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US tariffs on Chinese goods are approaching the levels that applied during the trade war of the 1930s but they’re being imposed on a much more complex set of trade and business relationships.

As much as 80% of global trade now takes place within corporate groups and is organised in ‘value chains’, where high-value work, such as research and marketing, is conducted in advanced countries and low-value assembly work is done in low-income developing nations.

In the 1930s, a company would consign goods to a shipping agent and an importing business would take delivery at the other end. International trade was a relatively small part of the global economy, accounting for around 10% of total output. However, the elevation of trade barriers, which started in the US with the Smoot-Hawley tariffs of 1930, nevertheless deepened the Depression as trade plunged to 5% of global GDP.

The recovery was slow, and trade didn’t get back to pre-Depression levels until the mid-1970s. But a series of developments from the mid-1980s onwards led to an explosion in trade volumes.

The major changes included the advent of shipping containers, huge improvements in communications technology, the breakdown of fixed exchange rates, the formation of the World Trade Organization and a global reduction in tariffs.

Trade reached an unprecedented peak of 27% of world GDP in 2008 on the eve of the global financial crisis. Trade volumes grew at double the rate of economic growth overall, and lifted prosperity across the world.

Literally billions of people from the developing world were drawn into the market economy as global businesses found ways of breaking the manufacture of complex goods into components that could be produced in different countries to maximise productivity while minimising labour cost.

The latest iPhone, for example, draws on components produced by 785 suppliers in 31 countries. Around half those suppliers are in China, while 60 are based in the US, including the American affiliates of foreign multinationals.

Many of the components supplied by US companies also use supplies from China and other Asian nations such as Taiwan, South Korea and Japan.

The Hong Kong–based company Li & Fung was a pioneer in using the power of communications and logistics management to distribute manufacturing operations across the Asian region, but most global firms were doing the same.

A Brookings Institution study shows that the increasing specialisation brought huge advances in productivity. Between 1995 and 2009, productivity in the US information technology industry rose by 200% as the share of its workforce with tertiary education rose from a third to half. As the US role in the industry shifted from production to design, the share of work carried out by low-skilled staff dropped from 10% to 5%.

In China, over the same period, productivity in the IT industry soared sixfold. Around 90% of the work was done by low- and medium -skilled labour, but the big gains in productivity were made possible by advanced capital equipment. The labour share in value-added dropped from more than 40% to about 30%.

The Trump administration is focusing on the gap between US exports to and imports from China and aspires to repatriate US investment abroad. However, business groups in the US and elsewhere have been driven by the profits to be won from a global market by using a global platform for production.

US firms employ a staggering 1.75 million staff in China, which is about 40% more than they have in either Mexico or Canada. They have committed US$400 billion to investments in China.

US affiliates in China are producing supplies for both global markets and the Chinese domestic market. Their total sales of US$345 billion are twice the size of US exports to China. The only countries where US multinationals have larger sales are Canada and Ireland, with the latter reflecting tax advantages.

Chinese firms have also invested heavily in the US with total assets of US$215 billion. They have gone to the US to access both its sophisticated market and its design and technology strengths. Their total workforce numbers only 80,000.

Analysis by the Peterson Institute for International Economics shows that average tariff levels on US imports from China have risen from 3.1% in 2017 to 18.3% now.

The latest measures proposed by the Trump administration would lift average tariff levels to 27.8%, which compares to levels of around 30% during the Depression.

Until now, most of the US tariffs have been on capital goods and ‘intermediate’ goods, or components used by industry. The latest round includes most of China’s vast array of consumer goods and is expected to add around 0.5 percentage points to US inflation. The price of an iPhone in the US is expected to rise by about US$160, according to a Morgan Stanley report.

The tariffs on capital and intermediate goods are effectively a tax on US industry and reduce its competitiveness.

Modelling suggests this loss of competitiveness would reduce US exports by 6% over the next decade, quite apart from the loss of bilateral trade between China and the US.

Companies are working to reorganise their supply chains to avoid the impact of the tariffs. A survey by law firm Baker McKenzie found that 18% of multinationals in China were completely shifting their supply and production from China and a further 58% were making major changes. Many are moving production to other countries in Southeast Asia, including Cambodia, Indonesia and Vietnam.

Companies exporting from the US to China are also having to reconsider their operations. China’s 25% retaliatory tariff on US motor vehicles will affect annual sales of around 270,000 vehicles, with the US subsidiaries of German manufacturers accounting for US$7 billion of the US$11 billion of total vehicle exports.

