The looming 100-year US-China conflict

Donald Trump’s unnecessary fight for domination is increasingly being framed as a zero-sum game

Martin Wolf




The disappearance of the Soviet Union left a big hole. The “war on terror” was an inadequate replacement. But China ticks all boxes. For the US, it can be the ideological, military and economic enemy many need. Here at last is a worthwhile opponent. That was the main conclusion I drew from this year’s Bilderberg meetings. Across-the-board rivalry with China is becoming an organising principle of US economic, foreign and security policies.

Whether it is Donald Trump’s organising principle is less important. The US president has the gut instincts of a nationalist and protectionist. Others provide both framework and details. The aim is US domination. The means is control over China, or separation from China. Anybody who believes a rules-based multilateral order, our globalised economy, or even harmonious international relations, are likely to survive this conflict is deluded.

The astonishing white paper on the trade conflict, published on Sunday by China, is proof. The — to me, depressing — fact is that on many points Chinese positions are right. The US focus on bilateral imbalances is economically illiterate. The view that theft of intellectual property has caused huge damage to the US is questionable. The proposition that China has grossly violated its commitments under its 2001 accession agreement to the World Trade Organization is hugely exaggerated.

Martin Wolf chart on US/China

Accusing China of cheating is hypocritical when almost all trade policy actions taken by the Trump administration are in breach of WTO rules, a fact implicitly conceded by its determination to destroy the dispute settlement system. The US negotiating position vis-à-vis China is that “might makes right”. This is particularly true of insisting that the Chinese accept the US role as judge, jury and executioner of the agreement.

A dispute over the terms of market opening or protection of intellectual property might be settled with careful negotiation. Such a settlement might even help China, since it would lighten the heavy hand of the state and promote market-oriented reform. But the issues are now too vexed for such a resolution. This is partly because of the bitter breakdown in negotiation. It is still more because the US debate is increasingly over whether integration with China’s state-led economy is desirable. The fear over Huawei focuses on national security and technological autonomy. Liberal commerce is increasingly seen as “trading with the enemy”.


Martin Wolf chart on US/China

A framing of relations with China as one of zero-sum conflict is emerging. Recent remarks by Kiron Skinner, the US state department’s policy planning director (a job once held by cold war strategist George Kennan) are revealing. Rivalry with Beijing, she suggested at a forum organised by New America, is “a fight with a really different civilisation and a different ideology, and the United States hasn’t had that before”. She added that this would be “the first time that we will have a great power competitor that is not Caucasian”. The war with Japan is forgotten. But the big point is her framing of this as a civilisational and racial war and so as an insoluble conflict. This cannot be accidental. She is also still in her job.Others present the conflict as one over ideology and power. Those emphasising the former point to President Xi Jinping’s Marxist rhetoric and the reinforced role of the Communist party. Those emphasising the latter point to China’s rising economic might. Both perspectives suggest perpetual conflict.

Martin Wolf chart on US/China


This is the most important geopolitical development of our era. Not least, it will increasingly force everybody else to take sides or fight hard for neutrality. But it is not only important. It is dangerous. It risks turning a manageable, albeit vexed, relationship into all-embracing conflict, for no good reason.

China’s ideology is not a threat to liberal democracy in the way the Soviet Union’s was. Rightwing demagogues are far more dangerous. An effort to halt China’s economic and technological rise is almost certain to fail. Worse, it will foment deep hostility in the Chinese people. In the long run, the demands of an increasingly prosperous and well-educated people for control over their lives might still win out. But that is far less likely if China’s natural rise is threatened. Moreover, the rise of China is not an important cause of western malaise. That reflects far more the indifference and incompetence of domestic elites. What is seen as theft of intellectual property reflects, in large part, the inevitable attempt of a rising economy to master the technologies of the day. Above all, an attempt to preserve the domination of 4 per cent of humanity over the rest is illegitimate.

Martin Wolf chart on US/China


This certainly does not mean accepting everything China does or says. On the contrary, the best way for the west to deal with China is to insist on the abiding values of freedom, democracy, rules-based multilateralism and global co-operation. These ideas made many around the globe supporters of the US in the past. They still captivate many Chinese people today. It is quite possible to uphold these ideas, indeed insist upon them far more strongly, while co-operating with a rising China where that is essential, as over protecting the natural environment, commerce and peace.

