Five More Years!

One of the (many) remarkable American political events of recent months has been the defeat of Liz Cheney in the primary race to regain her Republican seat in Congress. Cheney is republican royalty, at least as far as the Bush/Reagan Republicans are concerned. Her father (see Barton Gellman’s book ‘Angler’ as a reference point) was integral to many Republican administrations, and devious enough that when George W Bush asked him to search for a vice-presidential candidate, Cheney could find no-one better than himself.

In Congress, Liz Cheney’s voting record has been sufficiently red-blooded that there is no doubting her convictions, save that she is a rare example of a Republican resisting Trump sycophantism. She is experienced and learned enough to realise the threat that he represents to American democracy and is making this her stand. In so doing, and in promising to derail a 2024 Trump presidential campaign, Cheney may become the catalyst to split the Republican Party, which like the Tory Party in the UK, is a cauldron of venom and confusion.

If the Republicans were to split, the centre group of American politics might open up, whilst the Trump Republicans could amuse themselves on the fringes of the political establishment and social media. To that end, the coming mid-term elections – which have already been heavily influenced by the Supreme Court judgement on nation-wide access to abortion – will be telling. Interestingly, they may not be the most significant political event this autumn.

Against an international backdrop where democracies are fighting within themselves in an often-existential way, and where in the context of the invasion of Ukraine and tensions around Taiwan, the democratic and autocratic worlds are facing off in an increasingly hostile way, the key event will be the meeting of the Chinese Communist Party in late October, early November.

This event is key because it will likely anoint a third term in government for Xi Jinping, and usher in some important personal changes – notably a new prime minister for China and the retirement of Wang Qishan.

It is an underestimated watershed event in the sense that it marks a phase change in China’s rise from a one-party to a one -man state. If the example of America proves that democracy begets prosperity, China is the powerful counterexample that proves that a controlled, state directed economy can also thrive. The transition to ‘Xi for life’ could upset this, and in this context, there are several considerations to bear in mind (not least with markets looking complacent).

The first short-term one rests on Xi’s need for a show of force in the lead up to the CCP meeting. While we risk assuming that Chinese politicians have a ‘wag the dog’ (see the 1990’s book ‘American Hero’ by Larry Beinhart and film of this title) tendency in the same fashion as their US counterparts, a continuation of strongarm tactics around Taiwan (a blockade or even the seizure of a small island) is a possibility.

A more pernicious and damaging trend within China are the side-effects that Xi’s instincts for control are having – at least three have come to my attention. The first is the debilitating effect on public morale and the economy of the various COVID lockdowns, and the discrete rumblings that these are creating within the broad church that is the Communist Party. The second is the effective split between the Party and the business community that has developed because of Xi’s anti-corruption drives and his promises of a less unequal wealth distribution (‘common prosperity’) and the third relates to the hushing of open, intellectual endeavour and vibrancy of discussion around social and political affairs. By extension, this makes Chinese politics extremely hard to decipher.

In this respect, the great danger for China is that it has someone at the helm who smothers innovation at a time when China needs it most. With the demographic cycle shifting downwards, growth slowing and the property market looking precarious, the risk for Xi is that he fails to deliver on the ‘China Dream’ concept he started expounding in late 2012/early 2013. Bear in mind the sobering fact that youth unemployment in China is now 20%.

In the rise of a country from emerging to developed status, the key variable to watch is continuous improvements in productivity, and in China this is faltering. In that respect the great surprise would be that Xi is a lame duck president by 2027, when Liz Cheney might be starting her presidential campaign for 2028.

I am taking a break for two weeks and this column will resume on September 10th. Have a great week ahead, Mike 


Ireland is in a crisis. Temperatures have recently hit all-time highs and oddly persisted so that unusually, people enjoy weeklong stretches of warmth and blue skies without the punctuation of rainy showers. This has understandably bred some confusion.

