Getting to zero

The first big energy shock of the green era

There are grave problems with the transition to clean energy power



Next month world leaders will gather at the cop26 summit, saying they mean to set a course for net global carbon emissions to reach zero by 2050. 

As they prepare to pledge their part in this 30-year endeavour, the first big energy scare of the green era is unfolding before their eyes. 

Since May the price of a basket of oil, coal and gas has soared by 95%. 

Britain, the host of the summit, has turned its coal-fired power stations back on, American petrol prices have hit $3 a gallon, blackouts have engulfed China and India, and Vladimir Putin has just reminded Europe that its supply of fuel relies on Russian goodwill.

The panic is a reminder that modern life needs abundant energy: without it, bills become unaffordable, homes freeze and businesses stall. 

The panic has also exposed deeper problems as the world shifts to a cleaner energy system, including inadequate investment in renewables and some transition fossil fuels, rising geopolitical risks and flimsy safety buffers in power markets. 

Without rapid reforms there will be more energy crises and, perhaps, a popular revolt against climate policies.

The idea of such a shortage seemed ridiculous in 2020 when global demand dropped by 5%, the most since the second world war, triggering cost-cutting in the energy industry. 

But as the world economy has cranked back up, demand has surged even as stockpiles have run dangerously low. 

Oil inventories are only 94% of their usual level, European gas storage 86%, and Indian and Chinese coal below 50%.

Tight markets are vulnerable to shocks and the intermittent nature of some renewable power. 

The list of disruptions includes routine maintenance, accidents, too little wind in Europe, droughts that have cut Latin American hydropower output, and Asian floods that have impeded coal deliveries. 

The world may yet escape a severe energy recession: the glitches may be resolved and Russia and opec may grudgingly boost oil and gas production. 

At a minimum, however, the cost will be higher inflation and slower growth. 

And more such squeezes may be on the way.

That is because three problems loom large. 

First, energy investment is running at half the level needed to meet the ambition to reach net zero by 2050. 

Spending on renewables needs to rise. 

And the supply and demand of dirty fossil fuels needs to be wound down in tandem, without creating dangerous mismatches. 

Fossil fuels satisfy 83% of primary-energy demand and this needs to fall towards zero. 

At the same time the mix must shift from coal and oil to gas which has less than half the emissions of coal. 

But legal threats, investor pressure and fear of regulations have led investment in fossil fuels to slump by 40% since 2015.

Gas is the pressure point. 

Many countries, particularly in Asia, need it to be a bridge fuel in the 2020s and 2030s, shifting to it temporarily as they ditch coal but before renewables have ramped up. 

As well as using pipelines, most import liquefied natural gas (lng). 

Too few projects are coming on stream. 

According to Bernstein, a research firm, the global shortfall in lng capacity could rise from 2% of demand now to 14% by 2030.

The second problem is geopolitics, as rich democracies quit fossil-fuel production and supply shifts to autocracies with fewer scruples and lower costs, including the one run by Mr Putin. 

The share of oil output from opec plus Russia may rise from 46% today to 50% or more by 2030. 

Russia is the source of 41% of Europe’s gas imports and its leverage will grow as it opens the Nord Stream 2 pipeline and develops markets in Asia. 

The ever-present risk is that it curtails supplies.

The last problem is the flawed design of energy markets. 

Deregulation since the 1990s has seen many countries shift from decrepit state-run energy industries to open systems in which electricity and gas prices are set by markets, supplied by competing vendors who add supply if prices spike. 

But these are struggling to cope with the new reality of fossil-fuel output declines, autocratic suppliers and a rising share of intermittent solar and wind power. 

Just as Lehman Brothers relied on overnight borrowing, so some energy firms guarantee households and businesses supplies that they buy in an unreliable spot market.

The danger is that the shock slows the pace of change. This week Li Keqiang, China’s premier, said the energy transition must be “sound and well-paced”, code for using coal for longer. 

Public opinion in the West, including America, supports clean energy, but could shift as high prices bite.

Governments need to respond by redesigning energy markets. 

Bigger safety buffers ought to absorb shortages and deal with the intermittency of renewable power. 

Energy suppliers should hold more reserves, just as banks carry capital. 

Governments can invite firms to bid for backup-energy-supply contracts. 

Most reserves will be in gas but eventually battery and hydrogen technologies could take over. 

More nuclear plants, the capture and storage of carbon dioxide, or both, are vital to supply a baseload of clean, reliable power.

A more diverse supply can weaken the grip of autocratic petrostates such as Russia. 