Martin Wolf chart on US/China

A blend of competition with co-operation is the right way forward. Such an approach to managing China’s rise must include co-operating closely with like-minded allies and treating China with respect. The tragedy in what is now happening is that the administration is simultaneously launching a conflict between the two powers, attacking its allies and destroying the institutions of the postwar US-led order. Today’s attack on China is the wrong war, fought in the wrong way, on the wrong terrain. Alas, this is where we now are.


Who’s Afraid of Saudi Arabia?

The Qatari blockade, now two years old, is a reminder of how impotent the government in Riyadh has become.

By Cole Altom

 

Two years ago, the United Arab Emirates, Bahrain and Egypt, as well as the Maldives, Mauritania, Comoros, the exiled government of Yemen, and one of the Libyan governments – a veritable who’s that of international players – joined Saudi Arabia in severing diplomatic ties with Qatar, which it had accused of supporting the kinds of terrorists Riyadh prefers not to support when it support terrorists. Some of them had cut ties a few years earlier for similar reasons, creating a dispute that was in many ways the genesis of the current crisis, but this time they took things a step further by imposing an economic blockade, closing their airspace to Qatari aircraft, disallowing Qatari naval vessels to enter their ports, and shutting down Qatar’s only land border – the one it shares with none other than Saudi Arabia.

Though the blockade is still in place today, its advent was the low point of a struggle that has more or less existed ever since Saudi Arabia became a de facto leader in the Middle East – a role that Riyadh has tried to use to bend all other Sunni Arab nations, especially Arab Gulf nations such as Qatar, to its will. Yet it has rarely succeeded in that regard. It’s true that Saudi Arabia has cobbled together a loose alliance of nations that bolsters its power and helps to isolate Iran, its regional rival, but a cursory glance at its recent history shows that the ties that bind Riyadh to nearly every link in this chain are weak. It had to coerce Lebanon by kidnapping its prime minister. It had to save Bahrain by propping up its minority government. It had to buy the loyalties of Egypt and Sudan. Allies like the UAE are arguably more dependable, but their reliability tends to exist within the narrow parameters of countering Iran, preserving their monarchies and keeping oil revenue high.

 


 

It’s not that Saudi Arabia is feckless. On the contrary, it’s pretty strong, as far as middle powers go. Oil and natural gas have made Saudi Arabia famously rich, and Riyadh has used its wealth to develop a large and well-equipped military. (In 2017, it spent nearly $70 billion on defense, equivalent to roughly 10 percent of its gross domestic product, making it the third-largest spender in the world, according to the Stockholm International Peace Research Institute.) It is still the de facto head of OPEC and the first among equals in the Gulf Cooperation Council, and it still counts the mighty United States as one of its closest allies.

 


 





No, it’s that Qatar would probably rankle any middle power trying to secure its loyalty. No country’s foreign policy is as roguish as its planners like to think, but Qatar’s comes pretty close. Opportunistic and pragmatic, the government in Doha engages the world by engaging in mediation, negotiation and resolution, deftly trying to be a friend, however fair-weathered, to anyone it can. It spends vast amounts of money on international aid, from disaster relief in the United States to humanitarian aid in the West Bank to foreign investment in developing economies. It cooperates with Turkey and Iran, both of which are long-term competitors with Riyadh, even as it complies with Saudi directives in the GCC. It seeks favor with Washington, too, hosting one of the largest and most important U.S. military bases in the Middle East and brokering peace talks between the U.S. and the Taliban. Until the late 2000s, it was even home to Israel’s only trade commission in the Gulf.

Qatar has ulterior motives for being so altruistic, of course. By inserting itself into faraway conflicts (such as Israel-Palestine and the U.S. war in Afghanistan), it’s gaining future political capital. By cooperating with Iran – the supposed enemy of Sunni Arabs around the world – through their co-administration of the South Pars oil and gas fields or by some other avenue, it skillfully hedges its bets against a potential long-term enemy. By mediating conflicts, it expands its influence in ways uncommon to such a small nation. By being amenable to the prerogatives of so many other countries, it markets itself as an indispensable foreign ally.

