The Great Reset vs. The Great Reset

By John Mauldin


A quick note before I start: Some of you didn’t get last week’s letter because some major internet providers decided it was junk mail. This was maddening but beyond our control. It may be in your “spam” or junk folder. You can help us train the algorithms by marking them as “not spam.”

Remember, you can always read my letters on our website, www.MauldinEconomics.com, anytime, along with all my prior letters. And there’s some good stuff there from the rest of our team. Now, on to the letter.

In baseball, there is a situation where a base runner is sprinting to home plate and can’t see what is happening behind him. Totally focused on scoring, he doesn’t know if the outfielder is throwing a ball that will reach home plate first. That’s where we get the phrase “out of left field.” (If the ball were coming from right field, the runner could actually see it.)

COVID-19 was the ultimate ball out of left field. Yes, we knew viruses spread and pandemics were possible. Most of us have lived through them before. We didn’t foresee this particular one appearing when and where it did. But it quickly changed the course of history.

Or did it? In the grand scheme of things, maybe not. World-changing trends were already in motion and are continuing. The pandemic may delay or more likely hasten events, but not stop them. 

For instance, I think The Great Reset is still coming. I previously expected we would get through to at least the late 2020s before hitting the debt wall. Now, I’m not so sure. This pandemic and recession may push us there faster because they are making the debt grow faster.

Today I’m going to blend a few thoughts about The Great Reset with some other historical analysis I recently discovered. It adds up to a disturbing outlook, even if (as seems likely, given the latest vaccine news) we’re past the pandemic by late next year. We’ll find different challenges on the other side.

“Revamp” Capitalism

Whenever I mention The Great Reset (most recently here), people ask me to explain exactly what it will look like. I can’t answer because I don’t know in terms that can be labeled “exact.” 

The Great Reset is simply my term for climactic events that resolve our global debt overload while at the same time dealing with slow economic growth, high unemployment, and social unrest. It could happen many different ways, some better than others. But I firmly believe we will see some kind of resolution. The present course is unsustainable.

Another source of confusion is that I’m not the only one to use this term. 

Others have used it for their own purposes.

You probably know of the World Economic Forum, whose annual soiree in Davos, Switzerland gathers the world’s wealthy and powerful to discuss/solve our common problems. That’s what they say, at least. Somehow the problems they discuss never seem to get solved, so it’s fair to wonder what they do there. It is, however, a great way to meet fellow elites. (Somehow, my invitation keeps getting lost in the mail.)

Now, in the spirit of “never let a good crisis go to waste,” the WEF sees the coronavirus pandemic as an opportunity to reset capitalism. Really. Founder Klaus Schwab says it quite openly.

COVID-19 lockdowns may be gradually easing, but anxiety about the world’s social and economic prospects is only intensifying. There is good reason to worry: a sharp economic downturn has already begun, and we could be facing the worst depression since the 1930s. But, while this outcome is likely, it is not unavoidable.

To achieve a better outcome, the world must act jointly and swiftly to revamp all aspects of our societies and economies, from education to social contracts and working conditions. Every country, from the United States to China, must participate, and every industry, from oil and gas to tech, must be transformed. In short, we need a “Great Reset” of capitalism.

WEF calls this effort its “Great Reset Initiative.” For the record, it has nothing to do with my conception of The Great Reset. In fact, I think much of what they propose will make the version that I see even worse. 

I agree capitalism has gone off track and needs some adjustments, and not just minor ones. 

The current morass of crony capitalism and lobbying for special government favors is abhorrent. But “revamp all aspects of our societies and economies” sounds ominous. Especially coming from the people already nominally running the global economy.

Furthermore, what they really propose is that we change our lives while Davos Man continues undisturbed, maybe paying a few more taxes but with the brunt of the change affecting those further down the food chain. And, of course, they are not long on specifics.

When you start talking about resetting the educational and social contracts and working conditions, you are talking a radical social agenda I believe we are going to have to have considerable change in the social structure of this country. 

That is what the current partisan politics is telling us. Too many people on both sides feel the current “social contract,” whatever you might think it is, is not working for them. Income and wealth inequality are very real. I am not convinced a WEF-style “Great Reset” is the answer.

Fortunately, I don’t think WEF will get very far. More likely, this is another example of wealthy, powerful elites salving their consciences with faux efforts to help the masses, and in the process make themselves even wealthier and more powerful.

The real problem may be simpler: We have too many “elites.” History shows this rarely ends well.

Excess Elites

The December issue of The Atlantic magazine has a fascinating interview with Peter Turchin, a University of Connecticut professor with some unique ideas about human history.

Turchin is actually a zoologist. He spent his early career analyzing population dynamics. Why does a particular species of beetle inhabit a certain forest, or why does it disappear from that same forest? 

He developed some general principles for such things, and wondered if they apply to humans, too. Answering that requires data, so he went from studying beetle history to human history.

