The recent meeting in Beijing between Xi Jinping and KMT Chairwoman Cheng Li-wun marks a significant recalibration of cross-strait optics, heavily influenced by the Trump factor and the shifting winds of American domestic politics. As the U.S. election cycle gains velocity, many nations are moving from a posture of high-trust cooperation to a strategic posture of high-fear hedging.

In this environment, the meeting serves as a pragmatic insurance policy. For political actors in Taiwan, maintaining a direct line of communication with Beijing is no longer just about ideology; it reflects the KMT’s calculated effort to ensure Taiwan is not left without a diplomatic exit should the Trump administration adopt a more isolationist foreign policy. This uncertainty is compounded by the volatility surrounding the upcoming Trump-Xi summit scheduled for May, a meeting delayed by the explosive escalation of the Iran conflict.

A Fragmenting Global Context

The broader global context reinforces this move toward a more conditional geostrategy. The ongoing war in the Middle East has disrupted the global energy architecture, forcing leaders to prioritize immediate stability over long-term alliances.

Simultaneously, the recent landslide victory of the opposition Tisza party in Hungary’s elections signals a potential removal of a key pro-Russia veto, while also introducing new variables into how the EU manages its collective security.

In this fragmented landscape, the Xi-Cheng meeting signals that traditional geopolitical guardrails are loosening. Leaders are increasingly forced to operate in a state of mobilization, where the risk of a “bolt from the blue” nuclear escalation, whether in Iran or via a sudden policy pivot in Washington, demands a more flexible and multi-directional foreign policy.

A Muted Reaction in Taiwan

While the meeting captured international headlines, the global press remains hot on this report. International media have largely interpreted Beijing’s invitation as a strategic attempt to bypass the official government and engage with opposition leader who adhere to the 1992 Consensus. Much of this coverage has focused on the timing of the event, with many analysts viewing it as a calculated move ahead of the Xi-Trump summit to signal Beijing’s preferred framework for regional stability.

For its part, the KMT continues to stress that this was a vital peace mission. Party leadership has framed the dialogue as a necessary step to lower the temperature across the strait and maintain open lines of communication that the current administration cannot access. Notably, Beijing’s Taiwan Affairs Office (TAO) underscored that the KMT initiated the encounter, revealing that Chairperson Cheng Li-wun had expressed her willingness to visit Beijing multiple times to foster “goodwill and sincerity.”

For the average citizen, the event was met with a distinct sense of apathy—a neutral “don’t care” attitude that lacks the visceral “anti-China” sentiment or public backlash the DPP might have hoped to galvanize. This indifference stands in sharp contrast to the historic performance of the domestic economy. As the Taiwan stock market hits all-time highs, it has solidified its position as the 7th largest stock market in the world by volume. This financial boom has created a sense of security that makes political gestures feel increasingly disconnected from daily life.

Furthermore, public perception may be influenced by China’s shifting role on the global stage. In recent months, Beijing has positioned itself as a stabilizer in the Iran conflict, through Pakistan helping to broker the fragile April ceasefire. This diplomatic pivot has been mirrored by a flurry of Western leaders, including the UK Prime Minister, the German Chancellor, Canadian Prime Minister and most recently Prime Minister of Spain, traveling to Beijing to seek pragmatic cooperation all in past months. To some observers in Taiwan, if the West is engaging with China to manage global instability, the KMT’s “peace mission” appears less like an outlier and more like a reflection of a broader international trend.

The Ten Measures to Benefit Taiwan (十項惠台措施) were announced on the final day of the visit, targeting specific sectors like tourism and fisheries. These measures include plans to resume individual travel (自由行) for residents of Shanghai and Fujian, push for the “full normalization” of direct passenger flights, and streamline access for Taiwanese agricultural and fishery products.

However, because the DPP government has not yet accepted these measures, characterizing them through the Mainland Affairs Council as “unilateral concessions” and “sugar-coated poison” lacking institutional guarantees, their actual impact remains to be seen. As the administration continues to emphasize that any cross-strait matters involving public authority must be negotiated between governments, the implementation of these policies on the ground is currently at a standstill.

Cheng’s Political Positioning

Domestically, the sentiment surrounding the meeting has effectively solidified Cheng Li-wen’s position as a heavyweight within the KMT. By securing an audience in the Great Hall of the People, the first for a sitting KMT chair in a decade, she has signaled to both her party and the public that she is Beijing’s preferred interlocutor.

This “blessing” positions her as a leader capable of managing the most volatile aspect of Taiwan’s security, yet it remains a double-edged sword. While it bolsters her credentials among the “Deep Blue” base, the challenge will be translating this institutional recognition into broader voter trust without appearing overly aligned with Beijing’s long-term political agenda.

The Washington Test

The true test of this new hedging strategy will come in June, when Cheng is scheduled to travel to the United States. This upcoming trip to Washington is a deliberate effort to rebalance the narrative and reassure American policymakers that her engagement with China does not equate to an abandonment of the U.S.-Taiwan alliance.

By framing her message around the avoidance of a Cold War 2.0 and the necessity of dialogue, Cheng is attempting to position herself as a leader who can navigate the great productivity divide and communicate effectively with both superpowers. Success in this era will depend on whether such leaders can maintain this delicate equilibrium while navigating the systemic pressures of a world increasingly defined by strategic anxiety and high-fear globalization.

Rumors in Taipei suggest this rebalancing act is already yielding legislative fruit, as the long-standing impasse over the massive NT$1.25 trillion defense package appears to be nearing a resolution. While there is broad consensus on the Foreign Military Sales (FMS) portion to satisfy Washington and the Asymmetric/T-Dome initiatives to modernize defenses, the Domestic Production (Indigenous Defense) component remains the final point in question.

The KMT has indicated support for an NT$800 billion package but is reportedly holding firm on the demand that the domestic portion be integrated into the annual general budget rather than a multi-year special budget. This shift is intended to ensure greater legislative oversight and fiscal transparency for indigenous programs. The passing of this now depends on whether the DPP government will budge on these structural budget demands to secure the overall funding, and whether leaders can maintain this delicate equilibrium while navigating the systemic pressures of a world increasingly defined by strategic anxiety and high-fear globalization.