In many ways, Qatar’s foreign policy is a consequence of its geography. The country is tiny – a peninsula of under 5,000 square miles (13,000 square kilometers) that juts out from southeastern Saudi Arabia into the Persian Gulf. A small nation in such a volatile location can’t afford to go it alone, nor can it forsake the stronger countries around it – namely Saudi Arabia. It has little choice but to be party to the GCC, whose members share enough of its interests, and thus avail itself to the directives of Saudi Arabia. Yet it can afford to be, or at least try to be, everything to everyone because of its vast natural gas reserves. Qatar is among the most profitable natural gas exporters in the world, and since it has a population of just 2.6 million, it has one of the highest per capita GDPs in the world. (It’s worth noting how important natural gas is here. It provides untold amounts of financial and diplomatic leverage for Qatar, considering the market is far less liberalized than the oil market is, and it gives Qatar a degree of economic security and autonomy from Saudi Arabia and the GCC.) Politically, it’s similar to its neighbors in the Gulf, insofar as the ruling family in Qatar is every bit as monarchic as the families in Saudi Arabia and the UAE. But with foreign citizens accounting for roughly 90 percent of the entire population, Qatar is much less demographically uniform than the others and so has a more multicultural populace to manage.

 


 
Qatar’s is a creative way to maintain national security and stability. But it works only so long as Qatar is generally seen as neutral. In the eyes of many of its Gulf peers, that perception changed during the Arab Spring, when its long-standing support for the Muslim Brotherhood became too much for other Arab countries to bear. (As my colleague Jacob Shapiro recently wrote, the Muslim Brotherhood threatens these governments in ways few other groups can.) Saudi Arabia et al. panicked as Islamist political parties supplanted entrenched regimes like theirs in Tunisia and Egypt and as uprisings broke out in Syria, Bahrain, Libya and Yemen. For them, no less than the sustainability of their regimes was at stake.

They saw Qatari involvement in Libya as especially unacceptable. There, Doha acted in ways that could hardly be described as neutral. It broke with the rest of the GCC in recognizing anti-Gadhafi rebels’ legitimacy. It tried to find ways to help them market their oil and thus provide them with revenue they otherwise would not have. It attempted to create a news station, modeled after Al Jazeera, to sell the rebels’ message to the world. And it sent fighter aircraft to participate in the U.S.-led air campaign.

So even though Qatar in some instances of the Arab Spring sided with the rest of the GCC – by committing troops, for example, to quash the uprising in Bahrain – the episode left most Arab states more suspicious of Qatar than ever before. Those suspicions were the basis for the initial diplomatic blockade of Qatar in 2013-14, which was quietly resolved when Doha agreed to certain stipulations, including the repatriation of Egyptian Muslim Brotherhood members to whom Qatar had given shelter. But in the eyes of Saudi Arabia, some demands were ignored. Others were never really honored.

Riyadh may have had a point. Qatar didn’t really stop cooperating with Iran, nor did it end its support for the Muslim Brotherhood. Al Jazeera continued to criticize the likes of Saudi Arabia and the UAE, and it continued to provide a platform to Islamist groups. It kept foreign military bases belonging to Turkey and the United States in country, and it kept inserting itself into the affairs of others – mediating, negotiating and resolving its way to relevance, much as it always has. In a remarkable display of brass, it even offered to mediate the current diplomatic standoff between Iran and the U.S.

By 2017, Saudi Arabia and the UAE had had enough of Qatar’s defiance. What they didn’t have was pretext to make their move – that is, until May of that year, when reports surfaced on Qatar News Agency that the emir of Qatar, Tamim bin Hamad Al Thani, praised Iran and Hamas and threw shade at the UAE. (Never mind the fact that in July the Washington Post reported, and U.S. intelligence officials confirmed, that those news stories were planted by hackers enlisted by the UAE.) The outraged Arab monarchies moved quickly. By June 5, Saudi Arabia, the UAE and Bahrain withdrew their ambassadors from Doha, and Egypt, which rounded out the so-called “quartet,” quickly followed suit. The next day, U.S. President Donald Trump joined the fray, pledging his full support for the quartet. He would later relent, persuaded by then-Secretary of State Rex Tillerson and then-Defense Secretary James Mattis that Qatar was indispensable to Washington’s Middle East strategy, but not before the quartet issued a list of demands that Qatar must agree to for the blockade to be lifted. The list included the severing of ties to all “terrorist” organizations, shutting down Al Jazeera and its affiliate networks, and removing Turkey’s military presence from the country. These are demands that Qatar would never accept, and though the quartet probably understood as much, it nonetheless gave Doha 10 days to accede to them, or else. Qatar chose or else. The deadline came and went, and the blockade remains in place today.