One recurring pattern, Turchin noticed, is something he calls “elite overproduction.” This happens when a society’s ruling class grows faster than the number of rulers it needs. (For Turchin, “elite” seems to mean not just political leaders but all those managing companies, universities, and other large social institutions as well as those at the top of the economic food chain.) As The Atlantic describes it:

One way for a ruling class to grow is biologically—think of Saudi Arabia, where princes and princesses are born faster than royal roles can be created for them. In the United States, elites overproduce themselves through economic and educational upward mobility: More and more people get rich, and more and more get educated. Neither of these sounds bad on its own. Don’t we want everyone to be rich and educated? The problems begin when money and Harvard degrees become like royal titles in Saudi Arabia. If lots of people have them, but only some have real power, the ones who don’t have power eventually turn on the ones who do…

Elite jobs do not multiply as fast as elites do. There are still only 100 Senate seats, but more people than ever have enough money or degrees to think they should be running the country.

“You have a situation now where there are many more elites fighting for the same position, and some portion of them will convert to counter-elites,” Turchin said.

The excess elites become counter-elites, who then try to make alliances with the lower classes which usually don’t work out. But my eyebrows went up when I saw how Turchin describes the endgame.

The final trigger of impending collapse, Turchin says, tends to be state insolvency. At some point rising insecurity becomes expensive. The elites have to pacify unhappy citizens with handouts and freebies—and when these run out, they have to police dissent and oppress people. Eventually the state exhausts all short-term solutions, and what was heretofore a coherent civilization disintegrates.

Terrifying? Yes. It sounds amazingly like what the WEF proposes. I am sure Klaus Schwab and the others there recognize the frustration that many people have. They are proposing programs to alleviate that frustration—expensive, society-altering programs. But they would still let the game at the top continue.

But it gets worse.

Instability Spikes

In 2010, the scientific journal Nature published a collection of opinions looking ahead 10 years, i.e., where we are right now. Nature then published a short response from Turchin in its February 2010 issue.

Quantitative historical analysis reveals that complex human societies are affected by recurrent—and predictable—waves of political instability (P. Turchin and S.A. Nefedov, Secular Cycles, Princeton Univ. Press; 2009). In the United States, we have stagnating or declining real wages, a growing gap between rich and poor, overproduction of young graduates with advanced degrees, and exploding public debt. These seemingly disparate social indicators are actually related to each other dynamically. They all experienced turning points during the 1970s. Historically, such developments have served as leading indicators of looming political instability.

Very long 'secular cycles' interact with shorter-term processes. In the United States, 50-year instability spikes occurred around 1870, 1920, and 1970, so another could be due around 2020. 

We are also entering a dip in the so-called Kondratiev wave, which traces 40-60-year economic growth cycles. 

This could mean that future recessions will be severe. 

In addition, the next decade will see a rapid growth in the number of people in their twenties, like the youth bulge that accompanied the turbulence of the 1960s and 1970s. 

All these cycles look set to peak in the years around 2020.

Again, that was from 2010. Right on schedule, we are experiencing the “instability spike” Turchin says tends to come along every 50 years.

Why 50 years? It relates to the human lifespan. 

Consider who was “in charge” during the period around 1970. We Baby Boomers were all 25 or younger at the time. Managing the chaos fell on older generations, who remembered it well and spent the rest of their lives trying to prevent more of it. But after 50 years or so, they are mostly gone. We who remain must learn the lesson again.

I’ve talked before about Neil Howe’s “Fourth Turning” idea, and George Friedman’s geopolitical cycles, both of which are peaking in this decade. 

Interestingly, Friedman also sees a different geopolitical 50-year cycle playing out in the mid- to late ‘20s. Which overlaps with his 80-year geopolitical cycle for the first time. 

The mid- to late ‘20s should see the climax of Neil Howe’s Fourth Turning. Now we see Peter Turchin postulating a similar time frame for different reasons. None of them, to my knowledge, expected the pandemic we are now experiencing. What is its effect?

Well, we know the pandemic triggered a recession that may, before it’s over, rival the Great Depression. For millions of Americans, it is not just something they read about. They feel it.

You’ve probably seen this famous 1931 photo of Al Capone’s Chicago soup kitchen.


Source: Wikimedia


The 2020 equivalent is this from my former hometown Dallas last week. That was very emotional for me and brought a tear to my eye.


Source: CBSDFW via Twitter


We do see progress in these images. The people obviously have cars and fuel. 

Those were elite luxuries in 1931. Some of these people may be educated and intelligent, but they’re not elites. Actual elites don’t have to wait in line for food. They call Whole Foods or DoorDash and have it delivered.

The problem, borrowing Turchin’s framework, is that some thought they were elites, or if not exactly thinking of themselves as elite, did enjoy the benefits of good jobs, at least until recently. 

This year took away that illusion, and they’re naturally disappointed. They may join the “counter-elites” and seek more power.

This is where we are. The hard times we’ve long anticipated are here. That 1931 soup kitchen photo was just the beginning of a long, dark period. It got a lot worse.

Will our situation similarly worsen? That remains to be seen. As I’ve said, good things keep happening even in the darkness. The mRNA technology behind the new coronavirus vaccines may lead to breakthrough treatments for other conditions. 

mRNA technology allows the delivery of specific proteins to the human body. 

If you have a disease, and there are many of them that simply come along as part of the process of aging, it may soon be possible to deliver specific proteins that cure or at least mitigate your condition.

I want to further explore Peter Turchin’s ideas, but in fairness to him, I want to read more of his work first. He has a number of books and articles. I will even try to reach out for discussion. What I see so far is worth deeper study.

