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Balaji Profile picture
@balajis
Feb 26, 2022 • 14 tweets • 6 min read • Read on X
Start with four camps.

1) The US is not in decline

2) The US is in decline, but it can be reversed

3) The US is in decline, and it can’t be reversed

4) The US is in decline, and it can’t be reversed, but we can blunt the impact and build a new liberal order on the other side
Camp 1 are those who dispute the US is in decline.

Many people are in denial. Some get mad if you point at qualitative and quantitative evidence.

But only the paranoid survive. Denial of decline means you cannot even diagnose the cause, let alone take measures to reverse it. Image
Camp 2 believes the US has declined, but it can be reversed.

While they have *very* different visions of what that reversal means, both centrist liberals like my friend @Noahpinion and MAGA types want to see America “awake from its slumber” and start kicking butt again. Image
Camp 3 are those who believe the US is in decline, it can’t be reversed, and that this is actually good.

This includes people on the anti-imperialist left, on the paleocon right, and many foreign powers — not just traditional rivals, but others that don’t like US intervention. Image
Camp 4 is where I am. I think the US was on balance a force for good till recently. I don’t think decline is reversible — it’s barely acknowledged. But I also think we’ll miss it when it’s gone.

So: how to defend liberal values when the US isn’t globocop?
foreignpolicy.com/2021/12/11/bit…
The US has now played the role of global policeman for decades. It’s had a mixed record. And the American public has grown justifiably tired of the expense in blood and treasure. Image
Perhaps sensing this, just months after the Afghanistan defeat, Russia invaded Ukraine.

Leading to many cynical memes from Ukrainians like one below. Of course, we must avoid direct US/RU conflict as it could lead to nuclear escalation.

But decline meant deterrence failed. Image
Mearsheimer correctly predicted this years ago.

The US encouraged Ukraine to take a more aggressive stance than it would have otherwise. But the commitment was insufficient to deter.

In part because decline has meant decline in foreign policy realism.
If we are realists, we see that in Hong Kong, Afghanistan, and now Ukraine the US — understandably — is no longer ready to pay any price, bear any burden.

There are limits. You can’t rely on them for deterrence. Other countries are realizing this, and arming up accordingly.
Separately but relatedly there is the question of what kind of order the US can even deliver.

The US way of life was once the best. But globalization closed the gap. Others rose. And after years of political chaos, US soft power eroded. Others now think they have a better model.
Putting it together, the US is in decline. It lacks the will — and manufacturing base — to be the “arsenal of democracy”.

As it withdraws from physical intervention, some countries may grow aggressive. Others may arm up in response. Won’t be fun! But there is a *little* hope…
Many of the ideals the US once imperfectly defended with munitions — free speech, free trade, rule-of-law — we can now imperfectly defend with encryption.

It isn’t everything. And much depends on whether a free internet exists. But it’s a life raft.
bariweiss.substack.com/p/is-bitcoin-a… Image
The four camps are denial, reversal, acceleration and crypto-civilization.
Btw, for the sake of completeness there is a fifth possibility: the US has already transformed into a digital power that is now financially nuking Russia.

The physical in this view is actually just downstream, and we have been weighting it too heavily. We’ll see if this works.

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More from @balajis

Balaji Profile picture
Apr 4
Ironically, one symptom of deindustrialization is that many commenters have never actually managed a physical business.

So. Suppose your US company imports $1M of high quality parts, and adds in its own components to produce finished goods sold for $1.2M per batch. Your gross profit is $200k per batch.

But wait! Suddenly a new 30% tariff is imposed on that $1M of parts. You now have to fork over $300k to customs before you sell anything. That’s cash you probably don’t have. Oh, and even if you do sell everything, you’re now losing $100k per batch.

With a sinking feeling, you realize your profitable business which you somehow managed to keep in America all these years has suddenly become unprofitable.

You post online about how bad this is but get shouted down by an angry mob, convinced that capitalists like you should die. You can’t tell nowadays if they’re on left or right.

Moreover, you don’t have the time, money, skills, or tools in house to build that $1M of parts yourself. You are being asked to do the equivalent of growing a maple tree when all you needed was a little maple syrup. So now you are faced with several tough choices.