Today that means building up the lng business. 

In time it will require more global trade in electricity so that distant windy or sunny countries with renewable power to spare can export it. 

Today only 4% of electricity in rich countries is traded across borders, compared with 24% of global gas and 46% of oil. 

Building subsea grids is part of the answer and converting clean energy into hydrogen and transporting it on ships could help, too.

All this will require capital spending on energy to more than double to $4trn-5trn a year. 

Yet from investors’ perspective, policy is baffling. 

Many countries have net-zero pledges but no plan of how to get there and have yet to square with the public that bills and taxes need to rise. 

A movable feast of subsidies for renewables, and regulatory and legal hurdles make investing in fossil-fuel projects too risky. 

The ideal answer is a global carbon price that relentlessly lowers emissions, helps firms judge which projects would make money, and raises tax revenues to support the energy transition’s losers. 

Yet pricing schemes cover only a fifth of all emissions. 

The message from the shock is that leaders at cop26 must move beyond pledges and tackle the fine print of how the transition will work. 

All the more so if they meet under light bulbs powered by coal.

A giant departs

The mess Merkel leaves behind

The successor to Germany’s much-admired chancellor will face big unresolved problems


Only otto von bismarck and Helmut Kohl served longer as Germany’s chancellor than Angela Merkel has. 

Bismarck forged an empire, and invented Europe’s first public-pension and health-care systems along the way. 

Kohl oversaw the reunification of East and West Germany and agreed to the replacement of the beloved Deutschmark with the euro.

Mrs Merkel’s achievements are more modest. 

In her 16 years in the chancellery she has weathered a string of crises, from economic to pandemic. 

Her abilities as a consensus-forger have served her country and Europe well. 

But her government has neglected too much, nationally and internationally. 

Germany has got away with it, for now; the country is prosperous and stable. 

Yet trouble is brewing. 

And as Mrs Merkel prepares to leave office when a new government forms after an election this weekend, admiration for her steady leadership should be mixed with frustration at the complacency she has bred.

The list of neglected issues is long. 

Germany looks like a purring luxury car; pop the bonnet, though, and the signs of neglect are plain to see. 

The public sector has failed to invest adequately or wisely, falling behind its peers in building infrastructure, especially the digital sort. 

This hampers not just whizzy new tech firms, but every other company, too. 

It also makes government less effective, a problem exacerbated by a failure to hire enough staff. 

Penny-pinching is hard-wired into the state. 

In 2009, on Mrs Merkel’s watch, Germany hobbled itself with a constitutional amendment that makes it illegal to run more than a minute deficit. 

With interest rates so low, sensible governments ought to have been borrowing for investment, not fainting at the first spot of red ink.

Germany’s most severe domestic problem is a failure to reform its pension system. 

Germans are ageing fast, and the baby-boomers will place an even heavier burden on the budget later this decade as they retire. 

On climate change, Germany has also been sluggish, and still emits more carbon per head than any other big eu country, not helped by Mrs Merkel’s shutdown of Germany’s nuclear industry after the Fukushima disaster in Japan in 2011.

In Europe, where German influence matters most, Mrs Merkel’s reluctance to wield it has been especially disappointing. 

The eu has not grappled sufficiently with the weakness of its indebted southern members. 

Only during the pandemic did it create a financial instrument that lets the eu issue jointly guaranteed debt, and dispense some of the cash as grants, rather than yet more loans. But this was designed as a one-off. 

Worse, the “stability” rules that will force countries back into austerity to shrink their stocks of debt are ready to revive, unless amended. 

Germany, always the most powerful voice at the eu table, should have argued harder for a more sensible approach.

In eu foreign policy, Germany could and should have been doing more to force a quicker adjustment to a less comfortable new world. 

China is an increasingly challenging economic and strategic rival, Russia an unpredictable threat and America a distracted and uncertain ally. 

Yet Germany has dithered. 

Despite recent increases, it spends too little on defence. 

It cosies up to Beijing in the hope of better trading terms. 

It is giving Vladimir Putin, Russia’s president, a chokehold over European energy supplies by backing the new Nord Stream 2 gas pipeline which, as it happens, makes landfall in Mrs Merkel’s own constituency. 

It has fallen to others, principally France’s president, Emmanuel Macron, to make the case for Europe to do more.

Which German candidate, though, could do better than Mrs Merkel? 

The polls suggest that Germany is set for a messy new parliament, with no single party, or even two, able to form a government. 

