Europe’s only way forward with China is backwards

In order for Europe to negotiate any substantial concessions from China, it must remove China’s current access to European markets and put up new barriers to China’s participating in the European market. Otherwise, China has no incentive to concede.

Europe has been negotiating a trade and investment agreement with China for seven years and has made little progress. Why is this. It’s simple – China already has near full access to European markets. China is incentivized to delay, talk, assuage fears, but do nothing. And that’s what it will do unless and only unless, Europe…goes backwards.

While Trump’s domestic policies will likely lead the US to the same fate he himself has lived in for decades (bankruptcy/anger/unhappiness), his (or Steve Bannon’s really) approach to China is actually correct. When it comes to making concessions, China only responds to one thing, the stick. The biggest, spikiest stick is one that threatens to the CCP’s grip on its power at home – domestic unemployment. The foundation of the CCP’s power over the past 40 years has been providing increased salaries and job opportunities for its people. China has had free and nonreciprocal access to the US and Europe for 40 years under the guise of “we’re a developing nation, so the field should not be level.” Things have changed since 1980.

One might think increased opportunity for China’s companies in Europe would be a high priority for the CCP. That thinking is wrong. Recycling of money domestically is China’s best method for continuing to have outsized GDP. More access to Europe would be great, but it’s a nice to have. Domestic company makes product, domestic consumer buys product, domestic government takes in more tax, domestic job creation is maximized. This recycling of “domestic product” :)…is more critical to the CCP’s continued grip.

The export economy is still important to China, but long term, the CCP knows it needs to grow off of domestic consumption. The longer Europe negotiates, the less important the export markets become for China. Hence the delay, hem, haw, strategy.

The only move that Europe can make is backwards – which will hurt it’s larger companies in the short term. Simply not moving forward with a broader EU-wide trade agreement will feel empowering, but not help it achieve its goals of getting more access in China.

As Joel Brenner said (http://cis.mit.edu/people/joel-brenner), Obama and Bush were driving under the influence (of big business) on China. The EU has as well.

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The scary side of China

This is worth a watch. It makes sense that the majority of Chinese people would be okay with this system because, in my experience, Chinese people have come to value stability in the way westerners value personal freedom.

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Vocabulary – g3t it!

Vocabulary. It’s useful. And important in ways no one taught us.

About three days per week, I wake up, drink my four glasses of water (a daily ritual for the last 10 years), then spend 15-20 minutes on Memrise taking random vocabulary quizzes. At first, I did it because it felt good – I think it was a simple way of satisfying the need to feel that I learned something new that day. After a few years, I’ve continued because once in a while, a new “aha!” word pops up ties together what previously was only a collection of disconnected thoughts and feelings. Multipotentialite is one of them.  Check out this TED talk below by Emilie Wapnick if you’re one of those people that is curious about pretty much everything yet occasionally annoyed by the directions it leads you. Multipotentialite TED talk

 

 

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Wolf

I find that one of the more difficult aspects of starting a company is figuring out if we, as a small team, are actually doing a good job while working across a wide variety of areas.  While the daily/weekly/monthly process is often – make a list of stuff to do, prioritize the stuff, get as many stuffs done as possible from top of list to bottom – it often feels like we didn’t make enough progress or we made too many mistakes that led to mediocre results.  Having just read Wolf, a biography about Jack London, I couldn’t help but wonder while reading if the life of this exceptional person and writer, who died before the age of 40 and yet still managed to produce 5-10 stories that have remained popular for nearly 100 years, could offer some insights into this situation.

One thing that Jack London had long before the term became popular, was grit.  In his attempt to find gold in the Yukon, he carried a year’s worth of supplies (to last the winter) 30 miles through snowy mountains in about 30 days.  For each mile, he made 15 trips in order to haul everything.  That’s nearly 900 miles, 450 hauling stuff.

When it came to writing great stories however, something that brute force alone couldn’t accomplish, he refined and improved his approach throughout his career to get the results he wanted.  So, while writing stories isn’t exactly the same as creating a tech driven recruiting platform and business, it’s slightly more similar than hauling canned food through Alaska in search of gold.  Here was my takeaway:

  • Consistently high quality leads to…Good results
  • Consistently high quality and prolific… Better than most
  • Consistently high quality, prolific, and original… Wolf status

Quality + Quantity + Originality.  Focus on the inputs and the results will come.

….and now I’m going to go read the same lesson on page one of whichever self-help book falls off the shelf. 🙂

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Better trade policy – it’s a must.