(1) First, you may need to go into debt or fire people to quickly come up with the $300k in cash to pay for these surprise tariffs at customs. Even if the tariff might go away, it might not, so you have to get the cash somehow or risk having your shipment impounded.

(2) Next, you might need to reduce quality to stop losing $100k on each batch. You could order the lower quality $750k parts, grimace and pay 30% tariff at customs, and hope you can build and sell for the same price of $1.2M per batch despite the lower quality.

(3) Alternatively, you could keep the quality parts at $1M and instead raise prices to $1.5M per batch to get back your original margins of $200k per batch, which you need to pay employees after all. But that’s a big hike that your customer will probably not welcome, given that he’s likely dealing with his own tariff shock.

So: these tariffs don’t really give an incentive to build in the US. Because it’s far more expensive to build a screw factory than to pay even high tariffs on a foreign screw.

Instead what they likely mean is debt, layoffs, lower quality, and higher prices for any US company that buys parts abroad.

Just to understand how common that is:Image
Ok, say you do.

It’s a 25% hike to go from $1.2M to $1.5M. You will lose customers. Maybe a lot. Maybe they go out of business at that price too.

Moreover, you aren’t making more money. That extra $300k is going straight to Uncle Sam. It’s a tax on the manufacturing sector.
“If the business model cannot support higher prices, it wasn’t a meaningful product to the consumer”

I disagree. Grocery stores, for example, are famously low-margin businesses.

Nevertheless, I think they are quite meaningful. They do low margins but make it up on volume.
Read 11 tweets
Balaji Profile picture
Mar 22
AI OVERPRODUCTION

China seeks to commoditize their complements. So, over the following months, I expect a complete blitz of Chinese open-source AI models for everything from computer vision to robotics to image generation.

Why? I’m just inferring this from public statements, but their apparent goal is to take the profit out of AI software since they make money on AI-enabled hardware. Basically, they want to do to US tech (the last stronghold) what they already did to US manufacturing. Namely: copy it, optimize it, scale it, then wreck the Western original with low prices.

I don’t know if they’ll succeed.
But here’s the logic:

(1) First, China noticed that DeepSeek’s release temporarily knocked ~$1T off US tech market caps.

(2) Second, China’s core competency is exporting physical widgets, more than it is software.

(3) Third, China’s other core competency is exporting things at such massive scale that all foreign producers are bankrupted and they win the market. See what they’re doing to German and Japanese cars, for example.

(4) Fourth, China is well aware that it lacks global prestige as it’s historically been a copycat. With DeepSeek, becoming #1 in AI is now something they actually consider possibly achievable, and a matter of national pride.

(5) Fifth, DeepSeek has gone viral in China and its open source nature means that everyone can rapidly integrate it, down to the level of local officials and obscure companies. And they are doing so, and posting the results for praise on WeChat.

(6) Finally, while DeepSeek was obscure before recent events, it’s now a household name, and the founder (Liang Wengfeng) has met both with Xi but also the #2 in China, Li Qiang. They likely have unlimited resources now.

So, if you put all that together, China thinks it has an opportunity to hit US tech companies, boost its prestige, help its internal economy, and take the margins out of AI software globally (at least at the model level).

They will instead make their money by selling inexpensive AI-enabled hardware of increasing quality, from smart homes and self-driving cars to consumer drones and robot dogs.

Basically, China is trying to do to AI what they always do: study, copy, optimize, and then bankrupt everyone with low prices and enormous scale.

I don’t know if they’ll succeed at the app layer. But it could be hard for closed-source AI model developers to recoup the high fixed costs associated with training state-of-the-art models when great open source models are available.

Last, I agree it’s surprising that the country of the Great Firewall is suddenly the country of open source AI. But it is consistent in a different way, which is that China is just focused on doing whatever it takes to win — even to the point of copying partially-abandoned Western values like open source, which seemed like the hardest thing to adopt.

On that point: they did build censorship into the released DeepSeek AI models, but in a manner that’s easily circumvented outside China. So, you might conclude they don’t really care what non-Chinese people are saying outside China in other languages, so long as this doesn’t “interfere with China’s internal affairs.”

Anyway —this is an area I’ve been watching, and my reluctant conclusion is that China is getting better at software faster than the West is getting better at hardware.
I think China is taking an asymmetric approach.

In a reversal of last century, the West is going closed: closed source, closed markets, closed borders. For understandable reasons.