Instead, some sort of ideologically incoherent three-way coalition is on the cards—one that, by combining high-spending greens and pro-business liberals, may struggle to agree on anything ambitious.

This is another symptom of Merkelian complacency. 

Comfortable, cautious Germans seem uninterested in serious debate about the future. 

Crisis-management has become a substitute for initiative. 

Candidates have no incentive to highlight their country’s looming problems. 

The result has been one of the least substantive campaigns for decades: all about the horse-race and not about the issues.

Of the possible outcomes, two seem most likely. 

One is a coalition headed by Mrs Merkel’s party, the Christian Democrats and their Bavarian sister-party (the cdu/csu), led by Armin Laschet. 

The other is a coalition led by Olaf Scholz, of the Social Democrats (spd), who is Germany’s finance minister. 

In either case, the coalition would be joined by the Greens and by the pro-business Free Democrats. 

Both outcomes will have serious shortcomings, but of the two, The Economist narrowly prefers the second: a “traffic-light” coalition, headed by Mr Scholz.

That is because the cdu/csu, frankly, has blown it. 

Sixteen years in power has been enough. 

The party has run out of ideas and drive, as its decision to choose the gaffe-prone and uninspiring Mr Laschet for chancellor makes clear. 

An affable lightweight, he has run a dismal campaign, and is predicted to lead his team to its worst result since the second world war. 

The polls say that Mr Scholz is preferred by twice as many voters.

The tug from the left

Are they right, though? 

There are reasons to hope so, but also plenty to fear. Mr Scholz has been an effective finance minister. 

The German people trust him. 

He is better placed than a cdu chancellor would be to work with the Greens on climate change. 

The problem is that although he belongs to the business-friendly wing of his party, the spd is stuffed with left-wingers. 

They may try to drag him further in their direction than the Free Democrats will wear and enterprise can comfortably bear.

The world should expect the coalition talks to last for months, poleaxing European politics while they drag on. 

And at the end of it all, Germany may well end up with a government that fails to get much done. 

That is the mess Mrs Merkel has left behind.

Is it time to avoid investing in China?

While economic growth remains strong, Beijing’s crackdown on private business bodes ill for portfolio investors

George Magnus

© FT montage



The Chinese government’s crackdown on privately owned companies and entrepreneurs has captured the world’s attention and dismayed many portfolio investors.

Beijing is compounding investors’ concerns by also putting a new emphasis on a longstanding political slogan — known as “common prosperity” — to focus attention on the country’s deep inequality, and put some socialism back into the term “socialism with Chinese characteristics”. 

With Beijing drawing on national, economic and financial security policies, China experts are trying to decipher what this all means in the context of Xi Jinping’s authoritarian regime, ahead of the important 20th Congress of the Chinese Communist party next year.

After decades in which domestic private businesses were encouraged, Xi is performing a sort of handbrake turn, moving the party sharply leftward and reconnecting with its Marxist roots. 

He is leading a campaign against private entrepreneurs and companies that he previously courted in his early years in power. 

Now he wants them to serve the party, and harness their technologies for its political ends.

Hardly surprisingly, the campaign has triggered a precipitous fall in the stock market valuations of tech, digital and other companies. 

For example, the shares of Didi, the ride-hailing app listed in New York in June, are down more than 40 per cent since its initial public offering.


All this is of huge significance to foreign investors, who own more than $800bn of financial assets in China’s onshore markets, and to those people who own and trade the stocks of more than 230 Chinese companies listed on US exchanges and capitalised at more than $2tn.

As well as investors holding individual Chinese stocks, these include many retail savers who have put money into China funds, Asia funds and many tech and growth-orientated funds. 

We need to decide whether investing more cash in China right now, or even retaining the holdings we bought in the past, is a good idea. 

I have no definitive answers but the prospects do not look good.

Since I first went to China in 1993 there have been times when, like elsewhere, Chinese assets were both absurdly dear and ridiculously cheap, and subject to normal risk assessment. 

Yet I cannot remember a time when the issue about investing was dominated by unpredictable politics and governance as it is now. 

After such a hefty decline in key stock prices, including in well-known companies such as Alibaba, Tencent and Didi, investors are often tempted to buy, hoping for a bounceback.


Yet, siren voices can be heard, warning about elevated risk surrounding many Chinese stocks. 

Billionaire investor George Soros, for example, recently said that investors buying into any rally in China were in for a rude awakening.

It is an important moment to ask what is going on, and how that should shape the way we think about investing in China.

Taking stock

Investors have been fed for years with a marketing pitch about the virtues of investing in China. 