As we prepare to publish, the failure of the US-Iran talks in Pakistan has been followed by the announcement of a US naval blockade. This is an escalation not seen since the Cuban Missile Crisis, which brought the world to the brink of a nuclear confrontation. As the US moves from episodic to sustained engagement against Iran, it underscores the central argument of this piece: that the global system is being pushed beyond the limits of traditional assumptions about risk, restraint, and rational behavior.

When the global pandemic struck, overnight economists and other analysts became epidemiologists. When the Iran War began, suddenly everyone was a military strategist or atomic scientist. I have too much respect for healthcare professionals, scientists, and the military to try to replicate their expertise. Instead, I would like to follow a different path to discover where the self-reinforcing risks are during the current crisis and what can be done to mitigate them.

First among the underestimated risks is nuclear war:

❝ In 2025, it was almost impossible to identify a nuclear issue that got better. More states are relying more intently on nuclear weapons, and multiple states are openly talking about using nuclear weapons for not only deterrence, but also for coercion. Hundreds of billions are being spent to modernize and expand nuclear arsenals all over the world, and more and more non-nuclear states are considering whether they should acquire their own nuclear weapons or are hedging their nuclear bets… Nuclear states and their partners need to invest now in proven crisis communication and risk reduction tools, recommit to preventing the spread of nuclear weapons, refrain from nuclear threats, and pursue a more predictable and stable global security system. 1

—Jon B. Wolfsthal, director of global risk at the Federation of American Scientists (FAS), and SASB member, Bulletin of the Atomic Scientists.

Can We Afford to Be Wrong?

For the rest of the world, the stakes are very, very high. Given the strength and resilience of the US, what would definitively derail the US economic engine, and everyone else, would be a kinetic conflict involving nuclear weapons, and that is what must be avoided at all costs. I have worried about this scenario since I wrote The Coming Accidental War with Iran more than 15 years ago. Nine countries now have the capacity to launch a nuclear attack. 2

In a hugely significant article, also in the Bulletin of the Atomic Scientists, it appears that satellite evidence exists that shows that the Iranian government was storing or concealing 60% enriched uranium in June of last year. 3 The first strikes against Iran by the US and Israel commenced within days of this discovery.

The combined use of AI and enhanced satellite imagery means that there is no place to go and no place to hide. This is particularly important in places like Iran and China, where US intelligence services have more limited capabilities, presence, and reach than in open societies.

François Diaz-Maurin | Nuclear Weapons (The Bulletin of the Atomic Scientists.

If the findings of in the Bulletin are correct, this means that Iran could now have access to a crude nuclear weapon. That possibility changes everything and in my view and challenges the logic of nuclear stability.

We Have Been Warned Before—and Failed to Act

I am far from alone in this concern. Newt Gingrich has recently written about the possibility of a nuclear attack against Chicago, which obviously hit home with me.

❝ What if in the next decade or two Iranian missiles armed with nuclear warheads destroy several American cities? If we were to lose Chicago, Seattle, or New York, the scapegoating would begin… ‘How could this have happened? 4

In January of 2001, the Hart–Rudman Commission, backed by figures such as Newt Gingrich, issued its holistic report on US security threat. 5 Its conclusion, delivered months before the September 11 attacks, was dire, and one warning in particular proved prescient: Americans would likely die on US soil in large numbers. Warnings are simply not enough, however, actions must follow.

Today, we are again confronted with a series of risks that are widely discussed but insufficiently integrated: energy chokepoints, nuclear proliferation, cyber vulnerability, and the fragility of global supply chains—all at once. No systemic study at the level of Hart-Rudman exists today.

The End of the Peace Dividend Era

For too many years, we have been half-asleep in a fake empire of complacency. We have allowed unsupportable and unsustainable situations to persist for years that pose highly consequential risks, such as depending on our rivals for materials essential for our national survival. We have failed to do the hard work that could have assured a continuation of peace and prosperity.

My generation has been unbelievably fortunate, and I’m afraid, lazy. For the past three quarters of a century, since nuclear weapons were deployed against Japan, most of mankind has enjoyed a peace dividend that is atypical of any other time in human history. As Winston Churchill said:

❝ The history of the human race is War. Except for brief and perilous interludes, there has never been peace in the world.

This quote is mentioned in a 2024 book by Annie Jacobson, Nuclear War, A Scenario.6 As the war in Ukraine drags on, a crisis looms in Taiwan, and the war in the Strait of Hormuz threatens the global economy, the nuclear option has reemerged. The possibility of a “bolt from the blue” as the Pentagon calls a nuclear attack on the United States, is a scenario we need to keep in mind. The Doomsday Clock now stands at 85 seconds to midnight.

The first responsibility of any government is to prevent this kind of utter destruction, and the huge swath of “dead when found” casualties from ever occurring. It would create a level of worldwide chaos that we can probably not truly comprehend and can only contemplate through literature. Covid’s effects would pale in significance.

After the fall of Iraq, Libya, and the war in Ukraine, nuclear disarmament for countries such as North Korea now seems improbable. At the same time, the incentives for both maintaining and acquiring nuclear weapons have in fact, skyrocketed.

Deterrence Revisited: Waltz vs Sagan

For decades, the dominant debate over nuclear weapons was framed by two competing schools of thought in political science.7

• Kenneth Waltz argued that the spread of nuclear weapons could, paradoxically, reinforce stability. If more states possessed nuclear capabilities, the logic of deterrence would extend more broadly. Rational actors, faced with the certainty of catastrophic retaliation, would avoid escalation.

• Scott Sagan disagreed. He argued that this framework assumed a level of rationality, control, and institutional competence that could not be guaranteed. As the number of nuclear actors increased, so too would the risk of miscalculation, accident, or unauthorized use.

For much of the Cold War and its aftermath, Waltz’s view appeared to hold, and nuclear weapons were not used. A strained stability was maintained. But the current environment is different. The number of potential nuclear actors is growing. The time required to move from enrichment to weaponization is shrinking. The systems designed to manage escalation including arms control agreements, backchannel communications, and shared norms are weakening.

Waltz saw stability in proliferation, while Sagan saw fragility. Today’s world looks far closer to the latter.

The Unthinkable Becomes Thinkable

Although it is widely assumed that nuclear weapons have not been deployed since Hiroshima and Nagasaki, Jacobsen reports in her book that during the Cuban Missile Crisis, the US and the Soviets both exploded two nuclear warheads in space, as a show of force. As we know this episode ended without violence due to cool-headed leadership on both sides. The risk was managed, if only narrowly.