Extreme temperatures in Ireland need to be considered relative to our geography – the recent peak of 33C was the highest since 1887 – a time when Oscar Wilde was writing plays and perhaps, the first inklings of ‘Dracula’ came into Bram Stoker’s head. Yet, the rest of the world might regard our ‘sub – 30’s heatwave’ as a luxury – in a week when the Rhine and Loire ran dry, the Lee and Shannon brim onwards.

By comparison, Britain has fared less well, with large tracts of land scorched and temperatures pushing into the high thirties. Interestingly, for those who care about the climate, the Met Office’s Hadley Centre keep an excellent database on temperatures, going well back in history to 1659, which permits fascinating comparisons of temperature with historical events. The series unambiguously shows the recent decade has been the hottest in history, what looks like a trend departure in climate dynamics.

The Hadley database shows that recent temperature highs in Britain have only been seen in 1990 (briefly), and 1911. 1911 was interesting in that like today it was a time of great political volatility. Secession and independence were prominent issues (Ireland then, as with Taiwan and Ukraine today) and the path toward a great war was materializing (Germany and Britain then, China and the US now), and public unrest was common (between 1911 to 1914). Additionally, as we have stressed on many occasions, globalization was coming asunder then, as it is now.

Whilst, I am not sure that climate change played a role in the fall of 19/20th century version of globalization, but it surely will in the 21st century.

What might be a more interesting proposition is whether climate impacts politics. In 1911, the close confines of the Westminster chamber meant that in the context of record heat, members of parliament became raucous, smelly and rebellious. This was mirrored across the country, and a warship was sent up the Mersey to protect food supplies.

Another obvious coincidence of politics and climate stress was the ‘Winter of Discontent’ when in the context of food shortages, ferociously cold weather and a lorry driver strike, Jim Callaghan’s return from the warmth of the Caribbean kickstarted a political crisis that led to his demise (Crisis, What Crisis?). With French and German electricity prices spiking to stratospheric levels, and Olaf Scholz pronouncing that it is unlikely that food and energy shortages in Germany will produce unrest, we can expect to see just that in Germany this winter.

There are other ways in which climate and our experience of it feed back onto our political behaviour.  In the United States, despite rigorous research by a dozen federal bodies to the effect that this period is now the warmest in the history of modern civilization owing principally to greenhouse gases, many Americans are skeptical that climate change is man-made.

For instance, only 30 percent of Republican voters believe that climate change is driven by human activity, yet academic research has shown that among Republican voters, there is a significant degree of difference of opinion on climate change. For example, Republicans living in coastal areas—in California and Florida, for instance, two states where climate change is increasingly evident—have a much higher than average (compared to other Republicans) sense that climate change is ongoing. Having noted this, it still doesn’t make sense to wait until the earth is entirely parched to convince people of the need for action on climate change.

In this respect the passing of climate legislation in the US is welcome, though a preoccupation for many governments will be less staving off climate damage but rather limiting its economic impact for fear of the socio-political effects that this may have. In a week when British newspapers talked of 5,000 GBP annual fuel bills, it is noticeable that the UK is the one country in Europe (Estonia also) where the burden of the rise in the cost of living is far greater for lower income households than wealthier ones.

The final link between climate change and politics that needs to be stressed is that at a time when the level and rate of climate damage have stepped up and are beginning to render parts of the world uninhabitable (the 2022 World Cup will be an homage to this), there needs to be close cooperation between the major regions, governments, large cities and corporations.

As we noted last week, a ‘Schism’ is developing between the large regions and this fracturing is now impacting corporate investment (China’s largest companies have announced that they will delist from the US stock market). Climate is becoming weaponized.

Have a great week ahead,


The Tech Schism

One of the key events in the rupturing of relations between the USA and China was a speech by Vice President Mike Pence in October 2018 at the Hudson Institute, which was breathtaking in its hostility to China. The speech was followed two months later by the arrest of Meng Wanzhou, chief financial officer of Huawei, in Canada at the bequest of the Trump administration. At this point, the fracturing relationship between the US and China begun to also run through the global technology industry.