The US’s trade policies over the past 25 years have been the primary fuel for the Trump’s popularity, the deterioration of the middle class, and stagnant wages.  If not resolved, I also don’t believe we will see much improvement in the financial health of the lower-middle class.  In addition to the low labor force participation (~10%) which is a drag, the trade deficit is nearly $500 billion. We send ~$500 billion of hard earned dollars out of the country each year. That’s a lot of money that, if recycled within the economy, would increase prices of goods (for all), but also increase wages (for the poor). Republicans and Democrats have both supported the trade agreements that may have helped increase national GDP overall, but “definitely” shifted a higher share of that income to the well-educated and away from the lower skilled, less-educated workers.  Neither party has done anything significant to counteract this effect nor has any good proposal on how to do so. Considering trade agreements have been written mostly by executives at large corporations, and those corporations fund both parties’ campaigns, it’s not difficult to understand why.

Jeffrey Sachs explains the situation clearly in The Truth about Trade.  Read the whole thing to save countless hours listening to Bloomberg / CNBC analysts deliberate in a perplexed way about why the economy is…still…not rebounding and wages haven’t increased in 30 years.  Here’s an excerpt from the article.

“The first major point about expanding US trade with lower-wage countries is that it tends to improve efficiency — enlarge the pie — but also to redistribute the US economic pie toward capital and highly educated workers and away from workers, especially less-educated ones. For capitalists and highly educated workers, greater international trade is a no-brainer, a very good thing indeed. For less-educated workers, it can be a curse, pushing down wages and pushing some lower-skilled workers right out of the labor force entirely.”

Many less-educated, middle aged individuals will never break out of the low-paid job market as it takes an investment of time, energy, and savings.  However, their children potentially could.  While creating new industries around new technology is “a,” if not “the” key to developed countries creating jobs, by completely neglecting the low-skilled economy, we’re making it increasingly difficult for those families to afford to educate their children. And the cycle continues.

What’s the solution?  For starters, check points in trade agreements would help.  I’ve seen from working in mainland China for 4 years, China gets what it wants from its trade partners, despite what any agreement it signed says.  By not having a check point (say 5 or 10 years) to evaluate whether the agreement is working, the US locks itself into multi-decade agreements that don’t end up working in the way we thought they would.  The primary authors of US trade agreements are the major domestic exporting companies themselves, so they want predictable policies so their investments at home or abroad will be amortized.  However, predictable policies for the few at the expense of a positive outcome for the many and national interest, is just a silly trade.  The two must be balanced. Secondly, why abide by WTO rules with China when China does not. China has brilliantly managed to remain the most protectionist country in the world while getting the US to open its gates 24/7…for 20 years. It’s impressive, but more so it’s sad and embarrassing how badly China has beat us, especially while we have so much unused leverage…enter the $500B trade deficit with China alone. Add a huge tariff, force US manufacturers to relocate their production to other parts of Asia, and use the near term tax revenue to fund innovative tech/education.

What else? When it comes to government involvement, funding the technologies of the future that lead to the creation of entirely new industries is key. The US does this well with defense related tech; if you check the DOD’s grants website, you can find thousands of grants available for private sector research and tech development. We do it poorly with other sectors, especially ones that are divisive domestically, like energy, artificial intelligence, etc. Considering technological advancement is a primary source of new, high paying jobs in developed countries, we need to both provide more funding for technological development, while rigorously supporting leap frog education initiatives.  Which leads me to the next point.

Working from the bottom up is equally important.  A war-like, decade long, multi-trillion dollar education initiative targeting those children that are most likely to end up in the low-skilled workforce, would at least start us on a path to reducing the number of Americans that are competing directly with more motivated laborers in developing countries. This involves strategizing and attacking all of the barriers that exist along one’s path to breaking out of their likely trajectory, be they social, geographic, race related, or other.  Now just for that multi-trillion dollar budget?? 🙂

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Congressman Sherman understands the real impact of Obama’s Free Trade Agmt

https://sherman.house.gov/media-center/press-releases/congressman-sherman-opposes-tpp-agreement

“Some have falsely argued that TPP would help contain China’s growing economic influence and power in the Pacific Rim.  In reality, this agreement would expand Chinese exports to the United States. Goods made mostly in China and finished in another Asian country would have duty-free access to the U.S. market.  It would actually further encourage multinationals to move production to China.”  Congressman Brad Sherman

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Trans Pacific Trade deal: Outrageous?

The Trans Pacific Partnership (TPP), a free trade agreement between the US and countries including Vietnam, Malaysia, Japan, Peru and Chile, will be devastating to American middle class jobs and I’m baffled how few people or news agencies are even talking about it on the eve of it being fully approved. It should be noted that Hilary Clinton spent much of her 6 years as Secretary of State convincing other countries to sign on to TPP, yet the core of her campaign rhetoric is about helping the middle class.

