Trump 2024: What's in it for Modi?

In September 2019, more than 50,000 Indian Americans traveled to NRG Stadium in Houston to attend a rally in support of two of the world’s most prominent nationalist politicians: Prime Minister Narendra Modi and then-President Donald Trump. Modi modified his own 2014 campaign slogan for the occasion, proclaiming “Abki baar, Trump sarkar!” In other words, “This time, a Trump government!”

It seemed a natural political marriage between two bombastic campaigners who had overturned the political establishments of their respective countries largely through an innovative combination of aggressive social media campaigns, ethno-nationalist rhetoric, and thinly veiled antipathy to Islam. The event’s potential to benefit Trump’s cause was clear: in the offing was a possible infusion of support for his candidacy among a growing population of Indian Americans. Modi’s interest in joining the controversial and capricious Trump onstage was less obvious. He chose to associate himself very publicly with an American president whose popularity has never overwhelmed the Indian electorate, whose policies never favored India, and whose victory in the 2020 elections was by no means assured. It was far out of character for an Indian PM not only to take a public position on the domestic politics of another country, but to insert himself into a foreign election in support of a particular candidate. The move earned him tepid praise from Indian political commentators and, although one hears little else than acclaim for Modi’s India from Washington today, could not possibly have earned him any favor with the Biden administration.

Biden and Modi are aware that the geopolitical and macroeconomic logic pulling India and the US into a strategic embrace is inexorable. The embrace has thus far manifested in several cooperative initiatives between the two states since Biden took office in January 2021. The most notable has been the initiative on Critical and Emerging Technology (iCET), which aims to promote bilateral cooperation in areas from defense technology innovation to semiconductor supply and higher education. As Americans prepare to vote in another presidential election in November, investors in Indian industry would do well to consider what might become of the burgeoning partnership between the two countries if Trump were reelected.

The price of Modi’s endorsement appears to have been Trump’s tacit approval for the Citizenship Amendment Act of 2019, which made eligible for Indian citizenship all Hindus, Sikhs, Buddhists, Jains, Parsis, and Christians who fled to India from persecution in Afghanistan, Bangladesh, and Pakistan before December 2014, with the notable exception of Muslims. The Act was part of a series of legislative measuresdesigned to threaten the citizenship of Muslims in India who, like much of the native-born population of India, have little or no legal documentation of their citizenship. In keeping with Trump’s transactional style of diplomacy, the quid pro quo between the two leaders does not seem to have extended any further than this simple exchange. Both men are committed to protectionist trade policies that discourage foreign competition in many sectors of their respective economies. Under Trump, a skilled-worker visa program that had long allowed foreign workers (roughly 75% of whom were Indian) to live and work in “specialty occupations” in the US was suspended in April 2020 by presidential decree. The suspension was allowed by President Biden to expire in April 2021. The Republican-sponsored CAATSA (Countering America’s Adversaries Through Sanctions Act) began in mid-2019 to impose heavy sanctions on companies and countries that continued to import oil from Iran. India, as Iran’s then-second largest buyer of oil, was no exception, despite Modi’s personal and ideological alignment with Trump. Political amity was similarly insufficient to allow their administrations to agree the terms of a promised US-India trade deal, or even the “mini-deal” that was promoted in its place when it became clear that a comprehensive deal could not be hammered out. Despite Modi’s talk of taking the US-India relationship “to new heights” with Trump, evidence suggests that Trump’s two immediate predecessors did far more to advance that relationship, and that his successor has gone to still greater lengths to embrace India. A shared contempt for Islam and liberal hegemony is not, it would seem, an adequate substitute for sustained diplomatic efforts made in earnest pursuit of mutually beneficial cooperation.

Trump has been uncharacteristically consistent in his willingness to treat US commitments abroad as political hostages, holding aid, security commitments, climate agreements, and arms control treaties over the heads of US allies and adversaries alike in an effort to appeal to his isolationist base. If reelected, he might well hold hostage the fruits of Biden’s efforts to build a lasting structure for American cooperation with India. He might decide to treat India’s increasing access to American capital, technology, and manufacturing contracts under Biden as a privilege to be revoked at his pleasure, with few domestic consequences for his administration and many for Modi’s. The iCET is not part of Trump’s personal legacy and might well be considered disposable. India’s position as a regional counterweight to China makes it indispensable to American strategy in the Indo-Pacific, but even as President, Trump never confined his role to the pursuit of US interests abroad. Indeed, he often acted against them. In the announcement of his plan to impose a universal 10% tariff on all imports to the US, and in Modi’s ever-louder emphasis on Indian self-reliance, we can see that the indiscriminate protectionism that left a US-India trade deal dead in the water is alive and well.