US leadership is acting as if this risk is real and rising. Markets are behaving as if it is remote, or nonexistent.

Another factor is the expansion of nuclear energy due to energy insecurity and AI-hungry data centers. Nuclear energy is not a weapon, but enrichment capability overlaps, and fuel cycle knowledge transfers. The boundary between military and commercial capacity is thinner than it appears.

440 nuclear reactors are operating worldwide, 60+ are under construction, and more than 110 are planned. Accidents have occurred: Three Mile Island, Chernobyl, and more recently Fukushima. These events are rare, but they are not theoretical. 8

The number of “threshold states” is growing. In addition, new technologies, such as small modular reactors (SMRs) are equipped with passive cooling systems. But while they may reduce the risk of catastrophic failure at a single, large site, they also expand the distribution of nuclear materials and increase the number of actors with access to advanced fuel cycles. We cannot hold back this technology; as with cryptocurrencies, the answer lies in proper national regulation, effective governance, and international oversight.

During the Cold War, nuclear risk was highly concentrated. Now it is widely distributed.

The Erosion of Nuclear Guardrails

Another shift is taking place at the institutional level. Nuclear risk was once managed not just through deterrence, but through treaties, verification regimes, and shared norms that constrained behavior even between adversaries. That architecture is now weakening. The guardrails are loosening just as the system is becoming larger and more complex.

The Intermediate-Range Nuclear Forces Treaty collapsed in 2019. The New START framework has effectively broken down, removing limits on the world’s two largest nuclear arsenals. The Treaty on the Non-Proliferation of Nuclear Weapons remains in place but is under increasing strain as more countries approach nuclear threshold capability.

One might ask, where is the United Nations in all of this? Sowing confusion: Iranian officials have recently taken seats in UN-affiliated human rights bodies, even as the UN condemned Iranian actions against protestors. This is more than a contradiction— this is a kind of moral absurdity. It underlines the struggles of international institutions to come to terms with geopolitical reality.

Iran and the Breakdown of Containment

The conflict with Iran is about the erosion of nuclear containment. What is striking is how quickly the response to the US military actions escalated. Iran’s immediate move to disrupt the Strait of Hormuz revealed something deeper. It was not just tactical, but a signal that the constraints that once governed state behavior are weakening. In a previous era, escalation was managed through deterrence and norms. Today, the system no longer assumes restraint but merely reacts to its absence.

Now that this has happened, however, diplomatic efforts hosted by Pakistan have ended. There was skepticism in Delhi that the Pakistanis had the ability to sustain this effort, given their own critical internal economic challenges. Iran does not have the support of other powers in the Middle East, such as Saudi Arabia and the UAE. Having played their trump card so early, Iran has given its neighbors a green light to build bypass infrastructure. In the short term at least, the US wins as export prices go higher, and both shale producers and nascent energy technologies find new life.

Most experts doubted that Iran would score an own goal by closing the Strait of Hormuz. If that was previously unthinkable, can we expect restraint once nuclear weapons are in place? An economic option to open the Strait of Hormuz has been proposed by the Iranians: charging tolls. But the SoH is not a man-made canal—it is a natural formation. Levying tolls would be a violation of UNCLOS, but although Iran signed this agreement of the law of the sea, it did not ratify it.

For the last 47 years, Iran has isolated itself from many parts of the world community. It does not appear that Russia or China is coming to its aid. The neighboring countries they have recently attacked are aligned against Tehran.

How Quickly Do the Economic Effects Spread?

The simple answer: much, much sooner than we think, especially with the new blockade. Details are emerging, but it has been announced that the US will allow no ships to pass through the Strait at all.

Based on dates on this map from JP Morgan, many countries have already stopped receiving oil supplies. (h/t https://substack.com/@prikishore)

Although Russia has hugely benefited from higher oil prices and sanctions relief, China obviously does not, as an oil importer and as an exporter of goods. Slow ships mean slow sales. Beyond the Iran crisis is the current enmity between the US, China, and Russia. While Europe and Japan will have to spend more on defense, Chicago analyst James Bianco see a more expensive future ahead post-crisis:

❝ Supply chains will have to pivot from “just-in-time” efficiency back to “just-in-case” redundancy. Inflation returns as safety costs money. Trade routes diversify away from vulnerable chokepoints. The global friction tax becomes permanent.

In my view, this goes beyond politics and should be in place because of other threats, such as COVID and the 3/11 disaster in Japan so clearly demonstrated.

Day 32: From Shock to Systemic Stress

We are now at Day 32 of the disruption in the Strait of Hormuz. What began as a supply shock is becoming a system-wide stress test of global energy resilience.

Asian economies in particular could be highly impacted by the delays in oil deliveries. Each additional day the SoH is effectively closed puts the region at higher risk of literally running out of gas. Most governments did not fully imagine nor prepare for a true halt. Sometimes, it is the mix of reserves that is the problem.

In fact, the Philippines has just declared an energy emergency. Only China seems to have adequate reserves, perhaps with an eye towards a different conflict. The knock on effects are too numerous to list. For example, it has been rumored that China will stop exporting sulfuric acid next month, a key component for many industrial processes including energy, food, and pharmaceuticals. Sulfur is a byproduct of oil and gas refining, used to produce sulfuric acid. This affects fertilizers, copper and nickel processing, battery materials and is an example how far-reaching this crisis could be if it continues.

The China Factor

Over the past five years, since COVID, China has experienced a sustained economic slowdown driven by structural imbalances, debt, and demographic decline. In its previous role as the engine of global growth, the impact was positive, but the current lag in domestic demand transmits via various channels to international markets. Increased exports and threatened disruptions to supply chains, along with the overhang of military action against Taiwan, threatens disruption and adds to systemic weakness overall.

So far in China, the increase in energy prices has helped to temper a disturbing deflationary trend. But China faces other challenges that will be exacerbated by the crisis in Hormuz.