A Country Under Siege?
If the purpose of the blockade was to inconvenience Qatar economically, it was a success. Roughly 60 percent of Qatar’s imports, including much of its food imports, go through the countries that now boycott it (Qatar is one of the world’s largest destinations for re-exports, relegating some GCC members merely as way stations from source to destination), so the government had to find new supply routes. Tourism revenue fell, accounting for an estimated 2 percent of GDP in 2018, down from 3.3 percent in 2017. Real estate prices also reportedly fell, even as consumer prices immediately increased, with the consumer price index jumping from 108.5 in June 2017 to an all-time high of 109.3 in January 2018. Doha was also forced to enact labor, privatization and foreign ownership reforms to attract more foreign investment. And the sovereign wealth fund reduced some of its overseas stakes and issued a $12 billion bond in early 2018.

 


 

But if the purpose of the blockade was to squeeze Qatar into submission, it failed. As early as September 2017, Doha was sending $30 million in aid to victims of Hurricane Harvey in the United States. And as late as May 2019, Doha was sending $480 million in aid to the West Bank and the Gaza Strip. And some of its import losses were mitigated by the opening in September 2017 of Hamad Port, which can handle nearly 8 million metric tons of cargo annually. The diplomatic aspects of the blockade are no more ironclad than the economic. Just last week, representatives from Doha were invited to attend the Saudi-led emergency meetings on May 30 to defuse tensions in the Middle East. This is hardly the fallout one would expect for a country under siege.

So why did the blockade fail? As with all things Middle East, the answers are many. First, there’s somewhat of a consensus that the quartet miscalculated how steadfast Washington’s support would be. It’s true that the Trump administration has been a much better friend to Saudi Arabia than had been its predecessor – the president’s first foreign trip was to Riyadh, where he pledged billions of dollars in arms sales – and it’s true that he immediately supported the Qatari embargo. But it’s also true that the U.S wants to maintain its access to the Al-Udeid Air Base, which hosts countless U.S. aircraft, including fighters, bombers, tankers and reconnaissance planes, and has played a central role in Washington’s air campaign against the Islamic State. It houses more U.S. troops than any other base in the Middle East and hosts the headquarters of Air Force Central Command. It’s little wonder that Doha pledged nearly $2 billion in January to upgrade the air base. (Not coincidentally, Qatar is also a major patron of the U.S. defense industry, buying $12 billion worth of F-15s last year.) In the end, practicality won out.

Second, Qatar was saved by what Qatar does best: being rich. After the blockade was imposed, Qatar had to scramble to find new trade partners to make up for the shortfall in imports. And so it reached out to nontraditional partners such as Germany in late 2018, promising to invest more than $11 billion in German energy and finance to encourage stronger bilateral commercial ties. It also had to dip into its sovereign wealth fund (to the tune of $50 billion as of May 2018) to offset the damage of the blockade, ramping certain domestic industries and creating others from scratch.

But after this early scramble, Qatar recovered pretty easily because it was still able to trade its oil and gas relatively unabated. It exported roughly 81 million tons of natural gas in 2017, accounting for roughly 28 percent of global gas trade that year. (It continued to export roughly 600,000 barrels of oil per day.) All told, Qatar’s economy actually grew after the imposition of the blockade, by 1.6 percent in 2017 and by an estimated 2.2 percent in 2018, according to the International Monetary Fund.

The third reason the blockade failed is Turkey. On June 7, 2017, just two days after the embargo’s imposition, the Turkish parliament ratified an agreement that allowed Turkish troops to be in Qatar and approved an accord on military training cooperation. These moves mean little in and of themselves, but recall that one of the quartet’s demands for lifting the blockade was the removal of Turkey’s military presence from Qatar. It was a signal to Doha that amid the GCC’s hostility and Washington’s ambivalence, Ankara had its back. In fact, Turkey was among the first to step in to replenish Qatar’s food supply. From 2016 to 2017, Turkish exports to Qatar increased 50 percent, and in 2017, Turkey was the eighth-largest destination for Qatari exports. (Some supply routes were also rerouted through Turkey.) Their friendship has remained relatively strong ever since. In August 2018, the Qatari emir pledged to invest $15 billion in Turkey’s economy, including a $3 billion currency swap, just as the value of the lira was plummeting. Bilateral trade between Qatar and Turkey reached approximately $2 billion in 2018, and Turkish and Qatari officials have said they want to raise that figure to $5 billion over the next few years.

Put simply, the quartet overplayed their hand by underestimating the extent to which certain allies would come to Qatar’s defense. And it may not have mattered in any case, because Qatar’s wealth enabled the government to absorb whatever blows came from the blockade and adjust its economy accordingly. (Kuwait’s efforts to mediate the conflict, which were rumored to involve a military invasion by the quartet, deserve an honorable mention.)

Complicity
The blockade of Qatar isn’t interesting because it failed. It’s interesting because of what its failure means for the region.

