Right in San Francisco

Made in China 2025

    Tariffs are only a weapon. China's "Made in China 2025" policy is the target. This week's announcement from Beijing that they will be revising the policy indicates that the weapon is hitting the target. Let's recap. 

    Chinese Premier Li Kequiang introduced the "Made in China 2025" policy in 2015 as a focused plan to move China up the value chain as a manufacturer, to increase local manufacture of critical technical components of items like cars and cell phones to 70% by 2025, and to challenge American leadership in key future technology areas:

    1) New advanced information technology and artificial intelligence (think Google and Intel);

    2) Automated machine tools & robotics (think Allen Bradley  and Epson);

   3) Aerospace and aeronautical equipment (think Boeing);

   4) Maritime equipment and high-tech shipping (think Korean or German);

   5) Modern rail transport equipment (think General Electric or European);

   6) New-energy vehicles and equipment (think Tesla);

  7) Power equipment (think General Electric and Tesla);

  8) Agricultural equipment (think John Deere or Catepillar);

  9) New materials (think 3M); and

10) Biopharma and advanced medical products (think J&J or Bristol Myers). 

    In prior Five Year Plans China had emphasized domestic innovation in targeted industries. Made in China 2025 changes the dynamic relative to foreign companies wishing to do business in China by seeking to capture and surpass global technologies.  The core reality is that the Chinese economy is comprised of state owned enterprises (often run by the military), domestic privately owned companies, and foreign owned private companies. Despite the incorporation of elements of capitalism, it remains a top-down, state-controlled economy, where nobody prospers without the approval of the Communist Party central authorities, and target industries and companies are subsidized by the government.  Despite Chinese assertions, the level of government subsidies and coercions violates the rules of the World Trade Organization which it was allowed to join in 2001.

     Until Donald Trump took on the growing behemoth with tariffs and the threat to leave the WTO, China was allowed to force companies with targeted technologies to give them up in order to participate in the Chinese market, while China stepped up a global effort to acquire technology through open source and clandestine means. Europe - with Brexit, and lesser problems afflicting France Germany, and Italy - is in no position to lead. With a century-long stigma, Japan is in no position to lead.  The TransPacific Partnership was an effort to assemble an alliance of smaller countries in the effort to reign in China, but at least for now the essential American participation is off the table.

    For clarity, global telecommunications equipment giant Huawei provides a good example. The Trump administration has asked many of our allies to buoycot their equipment because of the intelligence gathering nad potential strategic sabotage capabilities of its network. (The arrest of the company's CFO in Canada for violation of sanctions on trade with Iran is a flashpoint, but not really the driving issue.)  This week's identification of Chinese intelligence services as being behind the hack of Marriott's and several other data bases also provides a public example of Chinese government capabilities and attitudes toward the use of Information Technology to further their development goals. And then there are the 340,000 Chinese students at American colleges and universities. 

    As a very big first step in the agreement between Trump and Xi Jinping to delay the imposition of  increased tariffs, China has announced a change to the China 2025 policy to exclude smaller local companies from its mandates, and perhaps reduce the amount of "local content" required in finished products. More will be needed - doing away with joint venture requirements; a reduction in state-sponsored technical espionage; acceleration of approval of imported products without coopting the technology.

    With apologies to the farmers and oil companies, the trade problem with China will not be solved by increasing their soybean and natural gas imports.  It will require fundamental change to Chinese industrial policies and Trump has gotten their attention. China's leaders think strategically. So does Trump, even if Wall Street runs on quarterly profits. 

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    This week's bonus video covers the highlights of the acrimoneous Trump/Schumer/Pelosi meeting on funding the wall. One cynical perspective - Trump staged this televised meeting to help Pelosi with her base as she was trying to win over the Democratic caucus to again become Speaker of the House. They can count votes and do deals. 

bill bowen - 12/13/2018

     

 

Beyond ObamaCare: The Evolving Biotech Age

    Premise: The age from about 1910 (Henry Ford) to 1969 (moon landing) contained astonishing advances in transportation. The age from about 1969 (ARPAnet)  through 1980 (Apple II), 1998 (Google) and 2004 (Facebook) contained astonishing advances in information technology. The age beginning  in the late 20th century with DNA mapping and the decoding of the human genome offers a third, likely just beginning, age of astonishing technological advance. All have been American-led; all have exhibited extensive cooperation between the private and public sectors.

    Let's look at a few of today's biological technology headlines in that light.

    1. One of the downsides of the hyperpartisan debates over Obamacare - beyond the increased costs and the intrusion of the federal government into personal health decisions - is the unknown consequence of overturning one sixth of our economy. Some elements, such as the medical device excise tax, have a direct effect of inhibiting investment and invention; others, such as arbitrary service and funding mandates for hospitals, will have a negative impact on research; but, the biggest risk is that cooperation between the private health care sector and government is being traumatized.