The OECD argues that the best measure of trade flows looks at the value added in the exporting country, rather than at the gross sales proceeds. If China exports an iPhone worth $1,000, but $900 of the value contained within it comes from the US, the OECD would credit China with only $100.

The OECD estimates that 12.6% of the value added to the US economy from its exports comes from its sales to China, more than any other country. For China, the US delivers just under a quarter of the wealth it obtains from exports.

Unscrambling the linkages between the US and Chinese economies is likely to come at a heavy cost to both.

US President Donald Trump’s administration has shown little interest in public diplomacy. And yet this form of diplomacy—a government’s efforts to communicate directly with other countries’ publics—is one of the key instruments policymakers use to generate soft power.

The information revolution makes such instruments more important than ever.

Opinion polls and the Portland ‘Soft Power 30’ index show that American soft power has declined since the beginning of Trump’s term. Tweets can help to set the global agenda, but they do not produce soft power if they are not attractive to others.

Trump’s defenders reply that soft power—what happens in the minds of others—is irrelevant; only hard power, with its military and economic instruments, matters. In March 2017, Trump’s budget director, Mick Mulvaney, proclaimed a ‘hard power budget‘ that would have slashed funding for the State Department and the US Agency for International Development by nearly 30%.

Fortunately, military leaders know better. In 2013, General James Mattis, who would later become Trump’s defence secretary, warned Congress, ‘If you don’t fund the State Department fully, then I need to buy more ammunition ultimately.’ As Henry Kissinger once pointed out, international order depends not only on the balance of hard power, but also on perceptions of legitimacy, which depends crucially on soft power.

Information revolutions always have profound socioeconomic and political consequences—witness the dramatic effects of Gutenberg’s printing press on Europe in the 15th and 16th centuries. One can date the current information revolution from the 1960s and the advent of ‘Moore’s law’, which states that the number of transistors on a computer chip doubles roughly every two years. As a result, computing power increased dramatically, and by the beginning of this century cost 0.1% of what it did in the early 1970s.

In 1993, there were about 50 websites in the world; by 2000, that number surpassed five million. Today, more than four billion people are online; that number is projected to grow to 5–6 billion people by 2020, and the ‘internet of things’ will connect tens of billions of devices. Facebook has more users than the populations of China and the US combined.

In such a world, the power to attract and persuade becomes increasingly important. But long gone are the days when public diplomacy was mainly conducted through radio and television broadcasting. Technological advances have led to a dramatic reduction in the cost of processing and transmitting information. The result is an explosion of information, which has produced a ‘paradox of plenty’: an abundance of information leads to scarcity of attention.

When the volume of information confronting people becomes overwhelming, it is hard to know what to focus on. Social media algorithms are designed to compete for attention. Reputation becomes even more important than in the past, and political struggles, informed by social and ideological affinities, often centre on the creation and destruction of credibility. Social media can make false information look more credible if it comes from ‘friends’. As US Special Counsel Robert Mueller’s report on Russian interference in the 2016 presidential election showed, this enabled Russia to weaponise American social media.

Reputation has always mattered in world politics, but credibility has become an even more important power resource. Information that appears to be propaganda may not only be scorned, but may also turn out to be counterproductive if it undermines a country’s reputation for credibility—and thus reduces its soft power. The most effective propaganda is not propaganda. It is a two-way dialogue among people.

Russia and China do not seem to comprehend this, and sometimes the United States fails to pass the test as well. During the Iraq War, for example, the treatment of prisoners at Abu Ghraib in a manner inconsistent with American values led to perceptions of hypocrisy that could not be reversed by broadcasting pictures of Muslims living well in America. Today, presidential tweets that prove to be demonstrably false undercut America’s credibility and reduce its soft power. The effectiveness of public diplomacy is measured by minds changed (as reflected in interviews or polls), not dollars spent or number of messages sent.

Domestic or foreign policies that appear hypocritical, arrogant, indifferent to others’ views or based on a narrow conception of national interest can undermine soft power. For example, there was a steep decline in the attractiveness of the US in opinion polls conducted after the invasion of Iraq in 2003. In the 1970s, many people around the world objected to the US war in Vietnam and America’s global standing reflected the unpopularity of that policy.

Sceptics argue that such cycles show that soft power does not matter much; countries cooperate out of self-interest. But this argument misses a crucial point: cooperation is a matter of degree, and the degree is affected by attraction or repulsion.