The U.S. hasn’t yet thrown the weight of its full support behind any one country. Its newly rekindled romance with Saudi Arabia was cooled by the murder of Jamal Khashoggi. Its on-again, off-again relationship with Turkey remains largely unchanged; Washington and Ankara disagree on any number of issues, but their strategic relationship is too important to forego. Likewise, the U.S. is clearly not prepared to throw Qatar under the bus even if it wanted to, since doing so would deprive it of one of its most important military bases in the region. One issue that could pit the U.S. against Qatar, and promote even more cooperation between it and Qatar’s Arab Gulf neighbors, is Iran, whom Washington seems determined to confront. Even then, Doha is unlikely to side wholesale with either party.

Similarly, Qatar is unlikely to go all in on its relationship with Turkey. For all the newfound cooperation between the two, the economic deals signed so far mean more to Qatar than they do to Turkey, whose bilateral trade with Qatar accounts for just a small portion of its total trade portfolio. The deals were designed to be short-term solutions for short-term problems, leaving open the possibility of working more closely together in the future, or less if the circumstances so dictate. And Doha has plenty of reason to want the wiggle room. We at GPF are on record as saying we expect Turkey to be the dominant force in the Middle East. It has the geostrategic location, the advantageous population, a suitable economy and military, and the Islamic bona fides to make it happen. And if it does, it will come at the expense of Saudi Arabia. That’s not the sole reason Ankara supported Qatar throughout the blockade, but it was certainly an added benefit. Any low-cost chance to alienate and disempower its rivals in Riyadh is probably too good an opportunity to pass up.

Perhaps the most ironic part of this entire episode is that Saudi Arabia was complicit in its own disempowerment. By trying to undercut Turkey, Saudi Arabia ended up enabling it to expand its role in the Middle East by supporting Qatar. By murdering Jamal Khashoggi, Riyadh bought itself only negative attention, undercutting its efforts to curry international support for the blockade by portraying Qatar as a rogue regime, only to be considered guilty of crimes just as bad in the eyes of the international community. It’s difficult to see this as anything less than a deficiency in Saudi hard power.

It seems as though the only country able to capitalize on the Qatar blockade was Qatar itself. The boycott was supposed to be punishment. Instead, it was validation. Some of the allies it made over the years, especially Turkey, were all but forced to come to its aid. For Qatar, it’ll be important to know who’s on its side in the coming decades as Turkey and Saudi Arabia vie for supremacy in the Middle East – to say nothing of a potential conflict with Iran – but it’s hard to see Doha changing its behavior anytime soon. Turkey can never replace the United States as an ally, nor are Qatar’s ties with the U.S. or Turkey or anyone else strong enough for Doha to fully break with Saudi Arabia. What’s certain is that Qatar isn’t nearly as scared of Saudi Arabia as it once was.

Why Big Business Is Making a Giant Leap into Space



For decades, relatively easy access to space and the big profits to go with it have dangled elusively just over the horizon. With a little more R&D money and a few more advances in the technology, the thinking went, space would be ours.

Are we there yet? More than a few signs are pointing in the direction of a robust, varied space age of viable commercialization — as well as more audacious goals than we’ve seen in generations.

On the practical side, advances in reusable rockets, lowered per-launch costs and miniaturization of satellites are opening up business opportunities well beyond aerospace and defense, and into IT hardware and telecom, according to Morgan Stanley. The global space industry is expected to generate revenue of $1.1 trillion or more in 2040, up from the current $350 billion, according to a recent report by the firm.

On the dream side, Amazon founder Jeff Bezos recently outlined a long-term vision for putting a trillion people in space colonies with one small step coming soon: an infrastructure starting with lunar lander Blue Moon. “We are going to build a road to space,” Bezos said at a May unveiling of his plans, “and then amazing things will happen.”

Amazing things already are. One indication that big business is taking space more seriously is that interest has moved from the fringe to the mainstream, says Wharton management professor Anoop Menon. While space retains an undeniably speculative aspect, especially around development of business models, a number of factors are coming together now to suggest that big business’s foray into space is here.

“I don’t think we are necessarily a long way away — it’s a matter of being creative,” said Menon, co-author with Laura Huang and Tiona Zuzul of “Watershed Moments, Cognitive Discontinuities, and Entrepreneurial Entry: The Case of New Space.” Satellites that capture geospatial data are potentially quite lucrative, he says, tracking shipping movements, deforestation or the location of mining deposits. “This is an interesting one,” says Menon of another idea: “Taking pictures of parking lots at Wal-Mart and Target and selling that to hedge funds, since traffic is a pretty good leading indicator of economic activity.”