   2. On October 9, Gilead Sciences announced FDA approval to sell a once-a-day pill that can cure Hepatitis C in 8 to 12 weeks. With 150 to 200 million sufferers globally, a great humanitarian breakthrough - right? Well, not so much. Gilead will charge $1000 per pill in the US, while contracting with generic manufactuers for the undeveloped world to make the wonder drug available at about $10 per pill. Sometime in the next year or two there will be a debate about how much Medicare and Obamacare insurance policies are required to cover, how research costs are compensated, and who decides who lives and dies when pharmaceutical companies charge more than society can afford to pay.

   3. The early stages of the Ebola epidemic demonstrate that, despite billions spent on the World Health Organization and the Center for Disease Control, neither the world, nor the United States is prepared. There is a tendency to put the tragedy in political terms - Democrats running graphic ads blaming Republican budget cuts (although the current Republican budget contained greater funding for the CDC than Obama requested); the politically-correct World Health Organization blaming the spread of disease on global warming. The reality is that the CDC was unprepared - no clear designation of primary care facilities; no protocol for travel by attending health care professionals; no clear plan for curtailing air travel or increasing inspection at designated airports. Most disappointing is the absence of a credible senior leader to prominantly explain the nature of the problem, what is being done, and what the individual should do.

   4. On the positive side, the application of biological science to yield improvement in agriculture - highlighted by Monsanto and DuPont - has allowed the world population to grow from 5 billion in 1987 to over 7 billion today, accompanied with rising standards of nutrition, while providing some moderation on pressures to convert forests to farmland. Fortunately, the majority of the world is more interested in feeding itself than are the ideological "parties of science" in the United States and Europe who rail against genetically-modified foods as science is applied to reduce the need for water, pesticides, and fertilizer.           

    For those bemoaning the decline of America in diplomatic, military, or economic terms, there is hope for continuing technical ascendency based on our primacy in research universities, the attractiveness of America to global talent, and the generally cooperative relation between government and private enterprise. Hopefully Barack Obama, Joe Biden, and John Kerry will keep out of the way.

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This week's video is the President's totally uninspiring public statement on the Ebola crisis.

 

bill bowen - 10/17/14

The NASA Metaphor

    Many know that wounded Congresswoman Gabby Gifford's husband is an astronaut, but few seem to care that the last American space shuttle mission launched on July 8.  

    I've got an economist-type problem: On the one hand I enrolled at the USAF Academy in 1962 intending to learn to design spacecraft, in part in response to the Sputnik launch in 1957 and Yuri Gagarin's 1961 initial space flight. (Calculus 221 intervened.) On the other hand I believe that extreme measures are needed to close our $1.5 trillion budget deficit. We face tough choices.

    A few factoids:

        -  The FY 2011 budget for NASA is $18.45 billion, compared to $14.3 billion a decade earlier.  In inflation-adjusted dollars the budget has stayed at around that level since 1962, with the exception of the mid 60s when it doubled at the peak of the moon effort.  President Obama's budget framework foresees expenditures remaining at about this level for the next five years. The agency has plenty of powerful political, public, and business advocates.  

        -   While there is no plan for any further moon landings (the first of the six was in 1969; the last in 1972) or American shuttle flights to the International Space Station, NASA's strategies call for continued active scientific use of the US built and Russian-serviced station, early developmental work on capabilities to explore further out into the solar system, and private enterprise options for low earth orbit missions.  President Bush had planned to use the savings from ending the Space Shuttle program to extend the life of the station and to return to the moon in a larger way in 2020; President Obama cancelled the moon program in what former astronauts Neil Armstrong, Jim Lovell, and Eugene Cernan call "a long downhill slide to mediocrity."

        -  In one way or another NASA has given us things that don't matter to most people (a close analysis of the composition of our neighboring planets; a look into origins of the universe), a lot of things that do (global positioning satellites; weather forecasting, telecommunications, medical, and transportation breakthroughs), and a sense of national pride.

    And the melancholy:

        -  In the long sweep of history the first steps of Neil Armstrong on the moon on July 20,1969, will be the most important event in a century or perhaps a millennium. My wife and I happened to be in downtown Montreal where euphoria reigned.  It will be generations, if ever, before a similar uplifting experience is available to the grand-kids of our grand-kids.

        -  The space program, instigated by the shocking Russian successes and responding to President Kennedy's commitment and inspiration vividly demonstrated the best aspects of America in an era where we were preeminent in virtually every field.