Fortunately, a country’s soft power depends not only on its official policies, but also on the attractiveness of its civil society. When protesters overseas were marching against the Vietnam War, they often sang ‘We shall overcome’, an anthem of the US civil rights movement. Given past experience, there is every reason to hope that the US will recover its soft power after Trump, though a greater investment in public diplomacy would certainly help.

It was John Nance Garner, Franklin Roosevelt’s first vice president, who characterised his office most pithily and dismissively. The formidable Texas Democrat, ‘cactus Jack’, declared that the vice presidency of the United States was ‘not worth a bucket of warm spit’.

Historically, the vice presidency has often been so derided. Asked what Vice President Richard Nixon had contributed on a particular policy issue, President Dwight Eisenhower deadpanned that he needed a couple of weeks to consider the question. Indeed, Nixon discovered that, as vice president, he wasn’t actually a member of the government.

Perhaps this explains why Harry Truman knew nothing of the Manhattan Project, through which America developed the atomic bomb, until he actually assumed the presidency on FDR’s death in April 1945. The vice president was that remote from White House decision-making.

Much has changed for the better since then, particularly given the more assertive nature of vice presidents from Walter Mondale to Joe Biden, through the likes of George H.W. Bush, Al Gore and Dick Cheney. When he was vice president, George H.W. Bush, understanding the dangers of being excluded from the centre of power, insisted on a weekly lunch with the president, Ronald Reagan.

But few vice presidents, at least since Aaron Burr, have accumulated and exercised power after the fashion of Cheney. He’s now the subject of a splendid film, Vice, that is part satire and part drama but always engaging.

The movie is hardly a biopic and it certainly isn’t history. Like The Iron Lady, which centred on Margaret Thatcher in decline, Vice has a point to make about Cheney and his years in power and approaches the subject from a liberal perspective. But there’s something in the movie to interest most, from the farcical to the infuriating, and from the disarming to the depressing.

The cast is uniformly impressive, with Christian Bale mesmerising as Cheney, plastered in makeup but having mastered the VP’s distinctive mannerisms, including his facial tics.

Similarly, Steve Carrell as Donald Rumsfeld gives a superb performance, driven by the defence secretary’s cynicism and ruthlessness in both internal struggles and policy battles. Originally Cheney’s mentor and promoter, Rumsfeld in his fall from grace offers a salutary lesson to all who aspire to great office.

George W. Bush can’t possibly have been as shallow a lightweight as portrayed by Sam Rockwell. It is a portrait that accords with the popular assessment of the 43rd president, but it would be wrong to accept it at face value, given Bush’s electoral record both as governor of Texas and as president. His success can’t all be down to Karl Rove.

But it’s Amy Adams, as the feisty Lynne Cheney, who steals this movie. It is Lynne who saves Cheney from a dissolute, brawling lifestyle in Casper, Wyoming, causing him to clean up his act, finish college and set out on a Republican political pathway. Rather like the contribution made by the able Laura Bush in her husband’s progress to sobriety and seriousness, Lynne Cheney is a primary character in this film.

Directed by Adam McKay, Vice is an outstanding offering for a broad audience, but there are particularly interesting insights for strategic analysts.

Within the Nixon White House, the president quietly conspired with Henry Kissinger to initiate a secret bombing campaign in Cambodia. The consequences for the Cambodian people were devastating. The bombing was never disclosed to Congress and became another avenue of impeachment for Nixon.

Similarly, the Bush administration’s decision to invade Iraq is shown in terms of ideological and personal imperative, despite the lack of credible intelligence on Saddam Hussein’s arsenal or intentions. Colin Powell (Tyler Perry) is sceptical but is obliged to speak at the United Nations Security Council and denounce Saddam. In the years after, Powell regarded the speech as the worst he ever made.

The Bush White House’s treatment of intelligence and its brutal response to critics may be painted in harsh colours, but there’s more than a kernel of truth in what is on the screen, given the legal travails of the vice president’s chief of staff, Scooter Libby.

Congresswoman Liz Cheney of Wyoming is now chair of the House Republican Conference, the third-ranking Republican in the House of Representatives. Her sister Mary is depicted as suffering rejection to further Liz’s ambitions. They play politics tough in the open spaces of Wyoming.

The current vice president, Mike Pence, often acts as the Trump administration’s sweeper, bringing coherence to policy tweets by the president. In particular, Pence has been sharply critical of Chinese ‘debt-trap diplomacy’ and forthright in opposition to the Maduro regime in Venezuela.