A sustainable business model for many is clearly the goal. For others, though, sustaining losses is a small price to pay for the pursuit of something larger and potentially more meaningful. Bezos, for instance, has said he is willing to sell a billion dollars of Amazon stock per year in exchange for adventure and knowledge in space.

Says Nicolaj Siggelkow, Wharton management professor and co-director of the Mack Institute for Innovation Management: “The main driver for these people I think is much more an aspirational goal. Here we are clinging to this speck of dust moving through the universe and there is this idea that we might be able to escape that. That is ultimately what drives their wanting to succeed.”

Space: Province of Billionaires

Three individualistic billionaires — Bezos, Elon Musk and Richard Branson — have increasingly turned their attention in the last two decades to space, which is defined by NASA and other Earthlings as beginning at 50 miles above sea level. Last month, Musk’s SpaceX launched a rocket that released 60 500-pound satellites into orbit. SpaceX intends to launch others, creating Starlink, a web of satellites supporting a global internet service.
Thousands more satellites are being readied. Telesat LEO (low-earth orbit) will launch a “constellation of highly advanced satellites [to] seamlessly integrate with terrestrial networks,” trumpets the company’s promotional literature. “The global network will deliver fiber quality throughput anywhere on earth.”

A partnership of OneWeb Satellites and Airbus will begin launching 900 satellites into low orbit in 2019 to deliver affordable global internet access. Amazon’s Project Kuiper will place 3,236 satellites into orbit with the stated intention of providing “low-latency, high-speed broadband connectivity to unserved and underserved communities around the world,” Amazon said in a statement to GeekWire.

“Data is everything these days,” says Menon. “There are data companies whose business models are about processing the data that comes out of the satellites, and there is this whole set of companies coming up around this idea,” which is one reason he believes that the new space race is here to stay. “This ‘data-driven’ aspect when coupled with the rest of the space-industry ecosystem could make it more robust.”

Back on Earth, demand for data only promises to increase with the proliferation of AI, development of self-driving vehicles, virtual reality and video.

At the same time, costs for commercial applications are dropping for just about everything — hardware components, software development — enabled by using commercial technology and standard architectures, says Ellen Chang, co-founder of LightSpeed Innovations. “When costs have dropped by about 60% to 80% in whatever industry, I would say you have an opportunity. It started with the inception of the CubeSat, when different commercial off-the-shelf components were used instead of space-qualified components. Over time, more and more engineers adopted the form factor.”
Recently, the cost of launching a satellite has declined to about $60 million from $200 million because of reusable rockets, reports Morgan Stanley, with a potential drop to as low as $5 million. Satellite mass production could decrease the cost from $500 million per satellite to $500,000.

But more data and better internet service are just the beginning. Companies like Bigelow Aerospace are developing orbital space stations. Axiom Space has staked out plans to build the first international commercial space station — with a Philippe Starck-designed interior — that aims to be a “microgravity laboratory where educators, scientists and researchers conduct life-improving research.”

Other firms are chasing space tourism or mining asteroids for rare minerals. Morgan Stanley notes that privately held space exploration firms are pursuing goals like landing humans on the moon, as well as airplane-borne rocket launchers that could put small telecommunications satellites into low Earth orbit at a far lower cost, and with far greater responsiveness, than ground-based systems.

“It used to be a space race between countries, and now it’s a space race between billionaires,” says Menon. “Musk is running SpaceX with the goal of colonizing Mars and making humanity a multi-planetary species. Bezos, with all of the might of Amazon behind him, is doing it with Blue Origin. He sees it very differently, a space-based civilization rather than colonizing planets, building space stations, and moving heavy industry off-planet, and he is slowly building the pieces for it.”

“These far-out ideas — ‘let’s mine water on the moon, let’s build these big colonies out there’ — that to me I find fascinating and inspirational and aspirational,” says Siggelkow. “And I think that is what allows these firms to attract really good people. It is really cool to be working on something amazing, it’s how you attract great talent. Whether these big projects will become commercially attractive and at what point is another question, but that might be secondary to most people working on these projects.”
There are other reasons for pushing ahead with ideas that may seem pie-in-the-sky, says Wharton management professor David Hsu. “It’s like Google funding big science projects and trying to push the technology frontier,” he says. “That has a signaling purpose in the marketplace — ‘we may be making 99% of our money from your searches, but we are thinking about the future and pushing the frontier a bit.’ They are really trying to work on the harder problems, and maybe we haven’t thought of all of the uses for a particular technology in all cases. They are on the road toward that. You want to be able to show technological things that people didn’t necessarily understand were feasible or possible.”