The US Economy: Relatively Unaffected

The US economy, in spite of a long patch of rough skies that began with COVID, is flying nicely higher than the rest of the G7 and its global competitors. The recent 49-day government shutdown pinged last quarter’s GDP, but the US still leads OECD forecasts for 2026:

Harvard economics professor Jason Furman has recently written an op-ed in the New York Times that reinforces the view that although other economies might be impacted by the war, the US economy is steaming along nicely, less reliant on oil than it used to be while AI is yet to show up in the data, either positively or negatively.

❝ Productivity growth is showing some tentative signs of increasing but has still largely followed the trajectory expected before the pandemic.

I will also go out on a limb and say the same will apply to the latest war in the Middle East. It is already hurting consumers and damaging the U.S. economy. But, like tariffs, it would be a mistake to think the war will significantly alter the economy’s direction. Oil prices have soared, but financial markets are betting that they will come back down, albeit not to as low as was expected before the latest events.

The rise in the oil price could on the contrary have a beneficial effect. US crude oil exports reached a record of almost 5 million barrels a day in April, driven by Asian demand due to the closing of the Strait of Hormuz.

US CPI rose as expected in March driven by high energy prices due to the war in Iran. In a note to clients, Chicago economists Michael Lewis and Gordon Parrish at Free Market Inc summarize the challenge:

❝ As expected, the Iran-related spike in oil and gasoline prices pushed the total CPI up +0.9% for March. Most observers, including Fed Chair Jay Powell and FMI, believe that this disruption will be transitory.

Conclusion:

The peace dividend of the postwar era is ending. Even if the current episode in the Persian Gulf ends in a peaceful solution, we need to recognize that its origin, an attempt to stop the development of nuclear weapons by a sanctioned state, marks the beginning of a new nuclear threat— and all of the risks that implies to humanity and the global economy.

We have been warned before. The Hart–Rudman Commission identified the risk of catastrophic attack on US soil years before it occurred. Today, the warnings are again visible, repeated, and widely discussed, but not fully integrated into how we assess risk. We rely too heavily upon markets for signaling, and they simply do not have all of the information.

The danger is not that these risks are unknown. It is that they are treated in silos as separate problems: energy insecurity, nuclear proliferation, cyber threats, and supply chain fragility. If nothing else, as the tide rolls out, this crisis will reveal that they are inextricably interconnected.

The global system is becoming more complex at the same time that the mechanisms designed to stabilize it are weakening. The implications of this shift are already visible in energy markets, labor dynamics, and global growth patterns—but not in the way most investors expect. Markets have learned how to price exogenous shocks. They have not learned how to price low probability, high impact existential threats.

With the announcement of a US naval blockade, the system is no longer being tested in theory. It is now under sustained pressure, and the assumptions of political rationality that once underpinned stability are being tested in real time.

Further Reading

On Hoping You’ll Be Wrong, Luci Ellis Chief Economist Westpac Group, Westpac, April 10, 2026

Could the Islamabad Talks End 48 years of Hostility Between the US and Iran? Seyed Hossein Mousavian, Middle East Eye, April 10, 2026

Dazed Delegates to IMF Spring Meetings Wait in Suspense, Mark Sobel, OMFIF, April 10, 2026

Will Trump Nuke Iran? Pervez Hoodbhoy, The Bulletin of the Atomic Scientists, Apr 10, 2026.

Is the US-Iran ceasefire already doomed? Trita Parsi, Al Jazeera, Apr 10, 2026. Even if the talks fail to produce a deal, a return to an all-out war may still be averted.

By econVue Contributors and Guests

The Free Press: Ferguson, Haass, and Zelikow, How to Stop Iran From Winning the War

This Saturday, delegations from the United States and Iran are slated to head to Pakistan to try to negotiate a lasting end to the war between them. Among the bones of contention will be the Strait of Hormuz: the crucial waterway through which one-fifth of the world’s oil and liquefied gas normally passes. Iran’s closure of the strait since the conflict…Read more

Random Access Economics: Karim Pakravan, Global Financial and Emerging Markets Weekly Update

Quote of the Week: “The war is now best thought of as a chokepoint crisis with system risk, and has moved into a domain in which escalation is non-linear and difficult to control,” Wei Yao, an analyst at Société Générale…Read more

Footnotes

Guest: Arthur Laffer
Title: The Other Side of Taxation: Incentives
Host: Lyric Hughes Hale
Producer: Sam Fu
Recorded: Mon March 17, 2026 · 57 minutes

Art Laffer on Incentives, Policy Design, and the Future of the Global Economy

My conversation with Arthur Laffer explores a central question in economic policy: how incentives—shaped by taxation, trade, and monetary systems—drive outcomes across the global economy. What follows is a short guide to some of the key ideas discussed in the episode.

About our Guest

Arthur Laffer is best known for the Laffer Curve—the idea that beyond a certain point, higher tax rates can discourage work, investment, and entrepreneurship, ultimately reducing both economic activity and government revenue. His work helped shape the tax reforms of the Reagan era and continues to influence debates about taxation and growth today. Trained at the University of Chicago and long engaged at the intersection of academic theory and public policy, Laffer has spent decades focused on a central question: how incentives shape economic behavior.

In this conversation, Lyric Hughes Hale speaks with Arthur Laffer about how those ideas apply today—at a moment when policy decisions are reshaping the structure of the global economy.

🎤 Topics and Key Moments

Laffer’s framework is deceptively simple:

“ Incentives are what economics is all about.”

From this starting point, the conversation moves across taxation, trade, healthcare, and monetary policy—but consistently returns to the same underlying principle: policy does not merely allocate resources, it shapes behavior, often in ways that are not immediately visible.

This is something that, in Laffer’s telling, policymakers either recognize—or fail to recognize—at critical moments.

One of the more striking parts of our discussion—and one that aligns with broader questions about structural imbalances in the global economy—was Laffer’s critique of tax-exempt institutions.

He argues that exemptions, particularly in healthcare and education, have created significant imbalances in how capital is allocated. Resources flow not necessarily to their most productive use, but to sectors where tax treatment is most favorable.

“We could get rid of the income tax… just by eliminating those exemptions.”

The point is not simply fiscal. It is structural. When policy privileges certain sectors, it shapes the direction of investment, the cost structure of services, and ultimately the behavior of institutions.

On trade, Laffer offers a perspective that reflects both classical theory and contemporary reality.

“No one wins from a trade war—but they don’t all lose the same.”

