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The real reason Republicans are so interested in the census
https://www.theguardian.com/commentisfree/2019/jun/23/republicans-census-2020-election-gerrymandering
A Republican strategist conceived a clever long-term strategy to maintain conservative power in a changing nation. We must fight back
The supreme court is expected to soon rule on whether the Trump administration can add a question about citizenship to the US census. If you want to understand the real purpose of Republican proposals to add a citizenship question to the US census, a good place to start is last November’s Texas state house elections.
Democrats call for oversight after Trump's Iran airstrikes reversal
Read more
Democrats captured 12 seats in Texas’s lower chamber, propelled by long-simmering demographic changes that have made this red state less white, rural, and conservative. The Republican party’s enormous majority has commensurately crumbled: a 101-49 advantage in 2011 has now been sliced to a narrow 83-67. That slight edge could easily evaporate by the mid-2020s.
The master Republican strategist Thomas Hofeller didn’t live to see those dramatic results. He died three months earlier, in August 2018. He anticipated them, however, and left behind a simple yet sophisticated plan to hold back the new face of Texas and keep state government in Republican hands regardless of demographic changes. The citizenship question would be the sandbag.
Hofeller’s long-term strategy to maintain conservative power in a changing nation is at the heart of the census question, and the most important - though perhaps least understood - takeaway from a treasure trove of documents discovered after his death. If successful, his strategy could lock in Republican control not only in Texas, but other slowly changing states like Georgia, Arizona, and Florida. It could also undo any possible decision by the US supreme court this month to rein in the worst partisan gerrymandering.
The Republican plan? Fundamentally re-imagining the way we redistrict state legislatures. The US constitution mandates that congressional districts are drawn based on total population, and state governments have followed that lead when drawing their maps. But the supreme court left the actual metric up to the states.
Hofeller wanted to see what would happen if states drew districts based on citizen voting-age population, and not total population. While it sounds wonky and technical, this subtle shift has the potential to remake political power for decades to come.
The documents, revealed after Hofeller’s estranged daughter turned several thumb drives filled with her father’s work over to Common Cause, suggest this change would have a dramatic effect on political representation. Hofeller concluded in a 2015 memo that the switch “would be advantageous to Republicans and non-Hispanic whites”, because it would dilute the votes of the Texas’s growing Latino population.
Why? Drawing districts based on total population counts everyone: voters and non-voters, citizens and non-citizens, adults and children. It’s based on our constitutional, founding theory that a representative must represent all the people, not just adult voters.
But take a state like Texas, for example – a large state with a growing immigrant population, especially in cities like Dallas and Houston. Districts need to be equal in population. Include only voting-age citizens in the overall population count – and subtract, for example, non-citizen Latinos and their children – and you end up with larger, and fewer, Democratic districts.
The key to the entire strategy? Gathering citizenship data, district by district, during the next census. “Without a question on citizenship being included on the 2020 Decennial Census questionnaire,” Hofeller noted in one memo, “the use of citizen voting age population is functionally unworkable.” A state legislature under Republican control could make this change by simple statute, redefining the very nature of political power and entrenching itself in office by passing one law.
Several important revelations from Hofeller’s thumb drives have made front-page news. Last week, challengers of the citizenship question asked the Court to hold off its impending decision to consider new evidence that Hofeller designed the question to benefit Republicans. The new documents also helped place Commerce Secretary Wilbur Ross in jeopardy of contempt of Congress.
But while most of the coverage of the citizenship question has focused on the potential for an undercount of Latinos and other minority groups that transfers congressional seats to whiter, more rural states, there has been less awareness of this crucial second step. The goal, as revealed in these documents, is not simply to undercount Latinos and reapportion Congress. It’s to gain an accurate citizenship count that makes it possible to change the way we redistrict state legislatures, as well.
The citizenship question, then, did not start with Trump – and contrary to the administration’s claims, is not about better enforcement of the Voting Rights Act. It’s the latest in decades of sophisticated strategies quietly designed by Republicans over decades to protect white political power at the expense of blacks, Latinos, and other racial minorities.
