December 22, 2017 Patrick Oliver-Kelley

US economy is in good shape and likely to remain that way throughout 2018. Business confidence is high and jobs are plentiful. Unemployment is 4.1%, lowest in more than a decade and wages are growing. In spite of Trump’s claim, he was lucky in his inheritance. The market is up 25% since his election, but it is up 195% since 2009! Unemployment under Obama fell from 10% to 4.7, then to 4.1% under Trump. The economy is not in danger, but the maturity of the business cycle makes a nonsense of Trump’s trumping his authorship of economic success. For a year we have participated along with Europe and Asia in a synchronized global expansion. Should it continue, it will be the second longest expansion, EVER.

Evidence of overheating is scant. Here is the shade- the longer the expansion, the higher the likelihood of companies are to automate. They have the incentive to do so. It is harder now for industry to find additional workers. America is not about to return to pre-2005 productivity rates. Regardless of the tweeting Trumps does. Policy makers are going to regret the tax cuts they are enacting. They are squandering much needed revenues. Interest rates will peak at much lower levels than in the past but the immediate outlook is sunny.

Putin is playing Trump as if he were his asset. China looms over the West, particularly the US. It is conquering minds as well as territory. Australia was the first to tackle sophisticated foreign efforts to influence lawmakers. Not much later, Germany accused China of trying to groom its politicians. China’s sharp power as in using elbows, in contrast to soft power which is more cultural, helps their authoritarian regime coerce and manipulate opinion abroad. West must find a statesmanlike middle ground starting with an understanding of sharp power and how it works.

China’s sharp power uses a series of interlocking steps: subversion, bullying and pressure to promote self-censorship and pressure. Sometimes it is blatant as with China punished Norway for awarding Nobel prize to a Chinese Activist. Western professors have been forced to recant and some have lost access to Chinese archives. Because China is integrated into economic, political, and cultural life, the West is vulnerable to such pressure. West may value trade over principal. China has been active for decades in Africa and its citizens chafe under the saddle.

China wants to shape rules of global engagement, rules created by the US and Trump could care less! He is more worried with building walls and less about trade.
The West must make room for China’s ambitions, but that does not mean anything goes. Counter-intelligence, the law, and an independent media are the best protection. Unleashing a witch hunt against the media or against Chinese people would be wrong. Politicians calling for tit-for-tat reciprocity in any regard would be self-defeating. West must stand by its own principles and not be spooked by the West losing power to China’s emerging power. We must use our own values to blunt China’s sharp power.

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