But the more important part is that I especially pay attention when I see multiple smart people reaching similar conclusions for different reasons. We are now at what Turchin calls the final stage, when elites try to pacify the masses with bread and circuses. 

Doing so racks up the debt and suppresses economic growth. Debt is accumulating faster than I expected, so The Great Reset may happen sooner than I expected.

Whenever it comes, we should welcome it. The alternatives may be even worse.

What Do We Do with All That Debt?

But that still doesn’t answer the question that is on our minds: What happens when we come to the place where we have to deal with all that debt? 

Fortunately, my favorite central banker, Canadian Bill White who was the BIS chief economist, did a brilliant interview with my friend Mark Dittli in Switzerland this week which gives us some answers.

Today, the Canadian criticizes the central banks: “They have pursued the wrong policies over the past three decades, which have caused ever-higher debt and ever greater instability in the financial system.” He suggests that the current crisis should be used to rethink in order to build a more stable economic system, one in which fiscal policy plays a greater role and that relies more on productive investment. In this in-depth conversation, White says what should be done—and he demands more humility from decision-makers: “We know much less about the economy than we think we do.”

But Bill is not calling for austerity at this time. He recognizes we are in a recession/potential depression. But he wants more emphasis on the fiscal policy and not central banks.

We’re on a slope where monetary policy has become increasingly ineffective in promoting real economic growth. Every crisis was met with monetary easing that caused debt and other imbalances to accumulate over time, and that caused the next crisis to be bigger than the previous one. The next crisis then needed more punch from central banks. But since interest rates were never raised as much in upturns as they were lowered in downturns, the capacity to deliver that punch was decreasing.

[The recent March, 2020] episode perfectly encapsulates my view of what’s wrong with our monetary policy of the past decades. True, the Fed had no choice but to step in to prevent a financial meltdown. But this meltdown only happened because of the monetary policy followed over previous years.

… my point is: Central banks create the instabilities, then they have to save the system during the crisis, and by that they create even more instabilities. They keep shooting themselves in the foot.

William Dudley and other central bankers are beginning to admit that they have come to the end of their effective ability to manage their respective economies. Governments have to step in with fiscal policy that is actually targeted and productive.

Then Bill lists four ways that we can deal with the debt, not all of them palatable:

There is no return back to any form of normalcy without dealing with the debt overhang. This is the elephant in the room. If we agree that the policy of the past thirty years has created an ever-growing mountain of debt and ever-rising instabilities in the system, then we need to deal with that.

In theory, there are four ways to get rid of an overhang of bad debt. 

One: Households, corporations and governments try to save more to repay their debt. But we know that this gets you into the Keynesian Paradox of Thrift, where the economy collapses. So this way leads to disaster. 

Two: You can try to grow your way out of a debt overhang, through stronger real economic growth. But we know that a debt overhang impedes real economic growth. Of course, we should try to increase potential growth through structural reforms, but this is unlikely to be the silver bullet that saves us. This leaves the two remaining ways: Higher nominal growth—i.e., higher inflation—or try to get rid of the bad debt by restructuring and writing it off.

When later asked about write-offs he said this:

That’s the one I would strongly advise. Approach the problem, try to identify the bad debts, and restructure them in as orderly a fashion that you can. But we know how extremely difficult it is to get creditors and debtors together to sort this out cooperatively. Our current procedures are completely inadequate.

I expect that we will be coming back to this interview again. (Over My Shoulder members can read my marked copy here.)

How long can this go on? Longer than you might think. From Rosie (David Rosenberg) Friday morning:

We had core CPI data out of Japan and the YoY trend went further into deflation to -0.7% in October from -0.3% in September. The is the sharpest move into deflation terrain since March 2011. A country with a 700% total debt-to-GDP ratio, two decades of zero interest rates, and a central bank balance sheet that is 130% of GDP. Nice to see how all the credit creation has managed to spur on a reflationary backdrop. Shades of what’s to come in the US.

I agree. The US could turn Japanese. While I think we could see inflation in the short term (2 to 3 years) the debt overhang and growth of central bank reserves will lead us directly into the same problem Japan is facing: a deflationary economic cycle with no growth. 

All while new technology (especially biotechnology) makes our lives better. It will be a strange new world that will have no resemblance to the last decade’s “normal.”

We will stumble through and some of us will do extraordinarily well, because we position ourselves to take advantage of this cycle. Stay tuned…

Thanksgiving Gift

To get through this time you need good, solid investment information. We have quite a bit of it at Mauldin Economics, but we know budgets are tight. 

We’re going to help by holding an online “Open House” next weekend for some of our most popular premium services. 

For just a brief time, you’ll get to peek at top analysis and specific recommendations, with no obligation at all.

Watch for an email from us next Thursday morning. 

It will tell you how to claim this Thanksgiving gift… and that’s truly what it is. I am thankful for you and I hope this information helps you through the coming turbulent years.

Holiday in Puerto Rico

Up until last weekend, I was planning to fly to Dallas for Thanksgiving with my kids. But in a discussion with my doctor, Mike Roizen, he looked at an app on his phone that analyzed the conditions I would face on the trip. 