It would be easy to relegate all this to the world of conspiracy theory if the Hofeller memos didn’t spell everything out so clearly in black and white – and if this didn’t fit so squarely into Hofeller’s project of using voting and demographic data to draw maps holding back the demographic tides of a changing nation.
Hofeller specialized in redistricting, and it’s the connection between his census work and redistricting that’s so important here, particularly since we are less than two years away from the redrawing of every state legislative and congressional district nationwide.
He was the Republican gerrymandering guru, the operative who taught Republican legislators how to use mapping software and voter data to construct district lines sturdy enough to hold back a Democratic wave. He was an architect and the godfather of enduring Republican advantages this decade in swing states like North Carolina, Wisconsin, Ohio, Pennsylvania and Michigan.
Back in the 1980s, Hofeller helped conceive of an audacious plan to turn the South red through the Voting Rights Act. The VRA’s reauthorization in 1982 included a provision that required mapmakers to draw majority-minority seats, where possible, to help protect minority voting rights and elect more representatives of color.
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Hofeller realized how this could also benefit Republicans. He provided black Democrats in the South with the information and computers they needed to draw majority-minority seats that expanded African-American representation – but also bleached surrounding districts to be whiter, more rural, and more Republican. In 1994, this strategy Republicans allowed Republicans to break the Democrats’ four-decade hammerlock on the US House.
Then in 2008, jubilant throngs celebrated Barack Obama’s 2008 victory in Grant Park, and pundits noted the looming demographic time bomb for the Republican Party and openly questioned whether a changing American electorate would render Republicans a minority party for a generation.
Hofeller had a different idea. He worked with the Republican State Leadership Committee on a plan called Redmap – short for the Redistricting Majority Project – which sought to solidify Republican control of state legislatures in key redistricting states ahead of the 2011 census. The RSLC dropped millions in last-minute negative ads on local Democratic legislators who never saw it coming. Then Hofeller and his team provided assistance or drew maps in North Carolina, Ohio, Pennsylvania, Wisconsin and elsewhere that have locked in Republican control all decade, even when Democrats win hundreds of thousands more votes. (The Common Cause documents also suggest that Hofeller and/or other Republicans in North Carolina used race data to redraw maps that a court had already ruled an unconstitutional racial gerrymander, then misled the court about it.)
If Hofeller were here to defend himself, he would say he was simply doing all he could to secure a partisan advantage for his side. But all these smoking-gun documents strip that pretense away. They make clear that a shift to citizen, voting-age population would dilute the votes of Latinos and enhance the power of whites and Republicans. Nevertheless, whether partisanship or race is at the heart of Hofeller’s motivation, the result is the same: Expanding the influence of white voters and Republican voters at the expense of communities of color. And an America that has become increasingly anti-majoritarian, governed by unaccountable legislators from districts carefully drawn to protect them from voters.
Democrats, meanwhile, always seem a step behind. They’re fighting the uphill battle to win back gerrymandered legislatures, and fighting partisan gerrymanders in the courts. Meanwhile, Hofeller and the Republican aim to change the entire paradigm yet again, with this shift to citizen voting-age population.
Hofeller never intended to leave a digital smoking gun. He always cautioned against leaving any digital trail that could later haunt the Republican Party in court. “The e in email,” he lectured, “stands for eternal.” But now that these digital files from the grave have shown the real motivation behind the census question and Republican gerrymanders, it’s more important than ever for the courts to defend democracy - and the crucial notion of one person, one vote - against the pernicious efforts of determined partisans to entrench their own power, no matter the price to our nation’s ideals.
Something Stopped Trump From Striking Iran, and It Wasn't 150 Lives
U.S. president says he aborted an attack on Iran out of concern for civilians, but his real fear is what one attack could spiral into
Zvi Bar'el Jun 23, 2019 10:34 AM
U.S. President Donald Trump’s flip-flopping over the past three days may be the most important calming signal that the Middle East has received recently. It was said that all the major ingredients that could justify an American military offensive against Iran had come together.
