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He has a vision, though we can debate the merits of that vision, I agree he's a pretty vulgar individual and his execution is often appalling. But was “decades of American policy” sustainable? The permanent deficit only makes sense if you can serve the growing debt indefinitely. Why should we assume that this can hold? As I've said multiple times, Trump is correct in his diagnosis even if ham-fisted with treatment. If America becomes materially productive, it will diminish European share of the pie, you can't sustain your consumption with just soy and LNG exports, something has to give. Or what is the idea, make AGI and sell tokens instead of IOUs, in exchange for TRUMPF machines? I guess that can be argued, but far as I can see, nobody argues for this. Do you argue for this?
It wasn't so much about trade autarky as about comprehensive intellectual isolation and stagnation, the Qing did not understand the world outside China's borders and honestly bought into the idea that they'll naturally be productive enough to not worry. Qianlong still had some clue, thanks to Heshen, who was ultimately executed for vast corruption, leaving the Qing blind for decades. Then, it was too late and they grew too dysfunctional to modernize like Japan. By First Opium War, Daoguang emperor didn't know where Britain is. It was a pathological regime preoccupied with managing a quaint and unnatural arrangement of Manchu superiority. I definitely won't say their trade policies made sense but it is just a small part of overall Manchu awfulness. Though to be fair, Manchus were following the Ming with their tryhard Confucian disdain for trade. By 1736, China had mostly lost its ironworking. Insularity is the dominant Chinese policy for many centuries. We need to go back like 1000 years to see China that's even remotely as trade-oriented as the modern one. And yes, none of this is plausible in the modern world with high-density information flow.
Anyway, what does it matter? People complaining that “China is making trade impossible” don't mean anything like Ming-style ban of maritime commerce. They mean precisely the opposite, that Chinese exports are too cheap and abundant, and call it unfair. What exactly do you want them to do? Enforce the internal demand for more expensive foreign goods, such as subsidizing private consumption of Macbooks? Get worse at manufacturing? Make their subsidies as ineffectual as European ones? Focus on welfare spending, until they get old, slow down their value-add climb, and fall behind far enough to balance trade? It's just hopeless demands to change their value system, they won't change it. Keep raising tariffs if you don't want to compete on prices. 100% on EVs, 200% or whatever on solar panels, outright ban on Huawei… seems to work, keep going. American deficit with China is already shrinking.
American hegemony itself is a very recent phenomenon, and may have run its course. America was a relatively prosperous and absolutely powerful nation before it became “a hegemon” and so massively involved itself in Old World affairs, for intrinsic reasons of having a large internal market, little red tape, and good geography.
Your security guarantees don't look very credible and monetizable now.
I don't oppose any of that, it's fair game so long as it works. By coercion I mean buffoonery like forcing allies to invest in American production or Lutnick's machinations around TSMC (again, “security guarantees” come into play). China simply can't do any of that, irrespective of morals. It can only offer terms of the deal and expect consent. JVs were not coercion. Expropriation of Trina Solar, meanwhile, is coercion with extra steps. But whatever, this is sliding into moralism, everyone will price in those tactics and act rationally.
Pretty much, but that doesn't change the conclusion. The US is a vast economy. China is becoming comparably vast (or is already bigger depending on how you count), and specifically on goods production it's just no contest. Such economies gravitate towards autarky, both for security and macroeconomic reasons and because of basic logistics.
I repeat that Chinese household consumption is underrated due to in-kind transfers (such as all this public infrastructure), while American consumption is overrated due to Baumol disease. CF40 doesn't just argue that they're even richer than PPP suggests, and consume on par with developed economies (just not the US). It argues that they spend 20 times less on healthcare and get comparable outcomes. Americans cannot not consume some of these items, their floor for cost of living is just too high, you physically cannot survive in a modern city for $137 a month for two people over 3 years, and for the Chinese the ability to do that is subsidized by in-kind transfers. There can be a spirited defense of American consumption pattern, about allocation efficiency or whatever, but the crux is that while the Chinese are directly extracted from to build up physical capital and trade competitiveness, Americans are indirectly extracted from to make pharma/hospital/insurance company etc. stonk go up, charitably – fund R&D and reinvest into tech. The latter is accounted for as “consumer spending”, the former is not, both are effectively non-optional capital transfer from civilians to the national backbone, largely physical in their case and largely financial in yours. I think that when all is considered fairly, both nations have about 50% “real consumption” share of GDP.