It showed something like a 60% chance I would encounter someone who was asymptomatic but possibly contagious. 

That just didn’t seem like good odds to me. And while Thanksgiving is my favorite holiday, I would like to spend another 40 to 50 (minimum) years celebrating Thanksgiving with my kids and grandkids and great grandkids. 

So this year, Shane and I will visit with our kids over Zoom and maybe meet (safely) with a few neighbors.

However you spend Thanksgiving, have a great week and stay safe. 

I take comfort in the fact that the vaccine news seems more encouraging every day. 

This time next year, at least parts of our world should be back to normal.

Your still positive about the future of humanity but not so much government analyst,



John Mauldin
Co-Founder, Mauldin Economics

Circling back

China’s “dual-circulation” strategy means relying less on foreigners

Xi Jinping sees the creation of fully domestic supply chains as a matter of national security


At the headquarters of Deli, one of China’s biggest makers of glassware, display shelves hold hundreds of drinking glasses of all shapes, sizes and colours. Some are stubby. Others are impossibly thin wine goblets, marketed as having a “feminine body curve”. 

But it is another curve—the steep upward one that Deli’s mastery of the business has traced—that ought to command more attention. Founded in 1996, the company initially churned out cheap, easily chipped glasses. Little by little it has raised its game, nearly tripling its exports over the past decade. 

It once had no choice but to import equipment for crafting its finest glassware. Now it can use China-made machinery. “Apart from branding, there’s not much that separates us from the world’s best,” says Cheng Yingling, a senior executive.

Deli’s evolution—which has involved getting better and more Chinese at the same time—is what the government wants for the broader economy. These are not exactly novel ideas. For years officials have declared that China must grow more innovative and more resilient. 

To a certain extent it has achieved this naturally, as a result of its fast-paced economic development. But these goals have taken on far greater urgency as tensions with America have mounted. 

American restrictions on exports of critical components, notably semiconductors, have shone a harsh light on the gaps in China’s industrial abilities. Drinking glasses may be much simpler to make—requiring not much more than sand and sodium carbonate plus some relatively basic machinery—but China is not about to stop there. Xi Jinping, China’s leader, has described the creation of fully domestic supply chains as a matter of national security.

The question is how to build them. Chinese officials know that they cannot turn their backs on the world. Exports are still an important source of revenue for many firms such as Deli. And China must attract technology and investment from abroad. Pushing too transparently for “indigenous innovation”, a term once bandied about by the government, only makes foreigners wary. Striking the right balance is tough.

Enter the newest of China’s big economic policies: the “dual-circulation” strategy. At its most basic it refers to keeping China open to the world (the “great international circulation”), while reinforcing its own market (the “great domestic circulation”). If that sounds rather vague, it is: the government has not spelled out the details. 

Nevertheless, it has fast emerged as the most talked-about economic policy in China, with analysts and businesspeople jostling to put their spin on it. 

The strategy lies at the heart of the five-year plan for 2021-25, an outline of which was released by the Communist Party on November 3rd. Its implementation—especially how China resolves the tension between the two kinds of circulation—will be critical to the way that China’s economy develops.

The term “international circulation” was coined in 1988 by Wang Jian, a government researcher who argued that China should pursue an export-led growth strategy, plugging its vast pool of cheap labour into global production networks. Well into the early 2000s, this was a guiding principle for China’s economic planners. 

Yet circumstances have changed. Exports have shrunk as a share of gdp—from 36% in 2006 to 18% last year. The government has repeatedly vowed to make consumption within China a bigger engine of growth. So scholars have been turning their attention more to the domestic kind of circulation.

In May it became evident that this academic debate had reached official ears. At a meeting of the Politburo, Mr Xi described dual circulation as the framework for economic policy. 

Initially, jaded veterans of Chinese official rhetoric were tempted to dismiss this as just another way of phrasing the long-stated goal of rebalancing towards domestic demand. 

But it has become clear that something bigger is afoot. More recent comments by Mr Xi on the economy have been less about promoting consumption and more about bolstering China’s defences. China needs “self-developed, controllable” supply chains, with at least one alternative source for vital products, he said in a speech published on October 31st. 

Even more striking was his inversion of the idea of international circulation. Instead of talking about it in terms of the economic benefits China reaps from globalisation, he emphasised only the strategic purpose of opening China’s doors to foreign firms, ie that making them more dependent on the Chinese market would deter foreign powers from putting pressure on the country.

That combination—the pursuit both of economic self-reliance and of greater economic leverage over foreign countries—now describes much of what China is doing. Mr Xi refers to changes “unseen in a hundred years” sweeping the global order—a way of saying that, while China is rising, America is declining and trying to stop the new power (see Chaguan). 

“Where linkages with the global economy create vulnerabilities, China wants to minimise them,” says Andrew Polk of Trivium China, a research firm. “Where the linkages create benefits, China wants to expand them.”

Chinese officials tailor their remarks on dual circulation to please foreign ears. In a video address on November 4th at the opening of the China International Import Expo, an annual jamboree in Shanghai, Mr Xi said the concept would involve opening China more widely to the rest of the world. “This is not just what China needs for its development, but something that will enrich the people of all countries,” he said. 