That distinction reflects a shift from theory to application. Trade relationships are no longer evenly balanced, and policy tools—especially those executed through executive authority—can be deployed quickly and strategically.

Here, Laffer’s experience across administrations becomes instructive. He describes Ronald Reagan as unusually open to economic reasoning—willing to adopt ideas such as broad-based tax reform and energy decontrol, even when they ran counter to internal resistance. Policy, in that context, was designed with a clear view of incentives.

That same emphasis on execution appears in his description of Donald Trump—not in ideological terms, but in operational ones. As Laffer recounts, the ability to move from concept to action quickly can itself shape outcomes.

“President Trump doesn’t sit there and study a subject for 300 years… he makes a decision and it’s done.”

Whether one agrees with the policy or not, the observation points to something fundamental: the timing and clarity of decisions can be as important as the ideas themselves.

In discussing energy policy, Laffer points to earlier moments when shifts in policy reshaped entire markets. As he noted at the time—in a New York Times op-ed during the Reagan administration—measures such as oil price decontrol were not simply about prices, but about changing the incentives that governed production and investment decisions across the energy sector.

The lesson is consistent: policy works through the signals it sends—and those signals propagate across the system.

The conversation then turns to healthcare, where Laffer identifies a structural challenge rooted in the absence of information.

Without price transparency, markets cannot function effectively. Consumers cannot make informed choices, and providers face limited pressure to compete on cost or quality. The result is a system in which prices rise, but signals remain unclear.

Here again, the issue is not simply cost, but structure. When information is obscured, incentives shift—and behavior follows.

From there, the conversation turned to monetary policy, where Laffer draws a sharp historical contrast.

Prior to the creation of the Federal Reserve in 1913, he describes a system in which money was largely private—issued by banks, backed by their balance sheets, and subject to market discipline. Bank-issued notes circulated alongside one another, with their value tied to the credibility of the issuing institution.

From his perspective, the transition to a centralized system marked a profound shift.

“Starting in 1913, all hell broke loose.”

Laffer contrasts this with the earlier era of commodity-linked and privately issued money, which he describes as one of long-run price stability. While that period included cycles of inflation and deflation—including during wartime and financial disruptions—the overall price level remained broadly stable over extended periods, rather than exhibiting the persistent upward trend that has characterized much of the modern era.

It is in this context that he views the emergence of digital currencies:

“Stablecoins are the private market’s attempt to replace government money.”

Much like earlier bank-issued currencies, instruments such as Tether are designed to provide a stable medium of exchange, backed by underlying assets and governed—at least in principle—by market mechanisms.

This perspective places current developments within a longer intellectual lineage—one that extends through Laffer’s own work to that of Robert Mundell. Mundell, often described as the father of the euro, argued that the world had not yet gone far enough—that a truly international currency was still needed.

Laffer suggested that we may be closer to that trajectory than many assume—a market-driven, technologically enabled step toward a more global monetary system.

If there is a single thread that runs through this conversation, it is that policy design shapes incentives—and incentives shape outcomes. Taxes are simply negative incentives.

Policy structures evolve quietly, and become embedded in systems that appear stable, even beneficial in the short term. Over time, they influence behavior in ways that are difficult to reverse.

At a moment of structural change in the global economy, the question is whether incentives are aligned with the most beneficial global policy outcomes. And the answer is that we have a long way to go.

📚 Related Reading & References

Taxes Have Consequences: An Income Tax History of the United States, coauthored by Arthur B. Laffer, Brian Domitrovic and Jeanne Sinquefield

🎙️ About Our Host

💬 Join the Conversation

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💬 What we are seeing is not the end of globalization, but the emergence of a new geostrategic system of alliances—more connected, not less.

If you missed our panel last week, or want to revisit it in light of Japanese Prime Minister Sanae Takaichi’s visit to Washington this week –as well as the postponement of the Trump-Xi Summit, the replay of our March 11, 2026 panel is posted above.

Our panel asked a central question: Are we witnessing the emergence of a new Monroe Doctrine, and what are its geographic boundaries? Panelists include Dr. R. Evan Ellis, Dr. Joshua W. Walker, and econVue Senior Editor Eric Huang.

Why This Matters Now

Today, President Trump will meet with Japanese Prime Minister Sanae Takaichi as markets and policymaker reassess global risk. Japan’s Maritime Self-Defense Force is one of the most capable naval forces in the world, underscoring the strategic weight of the US-Japan alliance.

US actions in Mexico and Venezuela, and the escalating crisis with Iran, could have profound implications for security strategy and trade across Latin America and the Indo-Pacific—including Taiwan.

Key Takeaways

Evan Ellis (Latin America)

“This administration increasingly sees engagement in the Western Hemisphere not as co-development, but as an extension of U.S. homeland security.

Joshua Walker (Japan)

“Japan is our canary in the coal mine—no country needs the U.S. alliance more, but none is watching its limits more closely.

Eric Huang (Taiwan)

“Economic security is no longer a supporting pillar—it is the foundation of U.S. global strategy, and that is where Taiwan becomes indispensable.

Governments across Latin America, Japan, and Taiwan are reassessing assumptions about sovereignty, deterrence, and alliance commitments as the implications of recent events ripple across both the Western Hemisphere and the Indo-Pacific. Recent developments are sending geopolitical shockwaves far beyond the regions directly involved, and China’s leadership is no doubt recalibrating its options after US strikes in Iran.

Are we seeing the early contours of a new Monroe Doctrine in US strategic thinking — one that extends beyond the Western Hemisphere — as Washington navigates a more contested global order?

Introductory remarks by our speakers were recorded, but the Q&A session was off the record.

↳ Panelists

R. Evan Ellis
Research Professor of Latin American Studies at the US Army War College Strategic Studies Institute, specializing in China’s role in the Western Hemisphere.

Joshua W. Walker
President & CEO of Japan Society; former Eurasia Group executive and U.S. government official focused on alliances and Indo-Pacific strategy.

Eric Huang
Geopolitical strategist and econVue Senior Editor specializing in US–China–Taiwan relations and strategic technology competition.

It was a pleasure moderating this panel. My thanks to our panelists, and to our audience, who posed excellent questions. Join us next time to be part of the discussion.