Right. That's the big question, isn't it.
I could go on at length about my problems with Trump but at the hope of not starting too many skirmishes with this forum I'll limit myself to saying that Trump's gift is identifying an aggrieved feeling in his base and validating/stoking it. If that means vanquishing woke, which I mostly agree with, he will try to do that. If that means striking at China who much of his base holds responsible for decaying rust belt towns then he'll do that. He is not setting out to balance our budget or deal with the infinite deficit, he has increased the deficit. Long term sustainability is not something he cares about, part of his appeal that got him elected was dumping the idea of sustainability by breaking the GOP on Medicare's obvious unsustainability. He's a slop populist that refuses to acknowledge trade offs, a national embarrassment. Perhaps the only thing worse than him being in charge is the Bernie wing of the democratic party that looks to Europe's fat decay into a retirement home with envious eyes and wants to squash our attempt at relevance through ai dominance with pure stupid ludditism.
If you've said Trump is right in his diagnosis of the American sickness multiple times then you've been wrong multiple times, Trump doesn't know about or even think about the American sickness. He has diagnosed the ugly populist urgings of his base and as people are often mad about real problems sometimes strikes out at those problems in total ignorance of their structure. Our problem has something to do with trade so he strikes out against trade, broadly, untargeted and with great zeal.
well no, it's your model that we should be trying to sustain our consumption with just Soy and LNG exports, the raw commodities while every nation does their own production. I think we should continue to try and dominate in aerospace, tech, entertainment and other industries. We should happily let ASML dominate in fab design, TSMC dominate in fab execution(although China hungrily eyeing their island for conquest does justify some industrial policy to move that particular industry into safer territory), Samsung dominate in RAM and maybe we could encourage some home grown competition but integrate with the partners without like, doing state sponsored spying on their designs to that end.
I have to point out that China is led by an aging dictator who has progressively isolated himself from the type of people who would bring him bad news. The whole autarkic emperor blinded to their weaknesses and his subjects being afraid to tell him he's wrong seems to me at least as good of an explanation for denial of NVDIA imports as some pending competitive domestic chip manufacturing that you seem to think is likely. And it parallels nicely with your history lesson, which I do genuinely appreciate. I try to not let my bias for democracy show too prominently in my analysis, but it seems important to point out the downsides here and also that it's not clear how succession after Xi is done is supposed to work smoothly.
What I'd like is kind of like an onion, we've got a few layers here.
At first are the demands I have for my own government that started our back and forth a while back. I want to not surrender our advantage for no real gain. You seem to oscillate between claiming NVDIA is going to establish some kind of vendor lock in while also celebrating an impending Chinese internal semiconductor champion that will make refusing to export toothless anyways. Either lock in is real or it isn't. If it's real then surely China's efforts won't mean much if they can't even get their national champion to use their home grown chips. If it's not, and this is my position, then we should under no circumstances allow NVDIA to export our most powerful chips to China. And I don't want to hear any free trade paeans on this, China wipes its ass with free trade.
As for what I want China to do. Well I do have family there now, they're more privileged than most Chinese people so the reforms I'd like aren't exactly for maximizing their benefits, but I'd like China to shift its focus from out competing the world and territorial conquest to getting its internal household consumption up. I'd like further Hukou reforms so there are fewer second and third class Chinese citizens. I want to see more of the returns from China's growth go to improving the quality of life of Chinese people rather than Xi's vanity in needing to dominate every market that exists. Step away from autarky. Perhaps geopolitically untenable but I'd also like to see them stop aiding Putin in his horrific war in Ukraine. Of course this is a bit of the awkwardness that I've just listed a bunch of things in the "what if we pretend AI is a mundane technology" world. What I want China to do if AI is a pivotal technology is to lose to America in a race to develop it, I would understand if Xi declined, but he doesn't seem particularly AI pilled honestly.
which ones don't? Yes, Trump is a bully to our allies in an embarrassing and disgusting way, but the line people are fighting over right now is how much we should be materially supporting people who aren't even our allies and just have implicit value to people that are our allies to prop up.