But businesses in China see the concept more as an indication that the government will step up support for favoured industries at home, says Zhu Ning of the Shanghai Advanced Institute of Finance. They are hungry for news of handouts.


In its outline of the new five-year plan (a fleshed-out final version will be adopted next year at the annual session of China’s parliament, probably in March), the party did not specify industries to be coddled. Instead it referred more generally to a need to develop critical technologies at home. 

But other policies already in train suggest that China will prop up any high-tech sector threatened by global vicissitudes. In August it announced tax breaks and loan support for semiconductor and software firms. China currently produces about 30% of the chips it consumes (see chart 1). 

Its goal is to reach 70% by 2025. Another focus is on green technology and renewable energy. That is not just for the sake of the environment (China recently pledged to halt the rise of its carbon emissions by 2030). Investment in such businesses will also limit China’s thirst for imported oil.

In the past, when publishing outlines of five-year plans prior to their adoption by parliament, the party has often announced a goal for average annual gdp growth during the plan period (see chart 2). 

There was no such figure this time. In separate comments, Mr Xi said it was entirely possible that China could double the size of its economy by 2035. That would require average annual growth of 4.7% over the next 15 years. Such a rate would be readily attainable for the first half of that period, but may become much harder thereafter.


China has good reason to abandon such targets. They lead to an overemphasis on investment in infrastructure and other short-term measures to boost growth, rather than on social policies such as those relating to health care or education which can promote growth but may take longer to show results. 

But de-emphasising targets may relate to the new dual-circulation strategy in a way that the government has left unspoken. Making the economy less reliant on global supply chains could crimp its ability to grow.

Arguably China has been the world’s main beneficiary of globalisation, which has enabled it to dominate ever-bigger segments of manufacturing. Turning inward could be costly. It may result in less foreign technology flowing into China, less of the competition that has spurred on Chinese firms, and more wasteful investment as the government throws money at favoured industries. 

Shaun Roache, an economist with s&p, a credit-rating agency, forecasts that China’s average annual growth will be 4.6% in the 2020s. But he reckons it could be about 3% if the drive for self-reliance is overdone. The country’s “tolerance for slower growth may well be tested in the years ahead”, he says. The party, ever fearful that a stagnating economy could trigger social unrest, may find it hard going.

Optimism is a stubborn trait, so some inveterate China-bulls think that emphasising domestic circulation may create a new wave of reforms aimed at making the country’s markets function more efficiently. Take the semiconductor industry. 

Caixin, a Chinese financial magazine, reported last month that Huawei, a tech giant, was rushing to create a “not-made-in-America” supply chain by 2022. Initially, however, that would enable it to make chips with transistors spaced 28 nanometres (billionths of a metre) apart, far less dense than the most advanced ones. 

The bullish case is that China, realising how long it will take to catch up in such areas, will try to boost productivity by cracking on with hitherto slow-moving reforms. Analysts with Huatai Securities, a brokerage, think that could include doing more to loosen the household-registration system known as hukou, which impedes the movement of rural labour to the country’s biggest and most productive cities.

In the meantime, companies are getting on with their work. Mr Cheng at Deli, the glassware firm, says he will not give up on foreign markets despite the pandemic’s impact on demand. But he will mainly focus on brighter prospects at home. 

His team is refining their product range for younger consumers, who are pickier about style and more demanding about quality than their parents. That mix of emphasis, your correspondent ventures, sounds a lot like a corporate version of the dual-circulation strategy. 

“We’re not too clear about what all that means,” he says with a sigh. “We’re just following the market.”

We can avert irreversible climate change

Action is both essential and affordable — but it demands international leaders’ co-operation

Martin Wolf 

    © James Ferguson


A renewed presidency for Donald Trump is likely to be nowhere more consequential than for climate change. The coming decades will determine whether the threat of damaging and irreversible change is averted, or not. Without active US engagement, success seems inconceivable. 

Even with it, it would be unlikely. But, crucially, it would be conceivable. We know what to do and we know, too, that it is affordable. What is unaffordable is not to do what we need to do. But will we? That is the question.

It is indicative of the shift in the perspective of the global policy establishment that a chapter of the IMF’s October World Economic Outlook focuses on “mitigating climate change” — that is, preventing it — via “growth-and-distribution-friendly strategies”. In brief, the IMF insists that humanity can have its cake and eat it: both higher incomes and a safe climate.

As a result of rising concentrations of greenhouse gases in the atmosphere, global average temperatures are already about 1C above pre-industrial levels. On present trends, this could reach around 1.5C in a decade and 2C half a decade later. At that point, warn climate scientists, dangerous and irreversible tipping points in the climate are likely to be passed. 

Most governments do at least pretend to agree. Thus, in the Paris accords of December 2015, they committed themselves to keeping temperatures below these levels, even if their promises fell short of what was needed to achieve this.


As the IMF notes: “Sizeable and rapid reductions in carbon emissions are needed for this goal to be met; specifically, net carbon emissions need to decline to zero by mid-century.” If this is to happen, emissions need to fall sharply this decade and keep on falling thereafter. That would represent a huge turnround from previous trends.

