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Situational awareness: The EU has agreed to concessions to stave off a trade war, the WSJ reports, following a meeting between European Commission President Jean-Claude Juncker and President Trump.

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1 big thing: Democracy ... meh

Illustration: Rebecca Zisser/Axios

Unforced by coup or war, one developed country after another has chosen an authoritarian style of democracy over the last two years, leaving millions mystified by a political shift very few foresaw.

The trend, supported in elections, has forced conventional leaders to scramble, mostly without effect.

  • The big picture: Leading scholars tell Axios that economics ultimately underpins the turmoil — a financial slide that erodes the association of democracy with rising living standards and upward mobility, while populists and partisan media stoke resentment.
  • Why it matters: "The big danger," says Yale's Timothy Snyder, author of 'The Road to Unfreedom,' is that people decide that full-bore authoritarianism is inevitable. Neither democracy nor authoritarianism is inevitable, he tells Axios. "Authoritarianism is, however, more likely if we don’t attend to the challenges that make democracy harder."

Theatrically outsized personalities give the trend motive power — Russia's Vladimir Putin, the Philippines' Rodrigo Duterte, Hungary's Viktor Orban, Turkey's Recep Tayyip Erdogan, and of course President Donald Trump. In an era of seemingly uncontrollable forces, these figures lend an air of break-all-the-rules derring-do, at least attempting to set things right.

  • In the most recent events, Trump assailed NATO allies in Brussels, courted U.S. rival Putin, and threatened, in an all-caps tweet, to annihilate Iran.
  • Polls show that such unrestrained behavior does not weaken the populists' hand, but instead seems to strengthen it.
"Populist authoritarian politicians are successful because they promote themselves as the voice of the people, and hence 'true' democracy, while undermining these checks and balances."
— Roberto Stefan Foa, a professor at the University of Melbourne

In a much-read April article in Foreign Affairs, Foa and Harvard's Yascha Mounk correlated the new politics with a shift in global wealth away from the democracies that fought the Cold War against Moscow. Within five years, they forecast, non-democratic nations such as China, Russia and Saudi Arabia will be richer as a group than the Western liberal democracies.

  • That very fact sets the West on its heels. Simply put: autocratic regimes are competing in economic performance. And a lot of countries are noticing that the tide, led by China, is going toward the autocratic path.

China presents an especially vivid example — a superlatively vibrant economy built within authoritarianism, and proof that, contrary to what the U.S. has argued for decades, you need not be democratic to get rich.

  • Like prior great powers, China is creating far-reaching infrastructure — its Belt and Road Initiative — to stretch its reach around the world, in effect placing its vitality side-by-side with a West failing even to keep its middle class intact.

Yuen Yuen Ang, a professor at the University of Michigan, says Beijing's model is widely misunderstood. China is authoritarian, but not purely so. Rather, going back to Deng Xiao Ping, it has blended strong rule with "directed improvisation," she tells Axios.

"China is best understood as an 'autocracy with democratic characteristics.'"
— Ang

Go deeper: Read the whole post

2. The post-U.S. world economy

Illustration: Lazaro Gamio/Axios

Trump's broad attack on trading partners appears to be spooking investors overseas, whose net direct investment in the U.S. has fallen substantially since his election in 2016, says a leading economist.

What's going on: Adam Posen, president of the Peterson Institute for International Economics, tells Axios that, despite last year's big Republican tax cut, net foreign direct investment fell to $51.3 billion in the first quarter.

  • That's down 37% from the same quarter in 2017, and 65% from 2016, as measured by the U.S. Bureau of Economic Analysis.
  • It's dropped every quarter since the fourth quarter of 2016, when Trump won election.
  • "Basically, net FDI has been falling off a cliff," Posen said.

Why it matters: Posen calls this evidence of the start of the "post-American world economy," in which the U.S. becomes excluded by a large amount of foreign trade. He wrote on the thesis Monday in Foreign Affairs.