I'll continue to not want to defend Trump policies but will point out that this is similar in effect to Chinese Market access for IP and tech transfer policies where China gets a substantial amount of the return on foreign investment and then forces the foreign competitor out once it can replicate the production anyways. At least Japan would get some lasting equity in this deal formulation. China's high-speed rail program was built on technology transferred from Siemens, Kawasaki, Bombardier, and Alstom. Do those companies or their home countries enjoy any stake in CRRC's international expansion?
There's a big difference between aggressively pursuing autarky and just the natural internal trade that exists because you're a big country and most of the things you buy aren't hyper specialized products. I keep hammering this because it's important. America doesn't, or at least didn't, see it as a problem that its most advanced chip products are the result of cooperation between firms for dozens of countries. Yes, if you're buying groceries in the US then naturally they will be sourced relatively locally and generally the most common things a person consumes are commodity and service products that don't gain much by having a long supply chain. Every local area is probably going to need to answer the "where do we get milk from?" question in their own way. Not every local area should try to answer "how do we design cell phones?" for themselves. If they have a competitive advantage in cell phone design, or some step of the process, then sure go ahead, but autarky is the madness that has Trumpists trying to figure out how they're going to produce coffee beans in the contiguous united states hundreds of miles from where they can grow effectively.
well, kind of. The high speed rail buildout you may have a point. But the excess industrial buildout? That's going into exports. It's the Americans and Europeans enjoying discounted goods that is enjoying the surplus here. At least the American excess spending is circulating among American Doctors and Pharma companies, which yes are actually making miraculous drugs.
Baumol's applies to all sectors, household, state and industrial at least equally, probably more to state, so this can't explain inflated household consumption as a percent of gdp. It's the same factor in all sectors, it cancels out.
Normally if a point isn't responded to I don't insist on bringing it back up but I need to make an exception here. It's really important that the whole Chinese industrial production system relies on exports and the CCP has been unable to change that fact despite ticking past two five year plans of it being a goal. It just is the case that Chinese people enjoy less of the fruit of their labor than Americans do.
It certainly seems like a question central to the world of inward facing nations you're putting forward. How is China getting the 70+% of its oil imports in this future? The iron ore? The soy beans? Surely they have resources but this seems a hollow sort of autarky.
OK, but how does this make the previous system sustainable? You consume more than you produce, and you cover the delta with IOUs. It's a time bomb, people just got accustomed to the explosion being repeatedly postponed, developed a mindset that American “reserve currency” grift is so strong that this is no biggie. I think they're wrong.
Unfair. As you can see I'm arguing in favor of selling high-end GPUs, where you actually dominate. Soy and LNG obsession was Trump (before recent course adjustment).
You currently can't “not let” them dominate there, they are simply dominant, like you are in aerospace, so it's not exactly a choice. And in your own logic, all of that “let” becomes effectively charity soon after you have AGI (unfortunately, a necessary evil to fight Red Chyna!). It's just a question of maximizing comparative advantage by tolerating division of labor, while you complete the Total Labor Eraser Machine 9000; in fact a continuation of the earlier mustache-twirling “let the broke ass yellow bugmen assemble our gadgets for pennies, while we deepen our design and basic research dominance” strategy, justified by the Smiling Curve logic. Sorry, one doesn't have to be Xi to see how it works.
And of course, your personal distaste for Trump won't change the reality of him forcing allies to rebuild their core industries in the US. This is American policy for the foreseeable future and I don't think it'll be rejected by the next admin, like Biden didn't reject and only reinforced core pillars of Trump's China policy.