Things had come to a boil in the Persian Gulf when Saudi, Japanese and other tanker ships were damaged in naval attacks. Without decisive proof, Iran was suggested as the culprit. And Yemini Houthis fired missiles into Saudi Arabia – into Jizan province and at an airfield in Abha – prompting battle cries against Iran.
Iran has shortened the period in which it will step up its enrichment of uranium and thereby violate the nuclear deal. The heads of the Iranian army and Revolutionary Guards have threatened that, despite their desire to avoid a violent confrontation, they wouldn’t hesitate to hit American targets if Iran were attacked. Tensions peaked with Iran’s downing of an American drone last week.
The legitimization for an attack was now ripe, a bank of Iranian targets was assembled and the order to deploy American forces was given. But all of a sudden, nothing. It was back to square one.
On a closer look, the two justifications for carrying out a U.S. attack were flimsy. “Circumstantial proof” is insufficient to launch a strike that in the blink of an eye could spiral into a regional war. The downing of the drone got caught up between American claims that the aircraft had been over international waters and the Iranians’ assertions that the drone had violated their airspace.
Such proof is often used by Israel to justify attacks on Hamas on a scale that doesn’t affect the Middle East as a whole. But this isn’t sufficient for a world power that has to take into account the possibility that its close allies could be hit. Saudi Arabia and the United Arab Emirates, at least publicly, said they didn’t want a war in the Gulf.
Israeli defense officials have said Iran could employ its branches in Lebanon and Syria, either in response to an attack on it or to put pressure on Washington. Only the Israeli government, which should have adopted the Saudi stance because Israeli targets are also on the Iranians’ list, remained silent.
Trump explained his decision not to attack was a desire to avoid killing 150 Iranians. Such a humanitarian explanation would have been heartwarming if it hadn’t come from the president still arming the Saudi military that’s killing thousands in Yemen. This is also the president who wasn’t upset that thousands of Syrian and Iranian civilians were hit in American attacks during the war against the Islamic State. It’s also the president who’s incapable of showing concern for the masses of migrants seeking to enter the United States from Mexico.
In any event, hadn’t the estimate of 150 dead in a U.S. strike been known before the decision to attack was made? The American intelligence services should be given credit for being able to estimate the number of fatalities in such an attack, but it would be interesting to know when such casualties stopped being unavoidable collateral damage and became a humanitarian disaster that Washington couldn’t tolerate.
The important thing, however, isn’t simply Trump’s decision-making process, if the way he tosses around orders can be deemed a process. It’s the consequences of his most recent decision on the confrontation zone in the Persian Gulf and beyond.
The U.S. administration has a vision and aspirations vis-à-vis Iran, but it lacks a strategy to bring them about. The sanctions that Trump has imposed are among the harshest that the country has known, but eight months after being put in place, they still haven’t made Iran succumb.
In their regular interpretations, analysts have been able to point out the huge losses that the Iranians have been sustaining, the exodus of companies that could invest in the country and the fact that most of Iran’s oil customers have stopped buying from the Islamic Republic. But what’s lacking is information or an estimate on how long Iran can survive under such harsh conditions.
Iraq under Saddam Hussein continued to function for more than a decade under a sanctions regime that was harsher than that currently imposed on Iran, and Saddam’s regime was ultimately only defeated on the battlefield. There is no proof that the Iranian regime will act any differently, but the Trump administration has presented no practical strategy for a situation in which Iran sticks to its policy and refuses to negotiate a new nuclear agreement. Is the United States prepared to resort to all-out war to bring down the Iranian regime?
Iran’s decision to exceed the limitations of the current nuclear agreement appear to give the United States and the Western signatories to the agreement grounds to attack Iran. But such concerted action would require a consensus among these countries.
It doesn’t exist at the moment and it’s doubtful that it could be achieved. Some European Union countries are making major efforts, albeit without major success, to create a path to bypass the U.S. sanctions. And Russia and China certainly wouldn’t lend a hand to a war against Iran.