–𝓁𝓎𝓇𝒾𝒸 💬

Editor-in-Chief, econVue

^📍Chicago

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Dear Readers,

Last month, we lost Karen Petrou. I wanted to reshare a conversation I had with her five years ago, a podcast we recorded in March 2021.

I first contacted Karen after reading her excellent reports at Federal Financial Analytics. She did me the honor of reading and commenting on mine. I planned to be in Washington for an event where she was speaking, and we agreed to meet after her speech. As I sat listening in the audience, I noticed that she had a dog at her side. Only then did I realize she was blind.

I could not believe that she was able to digest and analyze the enormous amount of information required for her reports, and I never complained again about having too much to read. I learned so much from her, especially from her book on Federal Reserve policy and inequality, which we discussed during this podcast five years ago, and personally from her remarkable ability to make what she did seem effortless.

It was a great privilege to know Karen. She never let her blindness keep her from the truth. Her work, including as Board Chair of Foundation Fighting Blindness, mattered to so many.

–𝓁𝓎𝓇𝒾𝒸 💬

About this Podcast

The March 2021 Hale Report podcast is my interview with Karen Petrou, discussing her new book, Engine of Inequality: The Fed and the Future of Wealth in America. Just published, it is already the #1 book in its category on Amazon.

Ms Petrou is a well-known and influential commentator on monetary policy and banking regulation, and is managing partner at Federal Financial Analytics in Washington DC. We have often included links to her analysis in our newsletter, and I have had the great pleasure of meeting her both in Chicago and Washington. 

That was not possible this time of course, so I interviewed Ms Petrou remotely. She made several key points: the Fed is responsible for the record rise in inequality between 2010 and 2016, and it continues to look for data in all the wrong places. Other potential countermeasures to inequality such as education simply take too long.

She strongly believes that the Fed should have a third mandate in addition to employment and price stability, economic equality. I've included excerpts from her remarks below, but hope that you will find time to listen to our half-hour podcast via the link below.  I always hope our listeners will learn something they didn't know before, or hadn't thought about in that way. I think this interview accomplishes just that.

Excerpts

❝ I think, sadly, the data the Fed uses are often way off base, because they're averages and aggregates. And in a highly unequal country, as the United States has become, that's very misleading.

❝ Something happened in 2010 and income and wealth inequality grew far worse, far faster than ever before. And the one thing that clearly changed, starting in 2010, after the Great Financial Crisis's worst effects were behind us, was new monetary and regulatory policy. And that's what this book is about. What happened in 2010, and how could it have made us so much less economically equal and, as you said, what can we now do to change?

❝ Think about it though, economic inequality, what's it about? It's about income and wealth. That's the engine that makes us more or less equal. But what is its fuel? In economic inequality, the fuel is money. There is no agency in the United States with the power over money other than our central bank. That's what monetary policy is all about. Bank regulation, what is it about? It's about who has the money, who gets the money, how much does it cost to get the money.

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💬 We used to live in a kind of high-trust globalization. What we have now is a world of great connectivity — but high-fear globalization.

🎙️Episode Details

Guest: Steve Clemons
Title: The Man About Town in a Fragmenting World
Host: Lyric Hughes Hale
Producer: Sam Fu
Recorded: Mon Feb 16, 2026 · 60 minutes

Episode Overview

What happens when the era of high-trust globalization gives way to something more conditional, more fractured—and far less certain?

On this episode of The Hale Report, Lyric Hughes Hale speaks with journalist and global policy convener Steve Clemons, a longtime observer of power, who has spent decades moving between Washington, journalism, and the world’s major geopolitical forums—from Tokyo and Brussels to Davos.

Clemons did not come to journalism through the usual route. Trained in economics, policy, and U.S.–Asia relations, and shaped by a childhood spent on U.S. military bases abroad, he built a career convening conversations among policymakers, business leaders, and thinkers across ideological and national lines. That perspective informs a wide-ranging discussion of how global alliances, domestic politics, technology, and journalism itself are being reshaped in real time.

From the legacy of Chalmers Johnson’s developmental state to Japan’s political transformation under Prime Minister Sanae Takaichi, from NATO’s evolving role to the growing power of Big Tech, Clemons argues that the world is reorganizing into more conditional and ad hoc arrangements. The United States remains central—but no longer unquestioned.

At home, he sees a Washington defined by internal fractures and performative politics, while globally the risk of conflict may arise less from deliberate strategy than from miscalculation in an increasingly unstable system.

Underlying the entire conversation is a quieter theme: the role of journalism in such a moment. In an era of fragmentation and personality-driven media, Clemons offers a reminder that the journalist’s task remains what it has always been—to illuminate reality, not become part of the spectacle.

About our Guest

Steve Clemons is a journalist, policy strategist, and global convener. He serves as Editor-at-Large of The National Interest and is the founder of Widehall, an international forum convening leaders across policy, business, and media.

Over the course of his career, Clemons has held senior roles at The Atlantic, The Hill, and Semafor, and founded the influential Washington policy blog The Washington Note. He has worked closely with leading figures in U.S. foreign policy and international economics and has been recognized internationally for his contributions to transatlantic understanding.

He is widely known for bringing together diverse voices across ideological and national divides to foster substantive global dialogue.

Topics Discussed

• The formative influence of growing up abroad and entering journalism through policy and economics

• Chalmers Johnson, industrial policy, and lessons for China and the United States

• Japan’s political evolution and the leadership of Prime Minister Sanae Takaichi

• Remilitarization of Japan and Germany post-WW2

• The shift from “high-trust” to “high-fear” globalization

• NATO, conditional alliances, and Europe’s emerging strategic autonomy

• Washington’s internal political fractures and performative partisanship

• Big Tech’s growing structural power and parallels to the robber-baron era

• AI, surveillance, and the future of privacy

• The rising risk of accidental conflict in a fragmented world

• The coming midterm elections in the US

• Journalism’s credibility crisis—and the importance of remaining neutral, factual, and accountable

🎤 Key Moments

❝ Unconditional alliances are over. They are going to be more conditional and ad hoc.

❝ Both parties are an exercise in the study of schizophrenia.

❝ I worry more about escalation, miscalculation, and accident than deliberate war.

❝ Journalists are not the story. They should never be the story.