What sort of programme might deliver this outcome? The answer, suggests the fund, is a combination of front-loaded green investments, aggressive funding of research and development, and a credible long-term commitment to rising carbon prices. This is in line with other studies, notably Making Mission Possible: Delivering a Net-Zero Economy, a September 2020 report from the global Energy Transitions Commission. 

The latter also emphasises complementary regulation, to accelerate changes in behaviour. Compensation of poorer losers against the higher fuel prices will be needed as well.


Is a move towards zero net emissions by 2050 affordable? The answer is: surprisingly so, particularly given the economically depressed post-Covid starting point. 

The IMF estimates that achieving this aim might lower world output by 1 per cent, relative to its “baseline” under unchanged policies, once one adds in the benefits of damages avoided. 

Even so, this must be put in the context of expected cumulative global growth of 120 per cent over the next 30 years. It also ignores the benefits of far lower local pollution.

Some estimates suggest that temperature increases of as much as 5C by 2100, in the absence of mitigation, might lower global output by 25 per cent. This does not take account of the massive non-economic disruptions to humanity, indeed all life, to be expected from such an unprecedentedly rapid upheaval in the climate.


Given these estimates of the modest short-term cost of mitigation against the far greater long-term costs of failure to do so, the argument for action is overwhelming. It becomes more so when one allows for the scale of the uncertainty created by unmitigated climate change, as well as its irreversibility.

Taking action might make sense even if the costs were many times as large as now expected. So why is it not happening? One explanation is that it involves changes in lifestyles, which we dislike. Another is that it requires thinking in decades, which is unnatural. But the most important explanation is that it requires long-term co-operation, which we usually find impossible.


Co-operation among five players — China, the US, the EU, India and Japan — would deliver a huge part of what is needed. Unfortunately, this hardly looks likely right now. A shift in the US presidency towards someone sane would be a big help. Without that, sanctions against the US might be necessary. But a more aggressive shift by China than planned will also be essential.


If needed policy shifts are to happen soon enough, it will take statesmanship of a high order indeed. Domestically, programmes must compensate the most vulnerable losers, which is a good reason for using a carbon tax. 

Internationally, leaders must co-operate far more effectively than they did even on the Paris accord. 

If they are to do what is needed, leaders must overcome two other obstacles to wise action: the fossil-fuels-forever resisters; and the ecological fanatics, who argue in favour of a revolutionary overthrow of capitalism and the end of growth — by tomorrow, please.

The only realistic hope is technocratic problem-solving and co-operative policies. These must be guided by moral purpose, but not infused by fantasies of revolutionary transformations. Cries of “repent, for the end of the world is nigh” will not solve this emergency. 

Humanity is at its best when it uses its head. Climate is at bottom a crisis of technology and behaviour; it can be tackled only by changing incentives throughout the system.

As I have argued before, this is now extremely urgent. If we want to prevent a dangerous shift in the planet’s climate, we need to act far more decisively than hitherto. 

We are drinking fossil fuels in the earth’s last-chance saloon. 

The time has come for humanity to sober up.

For the US and China, There’s No Going Back

Even under a Biden administration, the rivalry will only intensify from here. 

By: Phillip Orchard


For months leading up to the U.S. election, there was no shortage of speculation over who Beijing would prefer to have in the White House in January. In several (unsourced) interviews with Western media, Chinese officials insisted that President Xi Jinping and his inner circle didn’t have a particularly strong preference – that neither a Biden nor a second Trump administration would fundamentally reshape the trajectory of U.S.-China relations.

Yet nearly all of Beijing’s recent behavior has betrayed an expectation that there’d be worse to come with either outcome – and that any window of opportunity opened by electoral chaos would likely be far too brief to capitalize on. And for good reason. Beijing’s own immense internal pressures and unforgiving geopolitical imperatives are what’s locking it into its increasingly assertive course. And this, in turn, is forging an increasingly bipartisan consensus in Washington that Communist Party-led China is the country’s foremost strategic and economic challenge. As a result, there will be some tactical differences under a Biden presidency, as well as some changes in what particular challenges the administration prioritizes. But broadly speaking, the U.S.-China rivalry will only intensify from here.

The Bipartisan Consensus

It’s become fashionable to claim that U.S. strategy toward China under several of Trump’s predecessors was grounded in naivete and wishful thinking. The constant emphasis on engagement and bringing it into the global trading system was rooted in rose-colored assumptions that helping China get rich would eventually help bring democracy to China and incentivize Beijing to abide by the rules and norms of the established order – or so the argument goes.

But this argument misreads the historical record. U.S. national strategy documents from the mid-1990s, along with contemporaneous debates over China’s entry into the World Trade Organization, make clear that the Clinton administration was under no illusions about the character of the Communist Party of China and the long-term strategic and economic problems China’s rise was likely to pose. (The crackdown at Tiananmen Square was still recent history, after all.)

Rather, the Clinton administration’s relatively friendly China policies – and those of the George W. Bush and Obama administrations – were shaped by three main things. One was an understanding that the U.S. just didn’t have much leverage to make the CPC do things it didn’t want to do, particularly anything the CPC thought would weaken its control over China. 

The second was the realization that China’s cooperation would be needed on matters of critical shared interest: nuclear proliferation, terrorism, global financial stability, environmental and epidemiological threats, and so on. The third, of course, was the widespread tendency among U.S. business communities to view China overwhelmingly in terms of their bottom line.

