Asian neighbours are home to vast reserves of oil and gas. The Xinjiang region, sitting on some of China’s largest energy reserves and crucial to the Silk Road project, is also home to a restive Muslim Uighur population that is culturally Turkish, far poorer than the citizens of coastal China and seeking a break with Beijing. The region has been the scene of serious outbreaks of violence in recent years.
A push into central Asia will partly fill the vacuum left by the retreat of Moscow after the cold war, followed by Washington’s military pullback from Afghanistan next year. With Beijing saying it is facing a rising terrorist threat, stabilising the wider region is a priority.
But, in doing so, China will inherit the same chicken and egg problem that has plagued the US in its “nation building” attempts — having to ask whether security and stability is a pre-requisite for economic development, or whether, as Beijing appears to believe, it can pacify local conflicts with a sea of investment and infrastructure spending.
Combating radical Islam
If this approach does not work, China will be faced with some grim alternatives — either turn tail and leave, or risk getting bogged down in security commitments and local politics. It has made clear that it does not want to replace the US in Afghanistan nor does it see itself as a regional policeman. “China will not fall into the same mistakes,” says Jia Jinjing, a specialist on south Asia at Beijing’s Renmin University.
Economic development, strategists in Beijing argue, will remove the appeal of radical Islam in China and Pakistan, Afghanistan and central Asia. But critics note that culturally insensitive policies, an enormous security presence and economic strategies that benefit Chinese communities at the expense of locals have so far only escalated tensions in Xinjiang, the desert region that has 22 per cent of China’s domestic oil reserves and 40 per cent of its coal deposits.
Roads and pipelines across Pakistan and Myanmar will ultimately allow China to avoid another strategic vulnerability — the chokepoint of the Strait of Malacca, through which about 75 per cent of its oil imports pass. Already, half of China’s natural gas arrives overland from central Asia, thanks to an expensive strategy by Mr Xi’s predecessors to cut dependence on seaborne imports.
While some neighbours will welcome the investment, it is less clear they will want China’s overcapacity. Many have unemployment and underperforming steel mills of their own, or ambitions to develop their own industry rather than import someone else’s.
Large-scale investment could also trigger concerns about opening the floodgates to Chinese economic dominance — as it has done in Myanmar and Sri Lanka — and, by extension, political influence. But China is hoping the lure of massive spending will prove too great an incentive for its neighbours to resist.
“They [Beijing] don’t have much soft power, because few countries trust them,” says Mr Miller.
“They either can’t or don’t want to use military power. What they have is huge amounts of money.”
Additional reporting by Michael Peel and Ma Fangjing

Why Yesterday’s Big Oil Announcement Doesn’t Mark the Bottom

Justin Spittler

Governments are desperately trying to prop up oil prices…

If you’ve been reading the Dispatch, you know the oil market is in crisis. The price of oil has plummeted 73% since June 2014. Last Thursday, oil closed at $26.21, its lowest level in 13 years. Low oil prices have sparked a global sell-off in oil stocks.

• The world has too much oil…

Technologies like “fracking” have unlocked billions of barrels of new oil in shale regions. U.S. oil production jumped 45% from 2007 to 2014. Production in U.S. shale regions jumped eightfold. And global oil output hit a record high last year.

• Despite low prices, the world’s three biggest oil-producing nations are pumping massive amounts of oil…
Saudi Arabia is pumping near record amounts of oil. Oil production in Russia is at its highest level since the Cold War. The United States is pumping at its highest level in decades.

The world can’t consume the oil fast enough. The global economy is oversupplied by about 1.8 million barrels per day (bpd).
Companies are running out of places to store all the oil. Some producers are selling barrels at huge discounts just to move them.

• Yesterday, four major oil-producing countries agreed to a production “freeze”…

Bloomberg Business reported yesterday:

Saudi Arabia and Russia agreed to freeze oil output at near-record levels, the first coordinated move by the world’s two largest producers to counter a slump that has pummeled economies, markets, and companies…

The deal to fix production at January levels, which includes Qatar and Venezuela, is the “beginning of a process” that could require “other steps to stabilize and improve the market,” Saudi Oil Minister Ali Al-Naimi said in Doha Tuesday after the talks with Russian Energy Minister Alexander Novak. Qatar and Venezuela also agreed to participate, he said.

• The agreement isn’t a done deal…

For the deal to take effect, Iran and Iraq have to agree to freeze production too. That might not happen…

Oil makes up 98% of Iraq’s exports. Iraq’s economy doesn’t exist without oil. So it has little choice but to keep pumping. Iraq has increased its production to record levels to fund its fight against the terrorist group ISIS.

Iran also depends heavily on oil. It’s the world’s sixth-biggest oil producer. Oil makes up 68% of its exports.

At this point, it’s unclear whether Iran and Iraq will cooperate with the production freeze.

• Iran plans to double its oil exports…

You may recall the U.S. and five other countries lifted economic sanctions on Iran last year.

These sanctions were put in place to prevent Iran from building a nuclear bomb. The sanctions cut Iran off from global financial markets and crippled its oil industry. Since 2011, Iran’s oil exports have plunged 45%.

With the sanctions now lifted, Iran hopes to increase its oil production and double its exports.

According to MarketWatch, Iran has ramped up oil exports by 400,000 barrels recently. Last week, Iran sent three oil tankers to Europe for the first time since 2012.

The director of Iran’s state-owned oil company says it has no plans to limit production until it gets back to pre-sanction levels.
Asking Iran to freeze its oil production level is illogical... when Iran was under sanctions, some countries raised their output and they caused the drop in oil prices.

How can they expect Iran to cooperate now and pay the price?