The TPP’s core premise is to give away access to the US market in return for commitments from participating countries to abide by US policies (such as patent protection for pharmaceutical company’s drugs and respecting human rights). This could make sense if A) we don’t give away the farm (which we are doing in the TPP’s case) and B) the countries we sign the deals with actually abide by those new rules and create opportunities for US businesses in those countries. In reality, developing countries need to trap more dollars in their country than they let out (via importing goods) in order to grow and they do so in spite of any agreements they’ve signed. They can accomplish this by discouraging domestic companies importing foreign (US) goods through loopholes in these trade agreements.  We have seen the Chinese government do this effectively for the last 14 years since being admitted into the WTO via tricks; one common trick is holding imported goods like food in customs for 3-6 months for “inspection,” resulting in the spoiling of the product and a huge loss of money to the importer. The importer’s discouragement leads them to sourcing locally next time. Another method is through attaching unrelated licenses to tenders that only local companies can make use of. For every 1 MW of solar project license you secured in China, the government used to also offer up to 3 MW of coal power project licenses. The only companies that could make use of the coal license were of course Chinese energy conglomerates, so they bid to build solar below actual cost of the project just to secure the coal licenses, effectively preventing foreign companies from winning.  The result, China’s solar industry is 98% (guess-timate) dominated by domestic companies.  The US solar industry however allows full access to Chinese companies.  Not only do we buy billions of dollars of solar modules from China each year, but we allow Chinese companies that are financially supported by the Communist Party to bid and win energy supply contracts with local utilities.  I would call China clever, but it actually has more to do with US stupidity.   The TPP continues in this vein.

Hence the US balance of Trade with China exceeds a $450 billion deficit per year. In other words, over 10 years, US consumers and companies will send $4.5 Trillion dollars more to China than vice versa.  That’s a lot of money to send to a country that is arguably America’s biggest enemy.  As a reference, the Iraq war was also 10 years and only cost ~$1 Trillion.  How much have we debated the cost of the Iraq war and how little have we debated the trade deficit with China?!!

Back to the point of why the TPP sucks; the US, having written the rules of its own trade agreements, must continue to abide by them, even when the counterparties in them exploit loopholes when things are going their way. We essentially handcuff ourselves to our own rules even if no one else obeys them. The result: American companies move their manufacturing equipment and jobs to Asia, Americans who didn’t lose their jobs are happy because for 2 – 3 years we see cheaper prices on flip flops and t-shirts and christmas ornaments, but then in years 4 – 20, the effects of millions of jobs being lost starts to come back and drag down the economy, the health care system, and of course those individuals and families affected most.  Even more, very few American goods ever make it to those other countries.   If the politicians approving the TPP had ever been to Vietnam and visited average Vietnamese companies, they would not likely have believed the argument that US exports to Vietnam will increase.   Most equipment you’ll find there is cheap, no-name Chinese branded.  GE, Cisco, and Microsoft will win a few contracts, but they would win them anyway.  Pharmaceutical companies will gain stronger patent protection, but does it really need to be at such a high cost to jobs. High tech is a pillar of America’s future, but it shouldn’t be at the expense of everything else.

The reason I started writing this was actually due to one specific clause in the TPP, the Buy American clause. In the TPP agreement, the US government agrees to eliminate the “Buy American” mandate that requires US Federal agencies to buy material and equipment made in America for most projects they fund. Over $500 Billion per year is spent by US Federal Agencies (and via funding to states) on projects covered by this clause. Now, if TPP passes if the next month or so, Vietnamese, Japanese, Malaysian, Peruvian companies will all be able to bid on and win projects. That $500 Billion / year (~3% of GDP) will start being wired to Ho Chi Minh, and with it, a frick-load of American jobs.

For example, according to http://www.citizen.org/documents/buy-american.pdf , “The Federal Highway Administration (FHWA) requires all projects it funds to use 100 percent U.S.-manufactured iron and steel products and coatings. The FTA requires all projects it funds to use 100 percent U.S.-manufactured steel and to use manufactured products with 100 percent U.S. content. Rolling stock (trains, buses, ferries, trolley cars, etc.) components must have 60 percent U.S. content, with final assembly occurring in the United States.”

Bye bye all of that! Hello Vietnamese, Japanese and even Chinese government backed companies with offices in Vietnam. That’s right, even Chinese government owned companies will take advantage of this. They can send their steel to Vietnam, slap a “Made in Vietnam” sticker on it, and be able to sell to the US government now. This is the reality of how trade works.

Thanks Hilary and Obama for learning nothing from Bill Clinton’s admitted greatest mistake of his presidency (NAFTA).  Thanks for, with one deal, sending some portion of $500 Billion/year overseas for the next 20-50 years with only the hope that a small fraction of American companies will benefit in return.  See below how much of your personal income could now be heading to Asia rather than to your neighbor due to the loss of the Buy American clause.