Xi was born in 1953. He's 72. Trump was born in 1946, like George W. Bush and Bill Clinton. I get the “leaders are like underpants” logic but humans are not really underpants, which quickly get dirty but do not appreciably age in storage; and I wonder if a well-functioning autocrat really is worse than a structural inability to elect people born after 1946 AD (Biden dates back to 1942, of course). Xi's father lived to 89, after 16 years of persecution. A very interesting man. Xi's mother is apparently still alive at 99 years of age. I think Xi is pretty damn lucid and will remain so for another decade, and the “progressively isolated from bearers of bad news” bit sounds like a lazy trope. Maybe Zero COVID applies but that was more about excessive paranoia than desire for good news. He's quite obsessed with calamity consciousness and “preparing for danger in times of peace”. Xi's China has systematically derisked its position, to the extent that when Trump ranted “the U.S. has Monopoly positions also, much stronger and more far reaching than China's. I have just not chosen to use them, there was never a reason for me to do so — UNTIL NOW! … For every Element that they have been able to monopolize, we have two.” – it was hot air.
Apparently you think that the reason China could only take export controls on the chin 6-2 years ago, and can clap back and force US concessions now, is just that Trump is a venal corrupt moron and in fact he did have those two elements. The fact of the matter is that he used to have them but does not anymore, because Xi is not like Trump, nor like Putin. In 2018, when Trump cut ZTE off from US kit, Chinese state newspaper “Science and Technology Daily” published a series of 35 articles “What Are Our Chokepoints? Core Technologies We Urgently Await Breakthroughs In”, obviously building on Xi's rhetoric. I recommend reading it in detail. Xi kept scolding everyone for not doing enough – in 2020, in 2024. As of now, at least 30 out of 35 items are deemed solved. We know very much about their efforts to break all such chokepoints, they are in fact increasingly well organized, the graft of Big Fund I was eliminated. This is not the behavior of a delusional autocrat in an echo chamber. Your whole society looks more like an echo chamber, given how shell-shocked DC China Watchers were after Oct 9, how they kept saying that Xi miscalculated, overplayed his hand or whatever. He clearly did not.
But I don't expect to convince you. “Arrogant power-hungry strongman kills goons who report bad news” is a staple of your scholarship, a justification of your system, and a powerful trope of your media culture. After all, Free American Men do not need to stoop so low as to seriously scrutinize the policies or behavioral profile of some bugman chief (who wasn't even born in 1946 AD). It's not like there can be any consequences of being wrong.
I think they're much more afraid of lying than of any demotion for underperformance, because being implicated in some graft gets you expelled from the party, jailed or executed, and the CPC is designed with good incentives for mutual surveillance. Of course there's the American trope/cope that corruption investigations are just selectively applied for “purging rivals”, everyone is corrupt and corruption adds no risk. We'll see. For now, you can be thankful to Xi for doing USG's proper job of not letting advanced chips into China.
I don't oscillate, those processes are just in tension. Liang Wenfeng said: “NVIDIA’s dominance isn’t just its effort—it’s the result of Western tech ecosystems collaborating on roadmaps for next-gen tech. China needs similar ecosystems. Many domestic chips fail because they lack supportive tech communities and rely on secondhand insights. Someone must step onto the frontier.” And yet even DeepSeek has not yet trained anything on Ascends. You need usable chips and frontier AI talent, working together. Frontier talent has options – go to the US, work with domestic chips under duress, work with Nvidia chips in the PRC (but those were becoming scarce), work with domestic chips because they literally are the only thing they can get, and so on. Nvidia can create a vendor lock, not unbreakable in principle, but sufficient to slow down their ecosystem and prolong the vulnerability to export controls. Domestic chips will have both low utility and slower hardware progress if domestic software has no adoption at the frontier. China ultimately wants good AI and less talent flight (that is a thing, you realize) and so won't meddle egregiously in frontier roadmaps.