This third factor made it increasingly difficult for the U.S. to change directions once it started to more tightly integrate with China. Beijing simply had too many friends and captured interests in the U.S., making the economic and political costs of an abrupt decoupling too high for any administration to stomach, especially when there were much more immediate problems (like the Global War on Terror and the global financial meltdown after 2008) to worry about. U.S. consumers, too, had developed a taste for low-cost imports and were none too keen to give them up.

2017 marked an inflection point, though. By the time Trump launched the trade war, U.S. political, economic and military interests had begun to align. The U.S. middle class had been gutted. Many neoliberals and U.S. business sectors had been alienated by China’s distortion of global markets, its flouting of WTO obligations, and Beijing’s support of things like intellectual property theft. 

China’s rapid emergence as a near-peer military competitor – one willing and capable of dictating terms to most of its neighbors – seemed to have snuck up on the U.S. defense establishment. This, combined with a perceived erosion of the U.S. Navy and Air Force’s technological advantages, sowed doubts among allies about U.S. commitments and generated widespread alarm in D.C. that the U.S. was not ready for great power competition. 

China’s crackdown in Hong Kong dashed any remaining optimism about Chinese democratization, while its concentration camps in Xinjiang outraged anyone with a pulse.

In other words, there’s something about the CPC for just about every powerful constituency in the U.S. to hate. So it’s getting harder and harder for Beijing to capture interests in the U.S., to exploit its internal divides, and to ensure that the path of least resistance for U.S. policymakers consistently favors the status quo with China. 

President Donald Trump’s trade and tech wars made meaningful progress on very few of their core goals. But the fact that he was able to sustain them despite the economic costs, even amid the coronavirus-induced economic implosion, underscored the reality that a paradigm shift is taking place.

Staying the Course

To Beijing, the Trump era was not a paradigm shift; it was a confirmation of long-held suspicions that the U.S. is singularly focused on kneecapping China’s rise. If the trade and tech wars changed anything in elite circles, it was by narrowing the space for dissent and quieting those who’ve grown concerned that China’s “wolf warrior diplomacy” and constant antagonization of its neighbors may backfire. 

This is why the CPC's rigidly top-down, censorial institutional culture matters. It creates echo chambers, suppresses informed, creative thinking, and incentivizes everyone who wants career success to toe the line. It also creates a dependence on stoking nationalism among its citizens and thus raises the political costs of compromising with the great Satan.

More important, though, the current leadership firmly believes the party’s survival, to say nothing of the country’s security and prosperity, hinges on a continuation of most of the policies that anger the U.S. most. This is why Xi is doubling down on state-managed mercantilism, as made explicit in a recent speech. It’s why Beijing seems content with hostile reactions to its moves in India, Australia, Taiwan and elsewhere. And it’s why it made an exceedingly risky bet in Hong Kong.

Critically, Beijing also happens to believe most of its policies are succeeding – in its mind, for example, it passed the ultimate systemic stress test posed by the pandemic – and that the U.S. is a wheezing superpower in denial about its decline. The CPC sees little reason to change course, even if it means locking itself into a self-reinforcing feedback with the U.S. and putting it on a risky path toward confrontation.

This is the challenge Joe Biden has inherited. The optimal strategy toward China would sustain the balance of power, persuade like-minded states to assume the risks of retaliation by joining an implicitly anti-China coalition, address domestic economic and technological vulnerabilities without doing excessive harm to the U.S.’ own economic well-being, and deter Beijing's most aggressive impulses without making cooperation on shared interests impossible – and without closing critical off ramps from a potential path toward war. 

In reality, many of these goals conflict. And any degree of meaningful progress will be expensive, both in financial terms and in political capital. Both will be in short supply given the intersecting domestic crises Biden will be juggling.

So while his administration will talk a big game about multilateralism, human rights and doing more to look out for the interests of friends and allies in the region, it will struggle to back it up. It will want to dramatically increase security assistance to partners along the South China Sea, for example, but everyone in Washington will have bigger budgetary priorities. 

It will want to do more to directly defend the material interests of U.S. partners in disputed waters – and dash Beijing’s belief that it’s on course to fundamentally overturn the balance of power in the Western Pacific – but the U.S. Navy and Coast Guard are already overstretched and in dire need of an overhaul. 

It may strike a quick deal with Beijing to scale back the bulk of the tariffs on Chinese imports that disproportionately hurt U.S. consumers, but Beijing won’t concede much. 

The leverage required to curb Chinese mercantilism and technology theft will remain elusive, especially since trade pacts like the Trans-Pacific Partnership will be a political nonstarter. It won’t force U.S. firms who don’t want to leave China to leave.

Thus, exactly what the Biden administration chooses to prioritize with China, and the tactics it employs in its pursuit, is up in the air. But there’s no going back to the status quo. 

The fundamental question now is where two countries can find equilibrium on the spectrum between strategic competition and war.

America’s Alliances After Trump

Donald Trump’s reckless contempt for America’s allies has weakened the country and created a far more dangerous world. President-elect Joe Biden will need a deft pair of hands to repair Trump’s wanton destruction.