A certain amount of momentum for ideas hinges on perception, especially regarding a future for the space-tourism industry, Siggelkow notes. “We know this is a really complicated and to a certain extent dangerous endeavor, and the general public’s risk appetite is very low. Think about self-driving vehicles and accidents. At what point do we feel they are safe? There is something similar here. If something happens, I am afraid it will slow down space tourism quite a bit.”

Branson’s Virgin Galactic has already suffered a visible tragedy. One pilot was killed and another injured in 2014 when experimental spaceflight vehicle VSS Enterprise broke up during a test flight and crashed in the Mojave Desert. Several other initiatives have failed, such as Israel’s Beresheet Spacecraft, which in April crashed into the moon.

For now, investors are taking a relatively rosy view of the prospect of making money in space. In the first quarter of 2019, $1.7 billion in equity was invested into space companies — nearly the double the amount invested in the last quarter of 2018, according to Space Investment Quarterly, published by Space Angels. Total funding since 2009 exceeds $20 billion invested in 435 companies, the space-centric financial services firm says.

“With SpaceX, Boeing, Virgin Galactic, and Blue Origin all inching closer to making history as the first privately funded companies to launch commercial passengers into space, we believe that 2019 will most certainly be the Year of Commercial Space Travel,” the report said.

Rekindled Ambition

In terms of the march of progress, mindset matters. In their research paper, Menon and his co-authors proposed that the New Space market was catalyzed by a set of “emotionally resonant” events. These moments — events like the 2003 Space Shuttle Columbia disaster, or when SpaceShipOne in 2004 became the first privately developed spacecraft to take a pilot into space twice within a two-week period — challenged or reinforced existing notions, and led to new solutions.

“This, in turn, drove the emergence of a previously unimaginable market in aerospace,” they wrote.
Menon says what while momentum lagged in recent years, the pace has now picked up — at NASA as well as in other countries. “The European Space Agency was in crisis mode because of the launch cost savings Musk achieved and the market share he was able to carve out so rapidly. In England, there is Reaction Engines. They have a very interesting concept, the Skylon Spaceplane, a single-stage-to-orbit plane that goes to space directly. India is interesting because they’ve been able to do a fair bit on a much lower budget. They got to Mars at a fraction of the price it took us to get there. The Chinese space program is a big part of their national prestige right now.”

Chang points to the U.K. Catapult concept as inspiration in the way it “drives innovation in the space sector and other sectors,” she says. “It’s a little bit beyond NASA. NASA is government for government. This is more supporting new business formation, new ideas. It seems like it works well. Other countries are setting up space agencies and enacting public-private partnerships inspired by national missions — and potential tax revenues — in order to develop organic space capabilities. This is another example of the drop in costs — cost of materials, hardware, software and know-how.”

NASA is seeking to add more than $1 billion to its $21.5 billion budget to help meet an accelerated goal of returning astronauts to the moon — including what would be the first woman on the moon — by 2024.

If it meets that deadline, it would be more than a half-century since the last time a human stepped foot on the moon. To many, such talk signals a renewed level of ambition generally. Better internet access is all fine and good, but there are, after all, more substantial gains to be had through space travel.

Says Hsu: “It’s really relevant with the 50th anniversary of Apollo 11 to remember that it’s not easy to throw some resources at a problem and expect that it’s a given you will have success. I’m not trying to diminish the value of social networking. Those are valuable businesses. But I think we also need to not forget as a society that for human progress, in government and industry, people have to worry about the big stuff, the hard stuff, the intractable problems. There are many domains in which we want to devote some attention to have these big breakthroughs.”

This new era of space also arrives now as a way of moving forward around a potentially positive and unified national goal.

“The tremendous strength of this country is technology, and a new space industry is happening here, it’s not happening in many other places,” says Siggelkow. “We have resources and support systems that allow these developments to occur here. We have an entrepreneurial infrastructure and world-class scientists from all over the world to work on these issues.”

More broadly, the current focus on space is reaffirming of science. “For us to solve important problems, science has been a pretty good tool for the human race,” he says. “Obviously there are two sides to many technologies. But it has allowed us to achieve incredible things.”

Trump Is Slowing US Economic Growth

The current state of US macroeconomic policymaking across four key areas does not bode well. Although the 2017 tax legislation has done its job in promoting faster growth, rising trade tensions, persistent regulatory burdens, and a lack of investment in infrastructure all threaten to limit the US economy's potential.