• The price of oil fell 1% on the news of the production freeze…

This suggests investors don’t think the production freeze will cure the world’s oversupply of oil.

The Wall Street Journal explains:

Even a global production freeze at January’s levels would leave the world with about 300 million barrels of oil produced above demand. That doesn’t include oil stored in tanks, which stands at more than 3 billion barrels just in the industrialized world, according to the International Energy Agency….

The Wall Street Journal went on to explain that freezing production isn’t enough. The world needs production cuts.

Halting production increases won’t likely help reduce the world’s oversupply of oil in the short term. Qatar and Venezuela were already producing at or near capacity, Russia’s production is expected to be flat or decline this year, and Saudi Arabia’s output wasn’t expected to increase significantly.

Although yesterday’s big oil deal won’t erase the global oil surplus, it’s still significant. The production freeze is a sign of despair in the oil sector. And signs of despair often mean a bottom is near.

• Many oil companies won’t survive…

Last year, energy consulting company Wood Mackenzie estimated that $1.5 trillion worth of oil projects in North America can’t make money at $50 oil. With oil below $30 today, it’s safe to assume at least $2 trillion worth of projects are losing money.

According to The Wall Street Journal, U.S. and Canadian oil producers are losing more than $350 million a day at current prices. One in three U.S. companies is now at high risk of going bankrupt.

• A wave of bankruptcies could trigger another leg down in oil stocks…

Exxon Mobil (XOM), the largest U.S. oil company, has dropped 20% since June 2014. Chevron (CVX), the second largest, has dropped 35%.

The SPDR S&P Oil & Gas Exploration & Production ETF (XOP), which tracks 63 U.S. oil producers, has plummeted 70% since June 2014.

The Market Vectors Oil Services ETF (OIH), which tracks 26 oil services companies, has plunged 59% since June 2014. Oil services companies sell “picks and shovels” like drill equipment to oil producers.

• The oil market is cyclical…

It goes through big booms and busts. Although we don’t think oil has bottomed yet, it’s time to start thinking about buying high-quality oil stocks at bargain prices.

• Louis James, editor of Casey Resource Investor, is getting his “shopping list” ready…

Louis is Casey’s resource guru. He’s seen commodities boom and bust many times in his career.

Right now, Louis sees huge opportunities forming in the oil market. He’s watching Exxon Mobil and oil pipeline company Kinder Morgan (KMI) for the right time to buy.

Falling oil prices have slammed both stocks. As we mentioned, Exxon has fallen 20% since 2014. Kinder Morgan has plunged 57%. It’s near its all-time low.

Louis expects both stocks to deliver huge gains during the next oil bull market. He’s following both stocks in Casey Resource Investor, our advisory focused on making money in energy, mining, agriculture, water, and other natural resource stocks. Click here to try out Casey Resource Investor risk-free.

• Switching gears, technology stocks have tanked this year…

The tech-heavy Nasdaq has dropped 10% this year. It’s fallen almost twice as far as the S&P 500 and Dow Jones industrial average.

Since tech stocks are getting cheaper, we asked Chris Wood, editor of Extraordinary Technology, for stocks on his “shopping list.”

• In this short essay, Chris explains that huge opportunities are shaping up in the robotics market…

I think the robotics market is on the cusp of exploding…

Costs are coming down, and roboticists are starting to solve technical problems that have stumped them for years.

The $35 billion global robotics market is divided into two categories: industrial and service.

Industrial robots help us build things like cars. Today, they make up more than 80% of the market.

But outside of China, industrial robots are only set to grow at about 6% a year through 2020. So there are limited opportunities for investors here.

On the other hand, service robots, which perform tasks other than building things, are on track to grow at more than 22% a year over the next five years.

Doctors use service robots to operate on patients… scientists use them to explore the ocean… soldiers use them to dispose of bombs and provide surveillance… and many people use them to perform daily chores.

Today, medical robots make up the biggest slice of the service robot industry in terms of sales.

Titan Medical (TITXF) and TransEnterix (TRXC) are my two favorite companies here. Both are developing smaller, more affordable minimally invasive surgical robots.

But Titan’s stock trades over the counter, meaning it’s not liquid and could be difficult to sell. I recommend waiting to buy until the company moves up to a major exchange like the Nasdaq before buying.

TransEnterix is too expensive at current prices after rumors of a buyout by Johnson & Johnson caused its stock to pop. But it’s definitely on my radar.

Outside the medical space, my favorite company is iRobot (IRBT), maker of the popular Roomba vacuum robot. The Roomba accounts for about 80% of iRobot’s annual sales… but there’s still huge opportunity.

Traditional vacuum cleaners still make up 80% of the market. As the technology improves, robotic vacuums should steal market share. It’s a $7.2 billion opportunity for robotic vacuum companies, and iRobot is in the best position to dominate the market.

At current prices, iRobot is too expensive. I’m waiting for the stock to pull back. I’ll let subscribers know as soon as it’s time to buy. You too can learn about these opportunities by signing up for a risk-free trial of Extraordinary Technology.

Chart of the Day

The world’s oil surplus isn’t going away anytime soon…

Today’s chart shows the difference between global supply and global demand for oil. The blue bars show when supply exceeds demand.

As you can see, the world has had an oil surplus since the first quarter of 2014. Last quarter, the global economy was oversupplied by about 1.8 million bpd. The U.S. Energy Information Administration (EIA) expects this surplus to last until the third quarter of 2017. After that, the EIA expects supply and demand to balance out.

As long as there’s an oil surplus, oil prices will likely stay low. That’s bad news for oil companies that need high oil prices to make money.