China wakes, US builds, woke wanes and tariffs tally

It’s time for your quasi-regular, quasi-weekly Noahpinion roundup of interesting stuff from around the world.

1. China wakes up to macroeconomic reality

Two weeks ago I argued that China is suffering from a shortage of aggregate demand and that the solution is to have the central government A) bail out banks and local government financing vehicles, and B) use fiscal and monetary stimulus. Perhaps Xi Jinping reads my blog. China is unleashing some more substantial stimulus measures:

Chinese stocks immediately soared. Even more encouragingly (at least, if you want China to keep growing), Xi’s government looks like it might bail out the Chinese banking system:

For the uninitiated, “injecting capital” means “giving banks money”. It means a bailout.

This is probably even more important than stimulus, since getting banks lending again is the key to a sustained recovery. China boosters have long held that Chinese banks’ bad debts don’t matter because banks and the state are one and the same — this is called the “unitary state” theory.

That theory is probably wrong. Chinese banks have their own incentives, and fear getting culled by the government if they fail. Injecting them with capital helps them gain the confidence to lend again, because it gives them a cushion against failure.

The final step in this process would be to bail out China’s local government financing vehicles, which have become incredibly important to China’s regional economies. But just bailing out the banks and doing some major fiscal and monetary stimulus should have a big effect in terms of shortening and ameliorating China’s recession.

2. The build-something country?

US economic policy has been shifting toward industrial policy. A number of commentators who