        -  On a personal note I went to school with Fred Gregory, the first African American astronaut and a deputy administrator of NASA.  Fred's journey mirrored the nation's.

    So, the American space program is now a large stable bureaucracy with no clear (or at least interesting) objectives. We rely on the Russians for transportation to the International Space Station.  The Chinese, with whom Congress has prohibited space cooperation, have plans to start assembling their own space station this year, launch a lunar probe in 2013, and put a man on the moon some time after 2020. Those who favor government 5 year plans over free market capitalism applaud.  Some wonder why we are spending our money on fast trains to nowhere.

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    On an optimistic note, this week's video is classic Ronald Reagan - explaining his principles and American exceptionalism.   His slogan "Yes We Can" related to much more than winning elections.

bill bowen - 7/15/11

        

Fixing The Financial System

When Barack Obama became president in January, the American people had two priorities: stop the implosion of the economy; and fix the system so that it doesn't happen again. How's it going?

By most measures (except unemployment and credit for small businesses - see the November 20 blog) , the implosion has stopped, particularly for Wall Street. Economists will long argue about the natural course of the business cycle and the long term implications of our massive debt, and politicians will long argue about the Stimulus Plan, TARP/TALF, home purchase incentives, mortgage restructuring, the auto bail out, and "cash for clunkers", but the reality is that the "green shoots" turned into Gross Domestic Product growth in the July - September quarter, and those consumers who have jobs seem to promise a decent holiday shopping season. Priority 1 - implosion stopped. Mission Accomplished (to coin a phrase).  

The same cannot be said about Priority 2 - understanding and fixing the root causes.  What has been done? Other than compensation limits for TARP recipients, very little indeed.  What is needed?

1. Eliminate the "too big to fail" problem for large, complex banks which received billions in subsidies after the collapse of Lehman Brothers. Options include reinstitution of the Glass-Steagall Act (rescinded in 1999) which separated commercial banks from investment banks; other downsizing alternatives; a protocol for managing bankruptcies; increases in capital reserve requirements; an overarching regulator; international agreements. Maybe some day, if Goldman Sachs agrees.

2. Require greater transparency and control over trades in derivatives such as  "credit default swaps". Perhaps require that trades be done on an exchange instead of back rooms. Maybe some day, if the hedge funds agree.

    3. Overhaul the directly responsible agencies - Fannie Mae and Freddie Mac who buy most of the inadequately secured mortgages. And the rating agencies who gave AAA ratings to bundled garbage. Maybe some day, if Barney Frank agrees.

   4. Restructure the regulatory framework for banks, hedge funds, consumer lenders, and sundry financial institutions.  In another case of "leave it to Congress", we have radically conflicting bills from Barney Frank's House Financial Services Committee and Chris Dodd's Senate Finance Committee. Centralize - disperse. Elevate the Fed - subject the Fed's monetary policy to congressional oversight. Settle some scores with Sheila Bair at the Federal Deposit Insurance Corporation. Settle some scores with Tim Geithner at Treasury. Lets have Ben Bernanke grovel with the Senate for his reappointment at the Fed. We will apparently get a Consumer Protection Agency to control the abusive practices of banks on credit cards and mortgages - although the prior was not a factor, and the latter was just one of many causes.  Maybe it would help to go back to the dormant proposals of Hank Paulson in April of 2008.

   One of the missing points on the health care debate is the misdirection of the Left's priorities. In the short run it should be "It's the economy, stupid", and in the long run it should be the huge deficits which will squeeze out of funding for education, national security, and anything else. Why Obama put all of his eggs into the "increase health care from 16% to 17% of the national economy" basket instead of concentrating on the economy defies explanation.

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  This week's You Tube is from Barbara Boxer, the chair of the Senate Environmental Committee, dismissing the recent exposure of e-mails showing systemic manipulation of climate data, and emphasizing the criminal activities of the whistleblower. Science is sacred, unless it is not.  Unfortunately, the Al Gore crowd has precluded an objective discussion of the last 10 years of data showing no global warming. (See my October 29 blog for a balanced view.)

bill bowen - 12/4/09

Favorites: 
    1. Mitt Romney's "Free and Strong America" PAC web site. 
    2. Tom Campbell's California governor campaign web site

The Somali Test

   As part of early child development, there is a question by all kids about what to do when confronted by a bully.  Generally, the answer is to not seek conflict, but if necessary be prepared to defend yourself on the assumption that one or two demonstrations will be enough to deter your potential tormentors. Whether you leave it at that involves some cultural and gender differences.