The reasons for investing include risk diversification from Europe and North America, the low correlation of the Chinese market’s performance with other major markets, the country’s economic size and sophistication, the surge in its huge middle class and the development of “made-in-China” science and technology.

These arguments have weight. 

In the current turmoil they seem, for now at least, to have helped broadly based onshore markets, such as Shanghai, hold up better than the tech- and digital-heavy offshore markets in Hong Kong and New York. 

The latter feature many more companies affected by the new regulatory blitz and political risk.


The investment kaleidoscope, however, is in flux. 

Bullish strategists regularly predict that the typical modest 5 per cent allocation to China in global portfolios should double or triple to match the country’s 16 per cent share of world gross domestic product, a figure that is widely expected, though far from certain, to go even higher in the next decade.

But far from rising, that typical allocation has dropped recently to 4 per cent. 

I suspect that, in the entire debate for and against higher allocations, they will stay low relative to expectations because of weak governance and unpredictability.

Given Xi’s assault on private capital, investing in China remains a risky proposition, requiring a major leap of faith about Chinese politics and totalitarian governance, and its long-term economic future.

Investors’ behaviour will be important to watch. 

The money they put to work in stock markets may have little bearing on the cyclical economic outlook for China but the valuations they ascribe to companies tells us something, untainted by bias or politics, about the prospects for earnings, productive growth and innovation. 

In this sense, it does not really matter if China becomes the biggest economy in the world, which it might not. 

What matters is whether Chinese companies can prosper, be productive and thrive in an enabling and well-regulated governance system. 

But now they face the challenge of the 2021 regulatory crackdown and the “common prosperity” agenda. 

The party gets a grip

The abrupt cancellation in November last year of the mega IPO of Ant Financial, an arm of Alibaba, and the orchestrated deposition of its celebrity founder, Jack Ma, heralded the start of Xi’s campaign.

This marked a major intensification in a campaign to assert control over the private sector, and, in a way, take over the private sector from the inside, so to speak. 

The practice of having party committees involved in the operational management of companies with more than three party members was already well-established when Xi addressed a symposium of entrepreneurs in July 2020, appealing to business leaders to try harder to fulfil both economic and also social and moral responsibilities.

He urged the private sector to align with the party’s political leadership, and cultivate compliance with and obedience to its goals. 

Party officials were encouraged to lead staffing and recruitment, monitor corporate behaviour, implement compliance and management systems and improve party-led union activities.

The regulatory assault that followed has embraced ecommerce, social media, fintech, data, private tutoring, ride-sharing, gaming and video-streaming platforms and activities. 

Companies that want to list in the US, or that make extensive use of algorithms, or have large cloud computing capacity or pool large volumes of customer data have also been targeted.

Some analysts have advanced case-by-case justifications in support of stronger regulation applied to data privacy and security, the use of algorithms, minimum standards for gig workers, private education and the proliferation of “frivolous” technologies such as gaming. 

Some of this might even make sense in many countries. 

Yet, taken together in the context in which all these things are happening in China, it is hard not to see that the government is waging an overtly political campaign. 

Investors should try to evaluate where the regulators might look next in their pursuit of greater control and lowering inequality. 

The real estate sector, medical services and healthcare companies as well as pension and social welfare arrangements would seem likely targets. 

One highly significant measure is the rumoured plan to introduce a long-discussed national property tax. 

Limited pilot projects were launched in Shanghai and Chongqing in 2011, but progress stalled because of strong opposition from vested interests in local and provincial governments, which rely heavily on land sales for revenues, and from urban property owners. 

For these groups, the threat of a fall in property prices is anathema. 

With the party’s focus on “common prosperity” though, investors should recognise that this time “it might be different”. Real estate is the most important form of wealth ownership in China, bigger even than bank deposits.

A meaningful property tax, however, would undermine an already soft real estate sector, probably generating a serious drop in real estate prices. 

This suggests a property tax might not come before the 2022 party congress, especially in view of the financial crisis enveloping China’s second-largest property developer, Evergrande, with more than $300bn in liabilities. 



Whether or not a tax comes, the government would prefer political and “extend and pretend” debt solutions for companies such as Evergrande, though foreign creditors might still be hit with losses.

Real estate is just one important contributor to the wide proliferation of debt and financial stress across the economy, in local governments, state enterprises and even among households, as mortgage debt has been growing particularly rapidly. 

Household debt as a share of disposable income has doubled to more than 130 per cent since 2010, and is now far higher than the 75 per cent ratio in the US. 

