The Chinese Communist Party just announced the leadership team that will set the trajectory of their country for decades, replacing President Hu Jintao and Premier Wen Jiabao. The Party formally named the people who will lead the world’s most populous nation, direct the second-largest economy, and control the third largest nuclear arsenal. Our new digest addresses three topics:
The transition process and China’s new leaders;
How Chinese leadership decisions are made;
What the leadership transition means for China… and for the U.S.
Congress, the Obama administration and business groups are ramping up efforts to pave the way this summer for improved trade relations with Russia, but that work is being complicated by parallel efforts to address human rights concerns in that country.
While the push is being made to repeal the Jackson-Vanik amendment and grant permanent normal trade relations, some lawmakers are also eager to pass a measure designed to signal to Moscow that human rights and national security violations won’t be tolerated as that nation prepares to join the World Trade Organization (WTO).
In the ever complicated realm of U.S.-Russia relations, supporters of repealing Jackson-Vanik — a 37-year-old provision designed to put pressure on Communist nations for human-rights abuses and emigration policies — are emphasizing that Russia’s entry into the WTO does not require the U.S. to pass any additional measures .
“The United States gives up nothing and won’t be required to change its laws,” said Edward Gerwin, senior fellow for trade and global economic policy atThird Way, told The Hill.
David Brancaccio: For analysis, let’s turn live to Jim Kessler, a Capitol Hill veteran who keeps an eye on national policy at Third Way, a centrist think tank he co-founded. Mr. Kessler, good morning.
Jim Kessler: Good morning.
Brancaccio: So, the president, in the speech, was very focused on the European financial crisis, in his role really as, what, professor in chief?
Kessler: Yeah, exactly. I mean, he’s trying to educate the American people really about two headwinds that are buffeting our economy. One is external — Europe and their dismal economy and how it affects the U.S. And one is internal — which is congress and their dismal track record on passing jobs legislation. I think a lot of American people understand that congress isn’t doing a great job, but they probably really don’t know the extent of the problems in Europe and how it affects us.
Brancaccio: We were just talking to some Gallup pollsters last week about polling that showed when you ask Americans, Europe is far down their list of concerns.
Kessler: Right, it may be far down on their list of concerns, but it doesn’t mean it’s not a huge concern. Europe is in a recession and my view is that it’s going to be in a pretty deep recession. Our economy is not as dependent on Europe as it used to be in the past, but you know about 3 percent of our economy is related to European trade. It may not seem like much, but if there is real recession there, that would shave a point off of our growth, and the difference between say 2 percent GDP growth and 3 percent. It’s the difference between creating half a million jobs over the course of a year. So it matters.
A U.S. drone struck a militant compound early Monday morning in North Waziristan, part of Pakistan’s northwestern tribal area. Pakistan security reports indicated the pre-dawn strike killed 15 insurgents. That brought the total killed in three attacks over the past several days to nearly 30.
Al-Libi was a leading al-Qaida operative who was viewed as one of five candidates to succeed Osama bin Laden as leader of the terrorist group when he was killed last year.
Officials characterize al-Libi as irreplaceable in his expertise, ability and influence over al-Qaida. Another U.S. official told NBC News al-Libi’s death is “a major blow” to al-Qaida — removing the number two leader twice in less than a year, further damaging the group’s morale and cohesion and bringing it closer to its ultimate demise than ever before.”
In a new memo from the Third Way Capital Markets Initiative, we explain why Americans should be paying close attention to what is happening in Italy. It is the world’s 8th largest economy and has the 3rd largest outstanding debt. Creditors are banging on their door. Due to its size, an Italian bailout is out of the question. But because of its interconnectedness to the European and world economy, an Italian default could cripple the European banking sector and cause an economic catastrophe.
Loan guarantees inherently carry risk. If they didn’t, the loans wouldn’t need guarantors. The U.S. Department of Energy’s program was designed specifically to fund cutting-edge innovations that could not secure sufficient private capital. That’s the way to help potentially breakthrough technologies get off the ground without picking specific winners and losers. The expectation is that a handful of these companies might succeed spectacularly and that some of these companies would fail. This risk was explicitly built into the program by Congress and the Bush Administration at its inception.
Solyndra is an example of the downside of investing in risk. But let’s not make more of the company’s failure than is really there. The loan guarantees to Solyndra make up less than 2 percent of the total Department of Energy program. This is out of a total of 18 loan guarantees to 14 companies. The wisdom of investing in a portfolio of companies is that the risk is spread out so that the program can tolerate the failure of any given investment. That is what is happening.
Does the company’s bankruptcy merit closer scrutiny? Absolutely. We have to learn from our mistakes. But does this mean DOE should eliminate all financing for renewable energy? Not if the United States wants to continue to develop potentially market-changing technology. This is an example of the kind of creative destruction—the case when weaker business models fail and companies are overtaken by stronger ones with new technologies or innovations—that drives the economy. The condemnations of loan guarantees as intolerable risk are contrary to the fundamentals of capitalism and more than 100 years of American economic success driven by government investment in emerging technologies.
Cheap capital from China only makes the need for loan guarantees, or another form of government-financed capital for emerging technologies, even greater. We have to invest more in clean energy—not less—if we want to compete with the Chinese for the $2.3 trillion global clean energy market. China has twice as many initiatives to boost clean-tech development at the federal level than the U.S. It now leads the world as both the largest source of, and destination for, clean energy investment. China is beating us at our own game—the risk and reward of investing in innovative new companies and the ability to make a profit when an idea pans out is a foundation of capitalism.
Since when did China become better capitalists than the United States?