The Dystopia Fund

The pessimistic worldview reached a new stage this week as the Economist declared that “the liberal international order is falling apart.” SIGnal readers will already be familiar with this idea, but for the Economist to adopt it might reasonably be taken as a sign of the Apocalypse. Meanwhile, the distinguished demographer Nicholas Eberstadt showed at length in Foreign Affairs what a profound demographic crisis East Asia is facing — another SIGnal theme, underlined this week at a desperate press conference given by South Korea’s President Yoon Suk Yeol in which he announced the formation of a Ministry of Low Birth Rate Counter-planning. It was a bad week for optimists, but perhaps the right time to think about a Dystopia Fund.

Macro short-selling is usually done on a national basis, by betting on (or against) currencies. A Dystopia Fund would look to sectors and sub-sectors that would be likely to benefit from long-term negative trends. Humans, even investors, tend to be optimistic, but reality is not. This creates a sort of information disparity that can be exploited.

Last week’s post looked at artificial intelligence in this context. AI, potentially, provides a way for problems of demographic decline to be compensated for by increased productivity within a given national market. The national is important: states large and small have registered that while technology-enabled globalization did indeed bring many tens of millions of people up from poverty, it was driven not by charity but by the extraordinary profits and monopolies that accrued to the companies, overwhelmingly Western, that produced the technology. Now that incomes have grown and capital has accumulated in countries from Saudi Arabia to Singapore, states want to harness technology to grow their own economies and keep wealth in domestic markets. AI promises to do that in that it can increase productivity despite declining populations and, perhaps, poor local education systems.

Other Dystopia Fund targets could be in travel and entertainment for the very old, a growing demographic. Various forms of nostalgia would be investable. Great sums of money in recent decades have gone into market research on people in prime consumer age ranges. Not so much money has gone into understanding elderly consumers. The market-research firm that embraces demographic decline would be worth backing.

An aging population puts transport innovations like self-driving cars into a different light. Most transport systems are only friendly to people who can walk and drive. Companies designing systems for the elderly will find their consumer market steadily increasing. By the same token, tele-medicine, home drug delivery, home medical-testing, and other services for the home-bound will also find growing markets. Working from home, despite its many disadvantages, will provide a way to keep older people active in the job market as the (traditional) working-age population shrinks.

Parag Khanna has led the way in identifying regions that will do relatively well out of climate change — a perfect Dystopia Fund sector. Khanna sees climate-driven emigration as something to be optimized for rather than bemoaned, for the simple reason that it is inevitable. Technologies that can extend the habitability of currently populated areas would be another way to approach the challenges of real estate in a changing climate.

One frequently cited reason to regret the demise of the liberal international order is that challenges like demographic shrinkage and climate change are on such a scale that they would benefit from international coordination. While that is certainly true, liberal internationalism’s vitality has been rooted in optimism, whereas what might be needed now is investment strategies based on a pessimism that accepts the profundity of climate and demographic change and their effects on the status quo. 

AI Family Values

Theories of economic growth do not deal well with demographic decline. How can an economy with ever fewer consumers and producers still grow? Artificial intelligence, looked at a certain way, is an attempt to answer that question. Worries about AI taking jobs are somewhat misplaced. The opposite would probably be worse: shrinking, ageing societies unable to replace lost labor.

AI anxiety usually flourishes in wealthier, industrialized societies. So, for a change, consider Saudi Arabia. It intends to invest $40 billion in AI, which would make it a world leader. Amazon has announced $5.3 billion in AI and data center investments in the Kingdom. Nearby, Microsoft is putting $1.5 billion into a joint venture with Abu Dhabi firm G42, which would also involve the use of Microsoft’s Azure data-center platform. Why such levels of investment?

Yes, there is a geopolitical aspect. Chinese companies dominated the mobile-infrastructure wave of investment in the region in the early part of this century. China’s security-related firms, often banned by the U.S., thrived in the Middle East. Chinese firms used these ties to move into data-center construction. When, sometime late in the Obama administration, the U.S. realized that a great deal of digital real estate was being settled by a hostile power — and that a great deal of American tech capacity was being exiled along globalization’s supply chains — a reaction set in. But even that, by itself, was not enough to get U.S. tech giants investing in the pokey market of data centers in less-developed countries. AI is what made the difference, because AI, in its current configurations, depends on massive, non-latent computing power. The Internet temporarily freed data from physical constraints. AI is helping bring it back to Earth. This happens to coincide with governments’ unquenchable desire to control citizens’ information, in every sense.