Investors should, therefore, monitor debt developments in real estate and in the wider economy carefully. 

Over-indebtedness in China is a cauldron that is never far from boiling over; deflation in real estate would have profoundly adverse implications both directly and via its impact on lending collateral. 

There is no orderly and trusted system for writing off bad debt in a timely way.

Other “common prosperity” features should be monitored too. 

Taxation of property and capital is not in itself a bad thing, but politically driven financial punishment is different from a spreading of the tax burden in the interests of fairness, while preserving incentives.

The government has stated that high-income earners will be targeted, along with those with illegal and “unreasonable” income. 

The economic impact will be in the messaging and the measures.

Investors should also recognise the insidious ways in which the party pushes private companies to align with its objectives. 

Rhetoric and the simple threat of punishment or restraint are often enough to force compliance.

This is happening now with so-called “tertiary distribution”, best described as a form of corporate giving. 

Dozens of companies eager to please the government, including many of the biggest such as Alibaba, ByteDance, Pinduoduo, Tencent and Xiaomi, have pledged billions of dollars of donations over the next few years to help advance or fund “common prosperity” programmes. 

Coercive state directed philanthropy is not the same as unforced enthusiasm for transparent, private charitable giving in accordance with proper governance procedures. 

What is to be done?

As a more restrictive regulatory and governance system is brought to bear on everything from Chinese schools and universities to companies, media and entertainment, and often abruptly and without recourse to appeal, investors in Chinese assets will have to weigh the risks more carefully.

It is more important than ever to be able to trust and verify financial advice, and understand the nature of assets owned or intended for purchase. 

Savers should look to companies that are less likely to be drawn into the regulatory crosshairs, and pay prices that properly discount political, economic and regulatory risks. 

These could be companies that fall into line with government policies to avoid punishment, and those in less politically contentious areas such as manufacturing, advanced technologies and consumer products.

Valuations that have taken a beating may not all revert to where they were if, for example, growth companies are heavily regulated and come to trade more like conventional stocks, even utilities. 

Low transparency and openness, which has often been a weakness of Chinese company reporting, may get worse. 

Liquidity in certain companies could diminish. 

Shares in Alibaba, Didi and Tencent have all been hit by Beijing’s regulatory crackdown while Evergrande is facing a bankruptcy crisis © FT montage / Reuters


China could prohibit foreign IPOs altogether, or retract the “variable interest entity” business structure which has allowed Chinese companies to list abroad bypassing domestic regulations, and investors to buy into Chinese companies in ways that would not be permitted in China. 

Regulators may look next to real estate and healthcare pricing. 

Foreign investors could yet be blamed for domestic financial or economic volatility, possibly leading to limits on access to US dollars for Chinese entities and tighter restrictions on outward movements of capital.

In the medium term, the key issue is the sustainability of China’s economic development model. 

With rising headwinds from indebtedness, poor demographics, stalled productivity and the harshest external environment since the Mao era, Beijing urgently needs to make economic reforms that would help re-energise productivity, private sector expansion and innovation.

But will Xi’s governance and regulatory regime help or hinder? 

It’s a rhetorical question. 

The immediate cause of the president’s political and ideological campaign, hastened by the faltering relationship with the US and the pandemic, may be to cement his own enduring authority ahead of the 2022 congress.

In trying to consolidate power, he wants to pull China sharply leftward and address what he sees as the capitalist excesses in the country’s development model. 

He may also be trying to divert attention away from an economy with a multitude of underlying economic troubles, and from a political system with no provision now for an orderly transfer of power. 

For investors, it is caveat emptor. 


George Magnus is the author of ‘Red Flags: Why Xi’s China is in Jeopardy’ (Yale University Press)

America's Losing China Strategy

After declaring that "America is back" and rejecting almost everything that Donald Trump represented, the Biden administration seemed poised to reclaim the mantle of US leadership within the open market-oriented international order. Yet in its strategy to counter China, it is behaving utterly Trumpian.

Anne O. Krueger


WASHINGTON, DC – Despite the cantankerous, polarized atmosphere in Washington, DC, there seems to be bipartisan agreement on one thing at least: that China is a problem, and that the United States must respond to the competitive challenge it poses. 

With military and economic strength as its main components, the Sino-American rivalry has come to be seen as a contest to determine who will lead the regional and global order.

Economic dynamism is a necessary condition for establishing military strength. 

For the US to maintain and strengthen its leadership role in the world economy, it must have both allies and a vibrant domestic economy. 

Why, then, is US President Joe Biden’s administration sponsoring policies that will help China reduce America’s own economic advantage?