The Trump administration’s policy towards China was a rare example of them fashioning and then leading the consensus across the American political, industrial and military complex. Many corporate leaders in the US who disdained the style and content of Trump’s politics in general, were glad of his scolding of China, and to a large extent felt that a watershed had arrived in this relationship where China would no longer ‘import’ innovation from the West in return for exporting deflation.

On their side, Chinese policymakers, many of whom had studied and lived in America in order to better understand it, only to be confronted by an untypical American leader, also felt that a watershed had arrived – China is a now a world power and needs to assert itself. Indeed, since that period, China has managed to aggravate most of its neighbours across Asia (skirmishing with India troops, haranguing Australia and provoking Japan for instance).

In that context, China’s (over) reaction to Nancy Pelosi’s visit to Taiwan, is itself a watershed. They might very easily have dismissed this event as showboating by a publicity hungry Western politician but didn’t.

The military led response betrayed much about Xi Jinping’s leadership, China’s reading of its military readiness and regional standing. The side-effect will be an acceleration in the game-theoretic scenarios around a Taiwan centric geopolitical contest. I am not an expert here so will leave the framing of this to others, save to say that as we posited a couple of weeks ago, Taiwan will now feature more prominently in thriller scripts (Thriller in Tanegashima).

From an economic and strategic point of view, what Pelosi’s visit does, following the Huawei thread, is to bring governments and technology companies closer together (appropriately her husband Paul’s trading record in tech stocks is second to none!).

The semiconductor industry is a good example. In recent weeks Taiwan’s MediaTek and Intel have signed a production agreement, the US has passed the CHIPS Act which encourages semiconductor chip manufacturing in the US, and forces overseas technology companies (e.g. Samsung and SK Hynix) to choose the US technology marketplace over that of China. Meanwhile China’s SMIC has reportedly made advances in its chip technology (this is one sector where China badly lags the west).

The great schism of globalization now means that technology companies (especially those in sensitive areas) need to choose sides. This is likely to be the same for consumer brands like Nike and Apple, though perhaps not for French brands who can pretend not to care.

There are several ways in which technology companies are becoming closer. Several American data, internet and communications companies have actively helped Ukraine, the same is true of the US cybersecurity community. Notably the invasion of Ukraine is reconfiguring the techno-defense industry, across the US and Europe.

Drones, AI, signals, space war (recall Trump’s SpaceForce), railguns and robotics are just some of the emerging fields in defense research and development, at a time when world defense spending is hitting a record USD 2.3 trn. The arms race has taken on a new, intensely tech driven aspect – we only need to read scenarios of what a South China Sean naval battle might look like (hypersonic missiles, lasers, cyber-attacks).

Away from the battlefield, in general, across the three large regions, technology companies at the centre of strategic activities are being drawn closer to their governments, and in some cases are spending more on lobbying them. A race is on, not just to build lead edge technologies, but to also lea ahead in setting the standards and norms that oversee them.  

In that light, regulation of technology and data is also becoming more region specific, to the extent that the activities of say Chinese companies in Europe and the US are becoming more problematic.

Other, newer technologies are witnessing this too. For example, one of the key battles in finance is between crypto centric defi (or decentralized financial networks) and the old fashioned’ financial world. The withdrawal of liquidity by an ‘old’ institution in the form of the Federal Reserve, has triggered a collapse in parts of the crypto world, where many exchanges have failed and the entire crypto exchange sector is being investigated by the SEC. To a large extent this effort is aimed at limiting fraud and bad behaviour, but there is also a strategic element, gaining control over the ‘defi’ world.

The ‘metaverse’ may well see similar treatment. Though it exists beyond our real world, the companies that are creating it ‘Facebook/Meta’ are well grounded in the public policy and affairs of the ‘old world’.

So, while the outburst of Chinese nationalism (expect more of this) is the manifest effect of around the Pelosi visit, the event is now just one of many that will see a world where technology – in its innovations, initiatives, regulation – also becomes more regional.

Have a great week ahead,