Robert J. Barro

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CAMBRIDGE – For some time, the four horsemen of US macroeconomic policymaking have been taxation, regulation, trade, and infrastructure. Having studied the first in detail, I have found tax cuts to be a positive contributor to economic growth. Though I have considered the second area in less detail, the evidence suggests that regulation is, at best, only a minor contributor to growth. The third area is very important, which is why today’s trade tensions are so worrying. The fourth area exists only in rhetoric: an infrastructure program is currently not a part of the macroeconomic policy repertoire.

In the first area, I estimate that the 2017 tax legislation added 1.1% per year to the United States’ GDP growth rate for 2018‑19. Of that, 0.9 percentage points reflected the reduced tax rate on individuals, whereas 0.2 percentage points derived from the rate cuts and improved expensing provisions for businesses. While the growth-enhancing effect of the tax cuts for individuals is not expected to continue beyond 2019, the impact of the corporate-tax reform will likely persist for some time to come.

As for the second horseman, there is some indication that the expansion of federal regulations has begun to taper off, after undergoing a long period of growth. As of 2017, RegData, which tracks the number of words relating to constraints on economic activity in the Federal Register, shows that new regulations have plateaued. The regulatory burden on business and economic activity is no longer rising, but it is not diminishing, either.

Likewise, the World Bank’s Doing Business profile for the US, which offers a broader measure of government regulation based on an average of ten indicators, show no recent progress. The US rose from eighth place in 2016 to sixth place in 2017 in the global ranking, only to fall back to eighth in 2018. And, putting aside relative performance, a cardinal representation of the underlying indicators shows virtually no change in the 2016-2018 period.

As many other economists have noted, US President Donald Trump’s trade policies are a major concern. The administration’s trade agenda is driven by the discredited mercantilist idea that selling stuff (exports) is good and buying stuff (imports) is bad. The irony is that Trump and some of his top trade advisers share this misguided view with the Chinese.

Trump’s views on tariffs remind me of a speech that Ronald Reagan gave at Stanford’s Hoover Institution before he became president. Reagan argued that tariffs on steel and other goods were justified on national-security grounds. His reasoning, criticized by audience members, was almost the same as Trump’s today. Yet, to justify his tariffs, Trump has gone even further, equating national security with economic security. The best way to invalidate that argument on legal grounds, then, is simply to have an economist show in court why tariffs are bad for economic security.

The broader problem is that Trump seems to have a personal affection for tariffs, partly because he thinks they raise revenue, and partly because he thinks they raise GDP (by curbing imports, which are then magically replaced by domestic production). This challenge does not admit of an easy remedy. Some have called on Congress to reassert its authority over tariffs – at least by limiting the national-security argument. But this could have unintended long-term consequences, given that presidents since the 1930s have tended to be far more supportive of free trade than have members of Congress, each of whom represents the interests of a narrower constituency.

The hope now is that mutually harmful tariffs will lead to an agreement whereby China liberalizes its trade policies, at which point import barriers will be removed. But though this – to add irony to irony – would benefit China more than the US, the situation is fraught, with uncertainty about the outcome fueling the volatility of global stock markets. And whatever happens with China, we still have to worry that Trump will impose tariffs on Mexico, Europe, Japan, and so on.

As for infrastructure, the potential benefits to US productivity from increased investment are real. Yet nothing has happened. The situation is best encapsulated by an April meeting between Trump and congressional leaders. According to media reports, Trump began by proposing to spend $1 trillion on infrastructure, whereupon the Democrats countered by suggesting $2 trillion. Trump apparently agreed to that with little hesitation. All in all, the exchange confirms, once again, that both parties have come to regard government spending as a free lunch, at least when it is financed by debt or the creation of new money. Perhaps it is actually for the best that “Infrastructure Week” never goes anywhere.

Given the state of US macroeconomic policy, it is not surprising that the Federal Reserve Bank of Atlanta’s latest GDPNow report forecasts second-quarter GDP growth of 1.3%, down from 3.1% in the first quarter. The 2017 tax reform would still be promoting economic growth if not for the escalating trade tensions. Sadly, a growth rate of close to 3% for 2019 no longer looks likely.



Robert J. Barro is Professor of Economics at Harvard University and a visiting scholar at the American Enterprise Institute. His latest book, with Rachel McCleary, is The Wealth of Religions: The Political Economy of Believing and Belonging.