The Cornerstone of MAGA

January 24, 2025

Leyendecker Executive Search

Welcome to This Week’s Leyendecker View

I have decided to stick with love. Hate is too great a burden to bear.
– Martin Luther King

FAVORITE READ OF THE WEEK

Coleman Hughes, black American writer and deep thinker, on the end DEI

THINKING OUT LOUD

The Cornerstone of MAGA

The slogan and effort to “Make America Great Again” suggests the country has been backsliding economically. Our stock market performance the last few years seems to suggest the opposite.

But maybe the financialization of our economy has masked the country’s slide as a manufacturing center. Maybe it has masked our increasing dependence on trade with China, a country we aren’t all that excited about these days. It has certainly exploded our federal debt.

How did we get here? Why does MAGA resonate with so many voters? And what is the cornerstone to MAGA?

The seed of our recent period of globalization was when President Nixon visited China in 1972, ending a 25-year period of isolation between the two countries. China was a backward country, with a population on the edge of starvation. Mao’s autocratic rule and the “better ideas” of his state bureaucrats killed millions of Chinese. China was grasping for economic air. Nixon opened the door to Western economies.

China joining the Western market system couldn’t have come at a better time. In the 1970s, energy costs, labor costs and inflation were skyrocketing. American goods producers were struggling. They needed to find some economic relief.

Relief came in the early 1980s when computer and telecommunication technologies converged with China’s newfound manufacturing capabilities.

Companies like Apple, Microsoft, Intel, Sun, Dell, Motorola and more innovated the building blocks and tools that made it possible for Western companies to export their goods production to China. With a billion workers who earned a fraction of Western wages, China grew into the world’s manufacturing juggernaut in just 40 years.

Yet this began to hollow out the American middle class, particularly well-paid blue collar workers. They could no longer compete with China’s cheap labor.

But the era of ever cheaper labor is over. As China’s employment grew, so too did their wages. And as we know, China learned how to steal Western intellectual property. How else does a country go from backwater poor to an economic powerhouse in just 40 years?

Western companies looked the other way as China stole their IP; after all, they saw in China one billion potential Chinese consumers and all kinds of revenue. Western governments also looked the other way, in the hope that China’s economic prosperity would lead them out of communism and toward our more enlightened democratic system. But China has neither welcomed Western companies to do business freely in China nor loosened their authoritarian grip.

At the same time, the collapse of blue-collar work has fueled voter discontent enough to put Trump in the White House not once, but twice.

Many suggest that we are in a new cold war with China. On a regular basis, we’re seeing more restrictive trade policies on Western exports to China and more Chinese efforts to undermine Western relations with other emerging market countries in Asia, Africa, the Middle East and Latin and South America.

Politically, the West would now like to wean itself from China. But in the process of becoming addicted to their cheap products, we dismantled and abandoned our own manufacturing capabilities.

Trump threw down the gauntlet with China tariffs during his first presidential term. Biden followed up with more restrictive trade policies and fiscal support to repair, rebuild and better maintain our basic and industrial infrastructure. Trump is obviously set to continue the path of MAGA.

The Chinese still have a labor cost advantage, and they still have the advantage of looking the other way on environmental and human rights issues when it suits their needs. So how can the US compete?

In order to rebuild US manufacturing muscle, we’ll need tools that help us compete with labor that still remains cheaper in China and other emerging markets. Those tools are smarter information management systems, which technology is achieving, and more productive manufacturing systems, which will be achieved through the expanded use of robots. We’ll also need ongoing scientific research that continues to push humankind forward and drive innovation.

Ever improving technological capabilities in information management, science research and manufacturing production can lead to a new era of American global production leadership. But that will require one major input: cheap, abundant and reliable energy.

All technology runs on energy. If our energy is not cheap, abundant and reliable, then our production output will not be cost competitive with China or other developing nations with cheap labor.

When you hear Trump repeat the mantra “energy dominance,” it’s because he knows the path to MAGA can only be achieved through cheap, abundant and reliable energy.

THE RANDOMS

For the next four years, it’s important to remember that Donald Trump is always negotiating. And he always starts with an extreme position, that he often makes publicly, so he can compromise on an attractive settlement. That is, after all, the Art of the Deal.

Chris Wright, the Treasury Secretary nominee, on energy reality:

“Senator Wyden, just to frame this for everyone in the room, China will build 100 new coal plants this year. There is not a clean energy race. There is an energy race. China will build ten nuclear plants this year. That is not solar. I am in favor of more nuclear plants, and I would note that the IRA (Inflation Reduction Act) as scored by the CBO is wildly out of control in terms of spending on the upside.”

It’s not a clean energy race, it’s an energy race. Throw AI’s voracious appetite for power in the mix, and we clearly need to find a significant amount of cheap energy—fast.

TikTok is now just a negotiating tool.

Trump’s pause of the TikTok ban seems like enough time for X or another US social media company to create a similar platform that will allow current TikTok entrepreneurs to stay in business. Instagram is already courting them with money.

Joe Biden pardoned elites and people who reported to the elites. Donald Trump pardoned regular people who believed the Democrats had rigged the election. Come to your own conclusion.

Tech companies and investors who seek more gold may soon forget about climate change and focus on how the world can rapidly grow its energy output so they can rapidly grow their personal net worth.

With all the US rah rah rah after Trump’s inauguration, I am starting to wonder—where is the Black Swan no one is paying attention to yet?

ECONOMIC NEWS

Economy
Indicators versus “vibes”?

Buc-ee’s MAGA magic
Leading economic indicators decline
Tech to invest $500B in US AI infrastructure
Saudi Arabia commits to $600B US investment
Don’t expect any rate cuts
EU automaker to invest in US plants
Foreign investors flock to the US
US consumers remain resilient

Labor
Workers have little leverage.

Workers will quit if RTO is strictly enforced
Pay stagnates at smaller companies
The 25 fastest-growing US jobs

Inflation, deflation or both?
More inflation today, more deflation tomorrow?

Cocoa prices hit a record
Insurance costs are only going up
Food prices are rising again
US natgas prices soar

BUSINESS

Finance
Is finance our most important industry?

Pension funds want more PE disclosure
The stock market needs a breather
AI can almost replace IPO bankers
Goldman expects a financing boom

Real Estate
Washington DC “for sale.”