📚 Related Reading & References

• Chalmers Johnson — MITI and the Japanese Miracle

• Graham Allison — Essence of Decision

• Thomas L. Friedman — The Lexus and the Olive Tree

• Brad Smith — Tools and Weapons: The Promise and the Peril of the Digital Age

• George Orwell — 1984

• Richard Vague — The Banker Who Made America: Thomas Willing and the Rise of American Finance

💬 Join the Conversation

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🎙️ About Our Host

📍 Chicago

Editor’s note: Recent changes inside China’s military have prompted renewed debate about command authority, political control, and the country’s longer-term strategic trajectory. In this article, eco…

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A Critical Announcement

On November 7th last year, the US Department of the Interior quietly released its final 2025 Critical Minerals List.1 For the first time, silver was formally designated as a critical mineral. No longer just an investable precious metal, silver underpins the electronics industry, solar manufacturing, and key infrastructure and defense systems. Its industrial superpower: it is the most conductive metal for electricity on earth. This new designation signals a shift in Washington’s thinking about critical resources.

Price Volatility & China

Since early November, the silver price has surged, from $48.15 on Nov 7 to a recent high of $121.79 before retracing sharply on Friday to $85.25. Even after this pullback, prices remain dramatically elevated relative to early autumn.

In the investment world, all eyes are on futures markets and China. Gold’s increase in value is largely seen as a function of central bank purchases over time, particularly the People’s Bank of China. Silver, however, is not widely held by central banks. Its dual use, as a store of value and an industrial commodity, has given it both a retail and commercial base of investors.

What is different this time is that there is a wide divergence between silver prices in Western financial markets and physical markets in Shanghai, where silver is selling at a significant premium of around 40%. This premium suggests tight physical supply and strong local demand, though it has also prompted questions about market structure and policy intervention. (A new website tracks these differentials in real time: metalcharts.org/shanghai.)

The discount to NAV (net asset value) is also enormous in US markets, reaching 19.3% as of Jan 30, closer to the crypto ETF discounts such as GBTC to Bitcoin than to precious metals. What this uptick means is that SLV ( the iShares Silver Trust) is trading almost 20% below the value of the physical silver it holds; historically this discount has been only 1-2%. In the absence of a remarkable decline in industrial demand, this kind of movement signals liquidity stress. Traders are describing this as a “six-sigma shock” or a statistical outlier. Especially since silver, unlike gold, is not a balance sheet stabilizer; it has a dual use as a speculative asset and an industrial commodity.

The simultaneous fall in the prices of other assets such as gold and bitcoin supports the liquidity thesis. During a liquidity crunch, investors sell what they can. There is speculation that massive shorts that went wrong broke the silver market, and there could be collateral damage at institutions that followed this path. At risk is the concept of precious metals as a safe haven asset, given recent volatility.

Here in Chicago, the CME Group raised COMEX margin requirements on these trades.

What happened last Friday? As Jim Bianco notes on X:

❝ Yesterday’s 19% discount to NAV broke the record set on 10/10/2008, the day the TARP was introduced during the Global Financial Crisis…It doesn’t mean we will automatically see a firm fail, but the silver market needs to correct itself quickly; otherwise, it probably will.

Market Reaction

In addition to speculation about Chinese industrial weakness, widespread liquidity issues, there are two confounding factors. The first was the announcement on Friday morning that Kevin Warsh would be President Trump’s nominee for the Federal Reserve Chair. He is neither a classic hawk nor dove, and is known to favor shrinking the Fed’s balance sheet, which means less quantitative easing and tighter financial conditions. The threat of war in the Middle East is also looming closer, as US military assets move closer to striking distance of Iran.

Friday’s shock may ultimately prove financial rather than structural. But volatility does not erase vulnerability. Silver now sits at the intersection of electrification, liquidity, and geopolitics — a small metal carrying outsized weight in modern industry.

The United States has labeled silver as a critical mineral, and markets are attempting to set its value. When silver moves, there could be multiple causes, and so in a volatile geopolitical environment, price variations should be expected. Still, the level of change is surprising. What remains uncertain is whether this episode reflects transient liquidity pressure or is an early signal of deeper structural change, especially in China. Noted with concern at the beginning of a potentially tempestuous week: Chinese EV maker BYD suffered a 30% fall in sales in January, as government subsidies came to an end.

Silver is Everywhere

Beyond the price action, however, is a growing realization of the importance of silver in 21st century life. Previously, silver’s principal use was as money. If you have an old silver quarter, it is now worth many times its face value. You still have silver in your pocket; it is now powers your mobile phone, sits within your laptop, and runs power through your car’s electrical systems.

The strength in the price of silver has coincided with increased usage in Chinese manufacturing. It is not merely a speculative phenomenon, but reflects sustained structural growth in industrial demand. While attention has focused on China’s dominance of rare earths, China remains dependent on imported silver to power its critical export machine. Yet this is not the first time China’s economic system has been closely tied to silver. Over the past century, silver’s role in China has been transformed: it once served as the foundation of the country’s monetary standard.

Silver and China in the 20th Century

In the early 20th century, China was one of the few remaining countries whose monetary system was tied to silver. The rest of the world was on gold. After falling for several years, the global price of silver began to rise sharply in 1931, triggered by Britain’s decision to depreciate the pound against gold, followed by the US doing the same in 1933 with the dollar. A year later, the United States passed the Silver Purchase Act2 a measure driven largely by domestic political pressures that aimed to raise further silver prices.

Milton Friedman and Anna Schwartz interpreted this episode of rising silver prices as a reversal of China’s earlier insulation from global deflation.3 Weak silver prices initially functioned much like a depreciated currency, supporting exports. They believed, as was the official view at the time, that the subsequent appreciation of silver and silver outflows led directly to a contraction in the money supply and deflation, putting huge strains on the Chinese economy.

Later research by economists Loren Brandt and Thomas Sargent, based on evidence that was not available to Friedman and Schwartz, challenged the role of US silver purchases in China’s economic difficulties in that era.4 They offered a more nuanced interpretation:

❝ Recently compiled evidence about events in China are described and interpreted in light of a model of free banking under a commodity standard. Our interpretation is that the U.S. silver purchase program did not set off a chain of bad economic events which eventually forced China off of silver and onto a fiat standard. Rather, China was forced off silver by its own government, which wanted to make itself the beneficiary of the capital gain associated with the appreciation of silver and to relieve itself of the restrictions that are imposed on government finance by a commodity standard.