As an example, Chinese commercial real estate investors have retreated from the U.S. market, selling $1.29 billion in properties in the second quarter while buying only $126 million, the first quarter they have been net sellers since 2008, the WSJ's Esther Fung reported today.

  • Sentiment surveys suggest that U.S. businesses are bullish about the domestic market, reports the NYT's Patricia Cohen. But Posen said that reflects short-term confidence. FDI numbers, conversely, reflect long-term investment decisions made once a decade, he said.
  • FDI leads to high-skilled jobs, R&D at home, and then more investment.
  • "Maybe it will come back, but I think this is a leading indicator. It's a bad warning of what's going on," he said.

Go deeper: The post-American world economy

3. Mailbox: the yuan play

Illustration: Lazaro Gamio/Axios

On Sunday, we reported on a forecast from some experts that China may deliberately devalue the yuan to offset U.S. trade tariffs. The next day, Beijing rejected that notion.

Future reader Andy Rothman, author of the Sinology blog at Matthews Asia, wrote in to disagree with our report. Chinese leader Xi Jinping is unlikely to weaponize the yuan, he said.

How the Xi-Trump negotiations will unfold, Rothman says:

  • Xi has, I think, been preparing the groundwork for a deal simply by not responding to Trump’s threat of tariffs on the rest of China’s exports to the U.S. (beyond the original $50 billion), and by not criticizing Trump directly, in contrast to many other foreign leaders. 
  • Xi has experience in persuading Trump to change his mind, on the ZTE case, during a brief phone conversation. And, of course, Trump believes that he and Xi are buddies.
  • In September, I think Xi will speak with Trump, either by phone or on the margins of the United Nations General Assembly, and offer enough in terms of buying more U.S. stuff, and improving market access and IP protection, that Trump will be able to claim (regardless of the evidence) that it is the best deal ever obtained from China by an American leader, a deal which was achieved due to the unbelievable pressure of the Trump tariffs.
  • Xi will assure Trump — in a conversation that few will hear — that China will not directly contradict such a claim by Trump, although Xi will tell his own people that he only gave to Trump what he was always going to do to continue with his economic modernization and reform path.
4. Worthy of your time
Expand chart
Reproduced from a National Bureau of Economic Reserach chart; Data extracted with WebPlotDigitizer; Chart: Axios Visuals

The math underpinning universal physics (Natalie Walchover - Quanta)

How far Russian hackers got into U.S. utilities (Rebecca Smith - WSJ)

Where robots are resolving the worker shortage (Alison Snyder - Axios)

Don't trust this robot with the soup (Paul Mozur - NYT)

China seeks African faces to sharpen its AI (Amy Hawkins - FP)

5. 1 creative thing: E=MC^2 for dummies

The narrative around the future of jobs is that almost any occupation involving a repetitive process — from assembly work to accounting — is vulnerable to automation. According to McKinsey, automation could eliminate up to 800 million jobs around the world by 2030.

  • The main savior of a job, it is said, will be creativity — the intangible quality that produced E=MC2 and the iPhone. But how many people can possibly have such brain cells?

Allen Gannett, author of The Creativity Curve, argues that it's more than you think. He says that the skill behind a lot of complex activities, such as painting and sports, can be learned through applied training over long periods. And, when combined with the right timing, that can add up to what humans call creativity.

  • The iPhone, he tells Axios, was not fundamentally new, but an adaptation of existing products, the addition of Steve Jobs' ideas, and spectacular timing.
  • "Value is a social construct," Gannett said. "It's human preference."
  • "Creativity is not about radical newness, but a blend of the familiar and the new."

Everyone thrown out of work in the coming years and decades is not going to find a new job, Gannett says — government will have to step in with a social answer, probably involving the redistribution of income. But, as preparation for the coming jobs crisis, he suggests government policy also get behind teaching the skills of applying creativity to obtain and keep work.