That a Republican vice president can take such a role owes much to Dick Cheney, who assumed a position in American government—especially in national security after 9/11—that was powerful in every dimension.

Vice is political cinema at its best: robust and confronting while telling a tale of power in practice.

The dysfunctional politics of Brexit in the United Kingdom, and the midterm election reaction against President Donald Trump in the United States, are generating second thoughts about the populist tide that has been sweeping the world’s democracies in recent years. In fact, second thoughts are long overdue.

Populism is an ambiguous term applied to many different types of political parties and movements, but its common denominator is resentment of powerful elites. In the 2016 presidential election, both major US political parties experienced populist reactions to globalisation and trade agreements. Some observers even attributed Trump’s election to the populist reaction to the liberal international order of the past seven decades. But that analysis is too simple. The outcome was determined by many factors, and foreign policy was not the main one.

Populism is not new, and it is as American as apple pie. Some populist reactions—for example, Andrew Jackson’s presidency in the 1830s or the Progressive Era at the beginning of the 20th century – have led to democracy-strengthening reforms. Others, such as the anti-immigrant, anti-Catholic Know-Nothing Party in the 1850s or Senator Joe McCarthy and Governor George Wallace in the 1950s and 1960s, have emphasised xenophobia and exclusion. The recent wave of American populism includes both strands.

The roots of populist reactions are both economic and cultural, and are the subject of important social science research. Pippa Norris of Harvard and Ronald Inglehart of the University of Michigan have found that cultural factors long antedating the 2016 election were very important. Voters who lost jobs to foreign competition tended to support Trump, but so did groups like older white males who lost status in the culture wars that date back to the 1970s and involved changing values related to race, gender and sexual preference. Alan Abramowitz of Emory University has shown that racial resentment was the single strongest predictor for Trump among Republican primary voters.

But economic and cultural explanations are not mutually exclusive. Trump explicitly connected these issues by arguing that illegal immigrants were taking jobs from American citizens. The symbolism of building a wall along America’s southern border was a useful slogan for uniting his electoral base around these issues. That is why he finds the idea hard to give up.

Even if there had been no economic globalisation or liberal international order, and even if there had been no great recession after 2008, domestic cultural and demographic changes in the US would have created some degree of populism. America saw this in the 1920s and 1930s. Fifteen million immigrants had come to the US in the first 20 years of the century, leaving many Americans with an uneasy fear of being overwhelmed. In the early 1920s, the Ku Klux Klan had a resurgence and pushed for the National Origins Act of 1924 to ‘prevent the Nordic race from being swamped’, and ‘preserve the older, more homogeneous America they revered’.

Similarly, Trump’s election in 2016 reflected rather than caused the deep racial, ideological and cultural schisms that had been developing in reaction to the civil rights and women’s liberation movements of the 1960s and 1970s. Populism is likely to continue in the US as jobs are lost to robotics as much as to trade, and cultural change continues to be divisive.

The lesson for policy elites who support globalisation and an open economy is that they will have to pay more attention to issues of economic inequality as well as adjustment assistance for those disrupted by change, both domestic and foreign. Attitudes towards immigration improve as the economy improves, but it remains an emotional cultural issue. In mid-2010, when the effects of the great recession were at their peak, a Pew survey found that 39% of US adults believed immigrants were strengthening the country, and 50% viewed them as a burden. By 2015, 51% said that immigrants strengthen the country, while 41% said they were a burden. Immigration is a source of America’s comparative advantage, but political leaders will have to show that they can manage national borders—both physical and cultural—if they are to fend off nativist attacks, particularly in times and places of economic stress.

Still, one should not read too much about long-term trends in American public opinion into the heated rhetoric of the 2016 election or Trump’s brilliant use of social media to manipulate the news agenda with cultural wedge issues. While Trump won the Electoral College, he fell three million short in the popular vote. According to a September 2016 poll, 65% of Americans thought that globalisation was mostly good for the US, despite their concerns about jobs. While polls are always susceptible to framing by altering the wording and order of questions, the label ‘isolationism’ is not an accurate description of current American attitudes.