Brandt and Sargent document that the money supply did not collapse. The decline in silver was more than offset by increases in banknotes that were convertible on demand into silver. The promise of convertibility was maintained over the entire episode. In their interpretation, China’s departure from the silver standard was a political decision by the Kuomintang government, not a collapse imposed from abroad. It gave the KMT greater fiscal flexibility and room to run deficits, and allowed it to capture a significant portion of the appreciation in silver through a nationalization program highly favorable to itself.

This fascinating episode in monetary history remains debated among economic historians, but it illustrates a broader principle: when a nation’s monetary or industrial system is closely tied to a globally traded metal beyond its policy control, there can be domestic consequences. However, causation is not so easily determined without hard evidence.

Silver is no longer China’s monetary standard, but it now critical to its industrial power base in solar energy, automobiles, and electronics. Dependence on silver is a vulnerability in ways that could not have been imagined almost a century ago.

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If you missed our virtual deep dive by leading thinkers on one of the most consequential financial innovations of our time, enjoy this replay. Want to learn more? Recommended readings from our panelists are listed below.

📌 Subscribe by Jan 20th to secure your subscriber discount and attend our next panel discussion on Iran on Mon Jan 19th at 10 am CST.

The Core Question

Are stablecoins reshaping the plumbing of money and banking, and what does that mean for traditional banks, regulators, and everyday payments?

Stablecoins — digital tokens pegged to fiat currencies — have rapidly moved from crypto fringe to systemically relevant financial infrastructure, offering improved settlement times and new payment capabilities. In 2025, regulatory breakthroughs such as the GENIUS Act established the first US federal framework for stablecoin issuance under trusted collateral rules.

At the same time, stablecoin issuers have become major holders of US Treasuries, giving them real influence in safe-asset markets and placing them at the intersection of banking liquidity, monetary policy, and global payment systems. As banks, fintech firms, and regulators increasingly converge around stablecoins, early 2026 the right moment to take stock of what comes next.

↳ Panelists

SPECIAL GUEST

Gina Pieters

Gina Pieters is and economist and consultant specializing in research on the digital economy and cross-border macro and financial policy issues related to decentralized digital assets, financial infrastructure, stablecoins, and CBDCs.

^📍Chicago

On the integration of stablecoins and the global banking system

^📍Chicago

On the functioning of stablecoins and payment systems

^📍Chicago

Moderated by

Editor-in-Chief

^📍Chicago

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Guest: Dr Ruby Wang
Title: Update on the Chinese Health Care System
Host: Lyric Hughes Hale
Producer: Sam Fu
Recorded: Tues Dec 16, 2025 · 60 minutes

Our last podcast of the year is about a subject that is close to my heart: the Chinese health care system. And I cannot think of a better person to discuss this topic with than Dr Ruby Wang, speaking to us from London.

Speaking of health, you might be able to tell that I was a little hoarse from a cold. but I am glad that I (hopefully) got that annual winter experience over before the new year.

If you have time over the long holiday weekend, I think you will enjoy this conversation as much as I did. A peaceful, prosperous, and yes, healthy New Year to all of our subscribers!

💬 𝓁𝓎𝓇𝒾𝒸

🎙️ Host of the Hale Report®

📍Chicago

In Episode 76 of The Hale Report® Lyric Hughes Hale speaks with Dr Ruby Wang about how China’s health care system actually works—its strengths, fragilities, and contradictions—and what it reveals about state capacity, trust, and notably, global risk.

About Ruby Wang

Ruby Wang is a UK-trained physician and global health strategist focused on China’s health care system and its global implications. She is the founder of Lintris Health, a cross-border health care and life sciences advisory firm, and the author of China Health Pulse, a Substack newsletter and podcast.

Born in China and raised in the UK, Dr Wang brings a rare cross-cultural perspective to how healthcare, technology, and geopolitics intersect. She trained in medicine and neuroscience at Cambridge University and later earned a master’s degree in health and technology policy at Tsinghua University as a Schwarzman Scholar. She has worked with the UK government and the United Nations in China and is currently an Honorary Fellow at the Asia Society Policy Institute.

Why This Conversation Matters Now

China’s rise has been analyzed through many lenses—trade, technology, military power, and demographics. Yet one critical system remains deeply misunderstood in the West: health care.

Over the past decade, China has undertaken one of the fastest health care transformations in modern history, integrating digital platforms, data-driven medicine, biotech innovation, and state capacity at extraordinary scale. It has done so while confronting rapid aging, declining birthrates, a rising incidence of chronic disease, and intensifying geopolitical strain.

🎤 Key Moments

🔑 Takeaways

In this 60-minute conversation, Lyric Hughes Hale and Ruby Wang discuss:

• Why Western assumptions about China’s health care system lag reality

• Speed, scale, and state capacity—and why they matter

• Innovation alongside inequality in China’s rural–urban divide

• Doctors under strain: incentives, burnout, and patient violence

• Who really pays for care—and why “universal coverage” isn’t free

• Privacy, data, and collectivism in medical decision-making

• AI, biotech, and China’s growing role in global health care innovation

• COVID as a stress test—and the lessons still unlearned

• Pharmaceutical supply chains, decoupling risks, and global cooperation

  ---

💬 After we finished recording, our producer Sam Fu, who, like our guest is also a medical professional, Sam and Ruby had a wonderful conversation about the differences between the US and Chinese hospital systems. I wish we had recorded that discussion as well, but let me take this opportunity to thank both Sam for all he does for the Hale Report throughout the year, and Ruby for joining us.

In Closing: Health Care is More than a Sector—It is a Lens

One point runs through this entire conversation. China’s health care system is neither a dystopia nor a miracle. It is fast, hypercompetitive, technologically ambitious, and capable of operating at enormous scale—but it is also uneven, underinsured, and under intense social pressure.

Understanding that tension matters. It explains why doctors are under strain, why competition becomes corrosive, and why global cooperation, whether on pandemics, biologics, or supply chains, is far more complicated than it appears from the outside. And very hard to unwind.

Health care is one of the clearest windows we have into how China governs, how society absorbs stress, and how global risk travels. And if we don’t understand that system as it actually exists rather than as we imagine it, we risk misunderstanding far more than medicine.