But more important is what may be called the gender aspect. To an often underappreciated degree, women are driving technological change. While female workforce-participation rates vary greatly among countries, they have generally been going up for decades, while fertility has gone down. Birth-control technology has been absolutely critical to this change, but its availability and use are social phenomena, driven by choices. The Gulf Arab countries have seen steadily declining fertility rates for years now, along with an easing of prohibitions on the education of women and their participation in the workplace.

In many countries, female workforce participation — greatly enabled by birth control as well as home labor-saving technologies — made productivity and consumer-demand gains possible when male workforce numbers stagnated. In Western countries in particular, there was a sort of internal labor migration from the home to the wage-based workplace. The economic benefits can top out, however — and waged productivity’s gain is fertility’s loss.

Internet-enabled globalization made a second renewal of growth possible. Much like the movement of women into the workforce, globalization put developed-world capital in a position to increase productivity by bringing new labor into the workforce, especially Chinese labor. But this was done at a distance, with laborers outside the home markets of the highly developed economies. Globalization had enormous benefits for even the poorest rich-world consumers, but it did not necessarily make the poor more productive.

AI has the potential to restore bounded, domestic productivity. That makes it intensely attractive to a wide variety of societies, all of which are facing demographic slowdowns or  reverses but have the domestic capital to invest in technological solutions to what is, in the end, a question of power and social cohesion. This is emphatically not about human capital. The Gulf Arab states, despite their wealth, do not have high levels of citizen education such as you find in East Asia or Europe. Saudi Arabia imports human capital, whether laborers or surgeons. About 40% of its population is foreign. Saudi Arabia is a de facto nation of immigrants, but it is not understood as such because it does not expect that 40% of its population to become Saudis. The Saudi state is certainly not worried about AI taking jobs from Saudis. What the Saudi state aims at is achieving the domestic productivity mix that will make it possible for Saudi Arabia to be Saudi, in whatever way the Saudis themselves might define it. Globalization was not especially good for that. Female workforce participation is, as long as it doesn’t undermine “being Saudi.” AI might be even better: in effect, a set of tools for enhancing the productivity of domestic human capital and thereby providing growth without undermining the Saudiness of Saudi, the Japaneseness of Japan, or the Chineseness of China.

AI, then, can be seen as compatible with de-globalization, or more precisely with a decentralization of capital productivity, very much including human capital. It could, in short, enable an increase in domestic production despite a decrease in reproduction.

Green Protectionism

Geopolitical competition seems to be leading away from the greening of global production. Major players like China, the European Union, and the United States are all trying to spur green industries like electric-vehicle production in their own territories and with their own companies. Taken as a whole, this has the effect of stimulating production and innovation, which should be beneficial for the planet. But it also raises prices by directing capital to redundant production, and it establishes a kind of green protectionism that seems certain to have unforeseen consequences. Successful investing in an industry whose major players include several antagonistic and powerful state entities is difficult at best.

The most interesting recent development has been the US decision to pressure Mexico not to welcome Chinese investment in electric-vehicle production. Mexico has, of course, benefitted from US-China competition in that companies like Tesla, Samsung, and Nissan have shifted production away from China to Mexico as part of global de-risking. Note that Samsung and Nissan are not US companies. The great appeal of Mexico apart from its workforce is proximity to US consumer demand. By pressuring Mexico to keep Chinese EV companies like BYD, Chery, and SAIC at arm’s length, the US is using the size of its consumer market as a political weapon in foreign policy. The policy goal is to deprive Chinese companies, private or not, of markets. (BYD is private, Chery and SAIC state-owned.)

The European Union has been doing something similar, having become alarmed last year at the growth of European demand for Chinese EVs and the barriers erected by the Biden administration to European companies prospering in the US market. Europe’s car manufacturers don’t want to lose their future domestic market to Chinese competitors. Biden moves to protect US domestic EV production deprived the Europeans of a crucial export market at the same time that Chinese manufacturers were selling high-quality EVs to European drivers at a 30% discount to European prices. These political-economic factors have combined on the Continent with a growing distrust of Chinese tech companies and China — rather, the Chinese Communist Party — more generally. The EU raid this week on Nuctech, a Poland-based Chinese scanner manufacturer long held in suspicion by Western China analysts, was made on economic grounds but has a strong security aspect as well.

Many Chinese argue that the root of these EV conflicts is that Chinese companies are simply better. Europeans and Americans counter that Chinese EV companies are state-backed, which is certainly true, such that the competition is unfair. None of this is wrong exactly but it misses the macro point: the major Western economies embraced extended global manufacturing supply chains and China did not, with the result that China now has innovative vertically integrated large-scale manufacturing companies that can compete globally. Because so many of those supply chains ran through China, the US and the EU are playing catch-up, and they are weaponizing their own consumer populations as well as alliances (as with Mexico) to do so.