Instead of asking how the US can improve its economic performance, the administration is imitating China by letting the government pick winners and losers among technologies and industries. 

In doing so, it is abandoning traditional US support for the open multilateral trading system, the rule of law, and private enterprise within an appropriate governance framework.

In any competition, there are always two basic strategies from which to choose. 

The more resources and attention that are directed toward one option, the less will be available for the other. 

The first strategy is offensive and consists of strengthening one’s own capabilities; the second is defensive and consists of trying to weaken the competitor.

With respect to China, the US has already tried a defensive strategy without success. 

This was the approach taken by former President Donald Trump, who launched a “trade war” by imposing tariffs and sanctions on China. 

Despite those actions, China averaged over 6% annual GDP growth in 2017-19, dwarfing the US economy’s 2.5% average annual growth during that period. 

In 2020, the year of the COVID-19 shock, the Chinese economy grew 2.3%, while US GDP fell by more than 3.5%. 

In the International Monetary Fund’s most recent forecast for 2021, China is expected to grow by 8.1%, compared to around 7% for the US.

Though Trump’s protectionist strategy clearly failed, the Biden administration is nonetheless perpetuating it by leaving the previous administration’s tariffs in place and adopting “buy American” policies of its own. 

By acting unilaterally, Trump weakened the open multilateral system and harmed the US economy, along with those of its allies. 

Yet even if the US under Biden secures the backing of most of its allies, it is not large or strong enough to do more than slow China’s rise moderately.

Since the end of World War II, no country has erected high protectionist walls and achieved satisfactory economic growth over any significant length of time. 

For decades, the US led much of the world down a better path. 

But instead of adopting an offensive strategy based on strengthening this role and leading by example, the US is now pursuing the kind of policies that have long failed in many other countries.

In practice, “picking winners” has more often led to supporting losers. 

Succumbing to political pressure and providing subsidies for otherwise failing businesses merely perpetuates economic inefficiencies. 

There is no reason why bureaucrats should be entrusted with identifying which innovations will prove successful in the future. 

Competition among start-ups and incumbent private businesses is a far more effective mechanism.

Protectionism and subsidies also encourage domestic monopolistic behavior, leading to lower productivity growth and even more lobbying to maintain undue privileges. 

These practices discourage new players from entering markets and make it much more difficult for small firms to expand.

Likewise, US actions in the trade sphere are both curtailing America’s economic development and undermining its alliances, thereby diminishing its own global power. 

Consider, for example, the Biden administration’s decision not to reverse Trump’s withdrawal from the Trans-Pacific Partnership. Comprising 11 other Pacific-rim countries and notably excluding China, the TPP was poised to become the world’s largest free-trade bloc.

Given that US membership in such an arrangement would obviously increase its global influence, many expected Biden to negotiate America’s accession to the TPP’s successor, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which was spearheaded by former Japanese Prime Minister Shinzo Abe after Trump abandoned the original deal. 

But the Biden administration has since signaled that it does not plan to pursue CPTPP membership.

China, meanwhile, is capitalizing on US strategic errors by making its own bid for CPTPP membership (as the United Kingdom has also done). 

Thus, far from preserving or enhancing America’s hegemonic status, the Biden administration’s approach has increased China’s influence in the Asia-Pacific – the world’s most economically dynamic region.

For the better part of a century, the US was the world’s most productive economy because it remained committed to a market-oriented system, the rule of law, and open trade. 

Where it led, Western Europe, East and Southeast Asia, and others followed. 

In this way, policies and principles that strengthened its allies also strengthened its own hegemonic position.

Now, China is rising, largely because it abandoned its earlier economic policies in favor of a more market-oriented system. 

That makes the US decision to abandon its own system in favor of Chinese-style state interventions perversely ironic. 

In adopting Chinese-style policies, the US is not only reducing its competitive edge; it is effectively disavowing the liberal market-oriented open system and its own global leadership role.

Removing protectionist measures and strengthening the open multilateral system would yield vastly superior results relative to the Trumpian approach. 

The US should re-engage as a constructive leader within the World Trade Organization and seek agreements on reforms to cover new issues like e-commerce and climate change. 

The more that China tries to expand state-sponsored industries, the more the US should do to show that there is a better alternative.


Anne O. Krueger, a former World Bank chief economist and former first deputy managing director of the International Monetary Fund, is Senior Research Professor of International Economics at the Johns Hopkins University School of Advanced International Studies and Senior Fellow at the Center for International Development at Stanford University.