Since 1974, the Chicago Council on Global Affairs has asked Americans annually if the US should take an active part in, or stay out of, world affairs. Over that period, roughly a third of the public has been consistently isolationist, harking back to the 19th-century tradition. That number reached 41% in 2014, but, contrary to popular myth, 2016 was not a high point of post-1945 isolationism. At the time of the election, 64% of the respondents said they favored active involvement in world affairs, and that number rose to 70% in the 2018 poll, the highest recorded level since 2002 (which had been reached in the aftermath of the 9/11 terrorist attacks).

Strong support for immigration and globalisation in the US sits uneasily with the view that ‘populism’ is a problem. The term remains vague and explains too little—particularly now, when support for the political forces it attempts to describe seems to be on the wane.

China has become something of a punching bag for Western criticism. At the East Asia Summit in Singapore last year, US Vice President Mike Pence insinuated that China is pushing ‘empire and aggression’ in the Indo-Pacific. Disgruntlement with China dominated November’s Stockholm China Forum meeting, a gathering of American, Chinese and European ambassadors, diplomats, scholars, politicians and business leaders. Whether it’s the ‘debt trap’ of its Belt and Road Initiative, island building in the South China Sea or alleged influence operations, China is causing profound anxiety in Western democracies. Has China become a great disrupter?

There are reasons to think that global stability is still in the interest of a powerful China and that Chinese leaders will come to appreciate that insight. In an age of ambition, Beijing is unwilling to make absolute stability its foreign policy goal; but it also doesn’t want unremitting competition or confrontation.

President Xi Jinping refers to the aim of his grand strategy as the ‘great rejuvenation of the Chinese nation’. In his report to the 19th party congress, Xi divides China’s rise into three periods: standing up under Mao, getting rich under Deng Xiaoping, and becoming powerful under himself.

It is true that stability isn’t posited as a goal in itself, but it is well worth asking whether national rejuvenation can be achieved without a good degree of external stability. Xi’s rejuvenation project, although above all a domestic task, also requires a reasonably stable regional and international environment. A turbulent world would create many challenges. The international structural imperative is such that even if Chinese policy creates instability in certain areas and at certain times, decision-makers will try to keep it under control and recognise the virtue of overall stability.

Does stability have a place under the overarching goal of national rejuvenation? In an important foreign policy speech delivered in June 2018, Xi described the ‘layout’ of his strategy, composed of six arenas. The first is to make the global governance system fairer and more reasonable. The second is to solidify the BRI. The third is to ‘construct a framework of overall stability and balanced development’ for the major powers. The fourth is to improve neighbourhood diplomacy and make the regional environment friendlier and more beneficial to China. The fifth is to deepen cooperation with developing countries. And the sixth is to promote mutual interaction and mutual learning with the rest of the world.

Each arena of this strategic roadmap assumes stability as an objective. Take two critical areas: major-power relations and neighbourhood policy. For major-power relations, overall stability is identified as a key goal. Indeed, Xi’s China desperately wants to stabilise relations with the US, now buffeted by President Donald Trump’s trade war and other uncertainties. For neighbourhood policy, the goal is a friendlier regional environment, which can’t be achieved without a good degree of stability. Beijing is now trying hard to bring stability back to the South China Sea by negotiating a code of conduct with Southeast Asian nations. At the level of grand strategy, China has built in overall stability as a foreign policy goal.

But grand strategy is as much about implementation as about conception, and successful implementation is by no means an easy matter. Here we should note the powerful mechanism of learning. During Xi’s first term, his ambitious and assertive regional policy was destabilising, especially in the East and South China Seas. But notable changes have taken place recently. In the South China Sea, for example, Chinese island-building increased security tension, but the code-of-conduct negotiations represent an attempt from Beijing to achieve a balance between regional stability and national rights. It is based on the recognition that despite all the nationalist fervour about sovereignty and maritime rights, stability is still an important foreign policy interest.

Another case in point is an important debate within China about strategic overstretch. Launched by Renmin University professor Shi Yinhong, among others, the debate brings to the fore the costs of Xi’s assertiveness. It may have already influenced official thinking.

The BRI provides a further example. Although unwilling to accept the ‘debt trap’ criticism, Beijing is privately acknowledging the problem of debt in some BRI projects and has courted collaboration on infrastructure investment from third parties such as Singapore and Japan.

International concerns about the challenge posed by Xi’s plans are understandable. Ambitions aside, China still has a strong incentive to achieve a good degree of external stability. International interdependence is a structural imperative and Xi and his team have learned and will continue to learn about the virtue of stability through a policy process of trial and error. Ultimately, China is far more likely to balance its goals in the service of overall stability than to wreak havoc.