But China is going open because it suits them. For similar reasons to why Meta open sourced Llama.
What can tech do in response?

I have some ideas, but for at least the next several years the question will not be “what if Google does this” but “how can we ensure China’s best can’t easily compete with this.”

Bitcoin is likely one answer.
Community is another.
Read 5 tweets
Balaji Profile picture
Mar 18
How did China go from Maoist to capitalist?
Well, Deng took power in 1978.
He inherited a brainwashed agrarian communist state.
And couldn't reform the whole country at once.
So...he set up a few key zones on China's coast.
He fenced them off, and introduced capitalism.
Of course, that worked.
With success, he gained political capital.
He used that to expand the special economic zones.
These zones had a new social contract.
He'd essentially refounded China — but fractally.
Those zones expanded till they took over the old China.
And that's how China went from Maoist to capitalist.Image
The idea that "Deng refounded China" is obvious yet non-obvious.

It's obvious because China failed under Mao & succeeded under Deng. It's non-obvious because many want to maintain China is on the communist left, when it's really on the nationalist right.
For different reasons, the Western left, Western right, and the Chinese Communist Party all want to maintain that there was ideological continuity between Mao and Deng. But there wasn't. It was a refounding moment, a total rewrite of the social contract.
Read 6 tweets
Balaji Profile picture
Mar 15
Everyone wants to reindustrialize.
No one wants to remember why the US deindustrialized in the first place. Image
Basically, tradeoffs exist.

The real problems of pollution and industrial accidents led to the proliferation of environmental and labor laws.

And after generations in the farms, mines, factories, and fields, many welcomed higher-paying and healthier work.

Of course, the cost of offshoring manufacturing is now clear. But it is important to understand that there were at least medium-term benefits in terms of reducing accidents and pollution. Because those benefits will go away if you naively reindustrialize.

Basically, mining and manufacturing were tough jobs that are now romanticized in the abstract but that can be difficult to recruit for in the concrete, *especially* if the resulting product needs to compete with China in a global market on price.

Your people need to work really hard, really smart, and really cost-effectively to compete. That is tough.

(Some are kind of talking about sending the effete intellectuals to the mines, Mao style, which is a “romantic” regression that does have many unfortunate precedents in history.)

Anyway, yes you can maybe increase safety or reduce pollution today with modern techniques — but physical risk will always exist. And without taking some physical risk you won’t ship a globally competitive product at a globally competitive price.
I agree with Dhruva’s post below too.

It is possible to improve the tradeoff between productivity and safety, and many US regulations don’t do what they say on the tin.

But still. Physical risk does exist in the mines and the factory floors. Much more than at the keyboards.
Read 9 tweets
Balaji Profile picture
Mar 15
I like @bungarsargon but this is incorrect.

If it was just a matter of price, then maybe tariffs could work. Just bring those jobs home!

Except China isn't cheap labor anymore. They're highly skilled. And skill doesn't easily come home.

Tim Cook explained this in 2018:
Unfortunately, China is far ahead here too.
They have robotic dark factories with no humans.
The complete opposite of "slave labor."
Important to understand the real challenge.
You can't solve this with a quick tariff.
@billmaher @bungarsargon @bariweiss
Yes, but this doesn't solve the Triffin dilemma.
(And that may be unsolvable.)
But it is the right direction, namely internal reform.
So: improve education.
And reduce regulation and taxation.
(Unfortunately, tariffs are regulation + taxation.)
Read 4 tweets
Balaji Profile picture
Mar 13
US universities were the best in the world when they sourced the best in the world. But now they don’t do that, because of DEI. And soon they can’t do that, because of visas.

So, they just become regional players.
And China takes the #1 spot. Image
US universities were set up to skim the cream of the world. If they shut down recruiting of foreign students and faculty, they’ll be limited to working with the ~4% of the world that lives in the US.

Reducing the recruiting pool by 25X means it’s unlikely to retain global #1.
The rise of China in science tracks with its rise in tech. So it’s not just one indicator.

That said, it’s possible China is gaming citations. But if you show exactly how (eg via Pagerank and link ring detection) you should publish a rebuttal in Nature.
nature.com/nature-index/n… x.com/lost_nomad__/s…Image
Read 5 tweets

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