Their plan seems to be letting Tier A labs do what they want with their own money, subsidizing power for domestic compute, forcing Tier B to match procurement of Nvidia/AMD with domestic compute, and building public datacenters with domestic compute. In time, this will result in an okay-ish domestic ecosystem and wider adoption of those chips, after which they may require, incentivize or naturally get some frontier training runs. But the end goal is to downgrade Nvidia from a chokepoint to basically another commodity, not ban it. They can ban commodities in retaliation, as with soy, but it's not about a commitment to never buy American produce. So long as they have security and optionality and it makes basic economic sense, they don't mind importing soy, or LNG, or chips, or airplanes, or anything.
indeed. Except, “every market that exists” is the same issue as a singular pivotal technology. The simple fact is that either you move up the value chain relentlessly, or you get some sort of “lost decades” or “middle income trap” and then you're American chewing toy. When you actually have the potential to be a great power and not just some cute intermediate supplier with no security like the Netherlands, Americans will chew on you until you have no potential. China is not special, it's just the only remaining contender after Europe and Japan were done with. Clearly an American can have Chinese family and remain committed to the hegemonic project. All you can offer to the weak is to be in your orbit, sell cocaine or cheeses or whatnot; all you can offer to the strong is defeat. That's normal realpolitik. I just want you to acknowledge that the noise about “quality of life of Chinese people” is disingenous.
Bought and paid for, minor (yes, minor) extralegal fraction aside. Unlike Japan, these nations were not forced to transfer technology under duress, as China does not control their security.
There's also a big difference between being on the giving or receiving side of export controls and Wassenaar Arrangement. This isn't about Xi bad, Americans have been working to keep China non-competitive in the semiconductor segment for at least over three decades: “We found that the executive branch practice was aimed at keeping China two generations behind the U.S. semiconductor manufacturing industry. On March 1, 2001, the under secretary for export administration (a policy-level official), described this practice and reconfirmed it in a follow-up January 2002 meeting with GAO after he left office”. That's “Jiang Zemin good” era, growth, engagement, all that soapy bullshit. Meanwhile, your semiconductor industry is heavily dependent on Chinese brains. I won't moralize on the hypocrisy and laughable entitlement, obviously you feel entitled to allocating progress conditional on how much you like a given regime. After all, “if we weren't worthy, they wouldn't have come”. The point is that even modulo their autarkic preferences, proactive derisking – for every industry with a chokehold – makes perfect sense.
Speaking of local cell phones. I loved Nokia. Very cute story of plucky little Finland doing well in tech, connecting people, all those 3310 memes. The era before total Chimerica dominance. Was pretty sad when it got killed. I recall @Stefferi even speculated that it led to the decline in birth rates. I suspect Elop did that intentionally, though he just wanted to deliver fresh game to Microsoft and fumbled the company altogether. Now it's either iPhone or Chinese phones, and you tried to kill Huawei too.
This is partially fair. There are two components to this. One is subsidizing the base undifferentiated layer of economy - energy and raw materials, agriculture, infrastructure, “wasteful SOEs”. This makes it possible to not just produce anything effectively but discover new physical products faster, without the pathologies of American financialization. Another is provincial competition with duplicate companies and “involution”, spurred on by national plans like MIC 2025. Not even Xi likes involution, but they seem to be unwilling to tackle it, because it also produces very fit companies. Overall, I think that in the long run this strategy works fine as it makes goods cheaper very quickly at the cost of slower growth in nominal consumption.
Well, it's fueling Chinese pharma companies too, and now they're licensing miraculous drugs to you, and you buy the end product at 30-fold markups. “In China, a single-dose vial costs US$280 but in the US it will have a wholesale price of US$8,892”. Though the US distributor, Coherus, classified as a manufacturer, captures 80% of this markup, on merit of its role in dealing with the FDA. Who knows where we'd be if the Chinese could rip you off directly. Maybe all cancer would've been solved already, and your healthcare would've been cheaper too.
Maybe but that's a quantitative question, I think rent+health+education are uniquely Baumoled in the US relative to China (which subsidizes them), constitute non-optional spending, and cover a large fraction of the gap. The accounting of US consumption is pretty different from Chinese approach too, as @FrankishKnight explains here. Anyway, as I've said, low Chinese household consumption is not more anomalous than high American one. Nations have all kinds of ratios, and the US ratio is not characteristic of a prosperous state.
Those are worth peanuts in comparison to their current trade volume and surplus. They'll be fine, at least it won't be their biggest problem. If the world stops buying their ships, they also won't need quite so much iron.
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