Table:  Tax Dollars Going Toward Federal Procurement Annually

Tax dollars toward fed procurment 1

Tax Dollars Spent on Fed Procurement, broken down by State

See also:   http://www.citizen.org/Page.aspx?pid=5414
Full Table above:  http://www.citizen.org/documents/table-buy-american-taxes-data.pdf

So, is there anything positive coming out of the TPP?  Yes, the attempt to shift manufacturing of imported goods away from China to Southeast Asian countries that we have better relations with.  This is a worthwhile cause.  However, that should be achieved by directly changing the tax code for goods coming from China based on China’s refusal to abide by WTO rules, not locking us into another bad trade deal with no out-clause for when things don’t go as planned once again.

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The Environment Votes for Democracy

As we see from the pathetic results of the US congress in the past few years, democracy can lead to zero forward movement and feel like a worthless form of government.  However, I have been pleasantly surprised lately to observe how democracy does benefit the environment.

After my company was recently awarded a contract to develop impactful renewable energy projects (ones that meet strict social and environmental benefit standards) in Myanmar, I’ve seen first hand how this extremely impoverished country (minimum wage in the capital city is ~$3.50/day) is in some cases choosing a higher initial cost yet less-polluting energy path due to both its people’s values and democratic principles beginning to take hold. To clarify, Myanmar as a whole isn’t exactly a well functioning democracy just yet, but has been moving quickly in that direction since emerging from military stronghold in 2012.

Protest over proposed coal power plant

In Kawthaung, a small town in southern Myanmar, residents have been paying more than $0.35 / kWh (the average cost of power for US consumers is just 1/3, or ~$0.11 / kWh), the residents protested vehemently over the 2012 installation of a new coal power plant right outside of town.  Despite the coal plant reducing town residents’ energy costs by almost 50%, the residents felt the polluted air, respiratory problems, and other health concerns far outweighed the increased savings.  Earlier this year, the residents actually succeeded in shutting down the 8 MW coal power generation facility, a mere 3 years after it was constructed.  Today it sits idle and residents are back to paying higher costs, but with better living conditions and peace of mind. If we are successful in converting the coal site into a combined solar and biomass generation facility, the residents may get the best of both worlds – clean environment and cheaper electricity.

China on the other hand, despite 1000’s of similar protests over the past 15 years, paid little attention and built 900,000 MW of coal power plants, not to mention massive industrial complexes such as lead smelters, chemical plants, refineries, etc. often right in people’s backyards or adjacent to their farms. Chinese people now pay the price with ~10% of arable farmland polluted by heavy metals, and unbearable air and water pollution.

State-owned lead smelter in Tianying, China that has made much of the land uninhabitable. Photo: David Gray/Reuters/Corbis

State-owned lead smelter in Tianying, China that has made much of the land uninhabitable. Photo: David Gray/Reuters/Corbis

It is really remarkable the direction that countries will develop if a) people speak up for themselves and b) the governing system is structured to be impacted by those complaints.

From the looks of it, as long as the system is right, the complaints don’t need to be loud, impassioned, nor even expressed in a language we can read.

burmese woman coal

Now it’s time to get the US system right!!

 

 

 

 

 

 

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Life lesson from Tetris

A friend re-introduced Tetris to me recently. Since the last time I played it on a Gameboy in 1992, it has definitely changed.   However, in a couple ways it has remained exactly the same.  At the high levels, it become really difficult to keep up with the pace of falling bricks.  Also, as I should have predicted, it is still as addictive as it was on Nintendo and Gameboy.

Unfortunately, as was the case back then, I still couldn’t get past the mid to high levels -level 10 out of 15 was the barrier.  So, after thinking about it, I decided I needed to strategize if I was going to have any chance at defeating Tetris in this lifetime.

Experiment #1 – start at a higher level.  On the first try after starting playing from level 7, rather than from level 1, I made it to level 11. Within 48 hours I had made it to level 14.  To be clear, not all of those 48 hours were spent playing Tetris.

Long story short, I still have yet to beat the game, but I re-learned a lesson that I first learned when in middle school playing soccer in my backyard with my older brother.  If you practice with the best (I hope he never reads this), you learn to play with the best; if you practice in the bush leagues, the best you become is a bush league all-star.

Onward.  Thanks Maya.

 

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Plastic sucks! Nanjing, China

As I was leaving one of the more pristine and green spaces I’ve encountered in eastern China, Purple Mountain Park in Nanjing, I stumbled upon one of the site’s waste disposal facilities.  It appeared to by 75% plastic – plastic bags, food containers, cups.

Disposing of plastic food containers at Purple Mountain Park in Nanjing, China

I worry about what happens when China starts playing beer pong and flip cup.  Oh wait…

beer pong in HK bar

Billidart Bar, Hong Kong

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