One result is likely to be chronic high prices for North American and European electric vehicles, which means (in the absence of Chinese imports) a slowdown in EV adoption — which is already occurring. That in turn means a slowdown in carbon reduction. China’s aggressive, state-led pursuit of green industries was driven, to a great extent, by a desire to innovate out of a global climate crisis that has hit China quite hard. China’s pre-eminence in solar panels was initiallya responseto German rules on energy efficiency that could not be addressed with European products. But US-China competition has now transformed an environmental policy into something that has anti-environmental results. One can hope that all this duplicative effort will result, over the long term, in electric-vehicle and other green industries that will be able to expand around the globe and save the planet. But picking winners in such a roiling political environment is very hard, as Tesla’s investors will have been reflecting this week.

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Networks of Confrontation

When political scientists and policy wonks wrestled with the prospect of a world war that was not, in any conventional sense, winnable — that is, a nuclear war of comprehensive destructiveness — they turned hopefully to “escalation dynamics.” They tried to find a set of reversible steps between chronic conflict and mutual obliteration. It was a way to imagine how to manage the unmanageable. Today, with widespread access to drones and ubiquitous access to the Internet, it is difficult even to define “escalation.” The means for crossing borders, whether in the air or online, have proliferated to such a degree that actors engaged in conflict seem to lose sight of the de-escalation part of the old “escalation ladder.” Having escalated online, they can next escalate with drones, or by activating proxies of one kind or another, or by directing industrial policies toward harming the enemy at one remove. The jumpy, somewhat hysterical, mode of constant irritation of the status quo — constant escalation — was once the signature style of North Korea alone. Now it is worryingly common. 

 There is an argument that the United States was the first mover in this trend toward border-jumping provocation. The U.S., having done far more than any other state to advance the Internet, did tend to treat it as a network for espionage overseas, if not often for conflict. Having pioneered drone technology, which was greatly telecommunications technology, the U.S. made frequent use of it in others’ sovereign territories. With an economy uniquely globalized because of the nearly universal use of the dollar as an exchange currency, the U.S. had another planetary network it could use against its enemies, for example through financial sanctions. And having driven a globalized trading and manufacturing economy, to its own great benefit, the U.S. is now exploiting the resulting global network dependencies by weaponizing industrial and trade policies.

In each of these networks of confrontation, all of which have developed immensely since the end of the Cold War, the U.S. has moved first.

Now so many others are in the game of what the Oxford scholar Lucas Kello, optimistically limiting himself to cyberspace, once labeled “unpeace.” There is so much signaling of malign intent, expressed over cross-border networks, that the foreign-affairs signaling becomes more like noise. Russia’s appetite for information operations directed at undermining U.S. power around the world seems possibly insatiable. One reliable analyst sees Russia’s government as behind a recent infrastructure attack — all executed remotely — on Texas water systems. China increasingly looks to its diaspora as a population physically outside its own borders that is nonetheless expected to show loyalty to the mainland government. Overseas Chinese are monitored and influenced both physically (through embassy and consular staffs) and online. Iran launches an enormous drone attack against Israel and now awaits retaliation, confident that it will not be in the old, pre-1990 form of actual war but in some new “escalatory” move. But escalation without some logic to it is just random warfare. It is unpeace. A lot of aggressive noise without much clear signaling.

For investors, and for everyone else, the challenge is to identify sources and patterns of stability as well as to identify threats. It is not easy. China and Russia are trying to stabilize themselves through a striking combination of patriotism and ethnicity, rallying the tribe of consumers and producers to defend against the external enemy — a method of stabilization that runs quickly into each country’s dependence on external markets for survival. Autarky only feels stable.

The U.S. has the advantage of corporate and entrepreneurial cultures, as well as multinationals, that accept government direction only when they must. Of course the U.S. has many other advantages, and its lack of supervisory power over business has not always been a good thing. But in the present circumstances, when globalized and globalizing networks are both necessary for growth and increasingly dangerous and unpredictable as platforms for political confrontation, the U.S.’s, or perhaps more accurately North America’s, ability as an economy to resist government direction seems to be a distinctive strength. It creates a resilience in unpeace that, one hopes, can survive changes in government. An economy that can thrive under Obama, Trump, and Biden alike is a resilient economy.

Headlines for the IMF annual meeting this week emphasized American economic strength, with growth far outstripping that in the other Group of 7 members. At the same time, the U.S. was at bottom in a poll looking at G7 public confidence in institutions like the military and courts. Politics must dwell on the latter and strive for improvement. But stability comes mainly from the economic side.

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