Kent Harrington


ATLANTA – America’s allies should be forgiven if they are confused about where American foreign policy is headed. Who isn’t, given the go-it-alone recklessness of Donald Trump’s presidency? 

Over the past three years, Trump has sowed strategic chaos, and his foreign policy, if one can call it that, brought new meaning to incoherence. President-elect Joe Biden will be better almost by default. But has Trump changed America so much that the world cannot count on it ever being normal again?

Not only did Trump pursue a love affair with North Korea’s nuclear-armed dictator and remain smitten with Russian President Vladimir Putin – a man waging political war on the West. He also championed Brexit and badmouthed America’s European allies, when he was not undermining them outright. 

At the annual Munich Security Conference in 2020, French President Emmanuel Macron and German President Frank-Walter Steinmeier both acknowledged that Trump had fundamentally damaged the transatlantic alliance. 

Their message was clear: If Trump won a second term, the historic partnership that has long constituted the geopolitical “West” would never be the same. Prudent world leaders were doubtless preparing for even more instability and uncertainty had Trump been re-elected.

France and Germany, of course, have many reasons to disagree with the United States, be it on trade relations, Macron’s outreach to the Kremlin, or both countries’ relatively less confrontational approach to China. Macron, who last November called NATO “brain dead,” has made no secret of whom he holds responsible for the alliance’s decay and the broader sense of disarray among US partners and allies.

But in Paris and Berlin, as elsewhere in Europe, the reaction to Trump was not just about his bullying, trade tactics, or divisiveness. Europeans saw his administration charting a course that rejected the transatlantic security relationship and its central role in US global engagement more generally. 

Biden will ditch the unconstrained unilateralism. But even with a new approach, the damage Trump has done won’t be repaired easily, or alter views among European leaders that the continent increasingly will need to fend for itself.

Trump’s treatment of US allies in Asia has given Europeans ample warning to be prepared for more deterioration in the security relationship. Despite the North Korean nuclear threat and China’s growing power, Trump tried to turn America’s crucial alliances with South Korea and Japan into pay-as-you-go relationships. 

Fortunately, Biden understands what Trump doesn’t: that US defense pacts with those two countries have underpinned East Asia’s stability for 70 years and paid off handsomely for the US. Trump viewed both relationships as “bad deals,” and Biden will need to persuade Americans to turn away from his transactional diplomacy.

Moreover, Trump wasn’t the first US president to lean heavily on jingoistic rhetoric, and putting the MAGA genie back in the bottle may not be simple for Biden. Both South Korea and Japan can attest to the fact that “America First” was no mere slogan. 

With the Host Nation Support Agreements that determine the details of America’s presence in each country up for renegotiation this year, Trump repeatedly threatened to withdraw US forces from both countries unless they paid more for what he called American protection. Biden will have to work hard to restore Japanese and Korean trust as he seeks to renew these agreements.

In fact, South Korea and Japan already share mutual defense costs, and have underwritten the US military presence in Northeast Asia for decades. South Korea pays more than 40% of the operating costs of US forces stationed there; it also covered 92% of the US command’s $10.7 billion move to new facilities outside of Seoul, and it purchases billions of dollars’ worth of US military hardware. 

For its part, Japan provides $2 billion per year to support 54,000 US troops; it purchases 90% of its military hardware from US companies, and it has furnished $19.7 billion (77% of the total costs) for the construction of three major bases.

For nearly a year, Trump administration officials have demanded that their South Korean counterparts quadruple their country’s current $1 billion in financial support. Add to that leaks describing possible US troop withdrawals and the announcement in July that 12,000 US forces would leave Germany. Clearly, Biden’s administration will need not only to devise a new negotiating strategy, but also to reboot the US security guarantee.

Even with Biden in charge, the currently testy political relationship between South Korea and the US (which walked out on the earlier base talks) means negotiations won’t be easy. In Japan, formal talks began last month, and the government has until March 2021 to renew its agreement. 

Trump’s defense officials told their Japanese counterparts to expect the same treatment as South Korea. Biden will certainly change that script as well. But Japan’s new prime minister, Yoshihide Suga, likely still expects arduous negotiations, albeit without the take-it-or-leave-it attitude that raised questions about the durability of America’s security guarantees.

A simple return to treating allies like allies should go a long way for Biden. Trump demonstrated no concern for his policy’s political fallout in Seoul and Tokyo, or for its impact on the political fortunes of South Korean President Moon Jae-in and former Japanese Prime Minister Shinzo Abe. 

In the interest of security, both leaders tried to pander to Trump’s “stable genius” over the last three years, with little to show for it but domestic political embarrassment. Biden’s election undoubtedly brought sighs of relief in Seoul and Tokyo.

Sadly, Trump’s malignant legacy will survive his departure. With everything from health care to climate change begging for Biden’s attention, foreign policy is certain to take a backseat to domestic priorities. For US allies, patience will remain a virtue. Righting the wrongs of the Trump years will take time. 

As he has said at least since 1990, Trump wanted to reshape America’s defense arrangements and radically alter its role in the world. Trump may be a pathological liar, but he kept his word on this issue.


Kent Harrington, a former senior CIA analyst, served as national intelligence officer for East Asia, chief of station in Asia, and the CIA’s director of public affairs.