    Last week's incident in which four lightly armed criminals held off the US Navy for five days  brought a number of historical comparisons - Jimmy Carter's 444 days with  hostages in Iran, including a failed rescue attempt; Lyndon Johnson's 1968 saga with the USS Pueblo spy-ship in North Korea with the crew released after eleven months; Gerry Ford's abortive Mayaguez incident with the Khmer Rouge in 1975. Or, the Israeli rescue of hostages at Entebbe, Uganda in 1976. Fortunately, the conversation in the coffeehouses around the world will be about the Navy SEALS who were able to fire three perfect 25 meter shots from a moving destroyer into a bobbing life raft in the dark. Some will note the answering of Easter Sunday prayers. And Captain Richard Phillips will join US Airways pilot Chesley Sullenberger, the passengers of Flight 93, and the 9/11 firefighters as examples of American character.

    For President Obama, whose approval was required, the stakes were high. Domestically, he could not appear impotent as he tries to unwind the Cold War era policies relative to the Cuba, US-Soviet nuclear armaments, and defense contractors.  Internationally, he appears disinclined to confront the emerging nuclear threats of Iran and North Korea, and his decision to close Guantanamo comes without a clue as to how to deal with real terrorists.  Payment of a ransom for an attack on a US flagged vessel taking food aid to his father's country of Kenya would not appear to have been an option.

    But where from here? With some 20 boats and 300 hostages in the hands of Somali pirates and continuing hijackings, the time would seem to be right for a repeat of Thomas Jefferson's cleaning up of the Barbary Coast in 1801-1805.  From a distance, the tactics do not seem too difficult - a blockade of offending Somali ports; sinking of a few pirate "mother ships"; alliance with an amenable warlord or two to provide stable governance. At least the French would seem to be with us. To the voices of the left who are already challenging the severity of the Navy's actions and the potential for a fair trial of the remaining hijacker, nothing short of apologies would be adequate. For many, the Revolutionary War slogan "Don't Tread on Me" seems more appropriate.

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        This week's You Tube (starting at about a minute into the video) is a discussion between Energy Secretary Chu and Illinois representative Judy Biggert about the administration's approach to nuclear energy. While she is very knowledgeable and supportive (the DOE's Argonne laboratory is in her district), his tap dance is most disingenuous and disappointing. 

Bill Bowen - 4/17/09

Obama's Science Team

        The past month has had such focus on Tim Geithner and the "Stimulus Package" that there has not been much air left for other aspects of the Obama administration, such as his December 20 appointment of his science team. In many regards, they are most impressive:

    -  John Holdren, an environmental professor at Harvard, will be Director of the White House Office of Science and Technology Policy, among other titles;

    -  Harold Varmus, a Nobel laureate with a focus on cancer research - and a current book titled "The Art and Politics of Science" - will be co-chair of the President's Council of Advisors on Science and Technology (PCAST);

    -  Eric Lander, a biology professor from MIT, and a driving force behind the discovery of the human genome, will also be a co-chair of the PCAST;

    -  Jane Lubchenco, an environmentalist and marine biologist from Oregon State, will be head of the National Oceanic and Atmospheric Administration; 

    - Added to this group should be Steven Chu, a Nobel laureate physics professor from Cal Berkeley who will be Secretary of Energy.  

    In the long run, America's prosperity has been based in large part on a unique ability to commercialize leading technology. The Wright Brothers; Thomas Edison; Henry Ford. In recent times, Steve Jobs, Bill Gates, Larry Page/Sergey Brin (Google).  Basic research comes from our world-leading graduate schools, and from the government (the nuclear Manhattan Project; NASA; the Internet), and the resulting private businesses have been magnets for global talent and capital.  

    One can hope that the Obama administration does two things with these leaders:

    1. Sustains the undergraduate and post-graduate academic fountain, including National Science Foundation project funding.  The explosion of information technology in the past few decades will be matched by biological technology in the next, and principled US leadership is essential.

    2. Acts in a fact-based manner at the intersection of the environment and economic development. Applying the scientific method (assembling data; creating hypotheses; seeking conflicting data; testing; revising hypotheses), they should ask:

        a. Is the planet warming?

        b. To what extent is this a function of man's activities, as opposed to natural cycles;

        c. What is the cost-benefit of specific measures to arrest the trend?

    If the country is to eventually make its way out of our economic trough, and if our best days are ahead of us, it will not only be because we get back on a prudent financial path. It will also be because we continue to be the best in the world at harnessing technology, and remain practical in our trade-offs. Democrats have complained about politics influencing science from the right; now the risk exists from the left.

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     This week's You Tube is a brief Jay Leno riff on Charlie Rangel, the Chair of the House Ways and Means Committee - a bookend for Tim Geithner on writing and implementing the tax code. Where is the outrage?

Bill Bowen - 1/30/09