The United States could therefore find itself alone facing both Iran and international antagonism. Granted that the anti-American international coalition that arose following the U.S. withdrawal from the nuclear accord hasn’t impressed Trump, but there’s a fundamental difference between diplomacy and war. In any case, even when it comes to such circumstances, Washington doesn’t appear to have a convincing road map.
The dilemma that should guide any military confrontation is whether it should be broken down into a series of attacks designed to “send a message” or whether an assault should be reserved for a last resort that would be applied with full force. In other circumstances, the response to the attacks in the Gulf could have sufficed with surgical, one-time strikes that would send a message.
But the Gulf region could react poorly to narrowly targeted attacks and spiral quickly into a battlefield involving many countries. It appears that this consideration rather than a loss of life among Iranian civilians is what stopped Trump from carrying out his earlier decision.
Israel will certainly tell him that in the process he has raised the threshold for a response and that Iran will interpret the decision as weakness on the part of the United States, because that’s how things are in the Middle East. From Jerusalem’s standpoint, a twofold opportunity has been missed – Sending Iran a message, and it’s the United States, not Israel, that would send the message. But sending messages isn’t a linear process that assures a desired result. Israel learned that well on other fronts, just as the United States learned its lesson in its own confrontations.
Who Survives the Iran Counter-Offensive?
https://tomluongo.me/2019/06/21/who-survives-the-iran-counter-offensive/
Iran has had enough. I think it’s fair to say that after 60+ years of U.S. aggression towards Iran that the decision to shoot down a U.S. drone represents an inflection point in world politics.
In the first few hours after the incident the fog of war was thick. But a day later much of it has cleared thanks to Iran’s purposeful poke at U.S. leadership by coming clean with their intentions.
Iran chose to shoot down this drone versus hitting the manned P-8 aircraft and then chose not to lie about it in public, but rather come forward removing any deniability they could have had.
They did this after President Trump’s comments yesterday during a news conference with Canadian Prime Minister Justin Trudeau where Trump described the attack as “a big mistake” and “not intentional.”
But it was intentional.
And the reason for this was that despite Trump’s assurances yesterday there is considerable debate as to where the drone actually was. According to a report from the NY Times (and buried deep in a very long article):
Still, there remained doubt inside the United States government over whether the drone, or another American surveillance aircraft, this one flown by a military aircrew, did violate Iranian airspace at some point, according to a senior administration official. The official said the doubt was one of the reasons Mr. Trump called off the strike — which could under international norms be viewed as an act of war.
The delay by United States Central Command in publicly releasing GPS coordinates of the drone when it was shot down — hours after Iran did — and errors in the labeling of the drone’s flight path when the imagery was released, contributed to that doubt, officials said.
A lack of provable “hard evidence” about the location of the drone when it was hit, a defense official said, put the administration in an isolated position at what could easily end up being the start of yet another war with a Middle East adversary — this one with a proven ability to strike back.
This means a couple of things. First, it is likely that Trump was not properly briefed on the issue by his National Security Council, who were pushing him to strike back hard and who are itching to get the U.S. into an armed conflict with Iran.
Framing the attack as a mistake Trump was handing Iran the opportunity to de-escalate things. To me, this signaled that Trump was told through back channels this was an operation designed by us to put Iran in a no-win situation — either allow encroachment of their airspace or shoot down a drone that would land in international waters.
Moreover, doubts as to the drone’s position, remember, with a plane carrying actual ordnance on its wing, put Trump in a real bind.
And he knew it at the presser. That’s the way Trump tried to frame this the way he did. Because the implications here are that he is being boxed in on all sides by his administration and his allies — the Saudis, Israelis and the UAE — and frogmarched to a war he doesn’t want.
He wants Iran to heel but he doesn’t know how to go about it.
That Iran then chose the next day to openly declare that they were not confused or misled and knew exactly what they were doing puts Trump in an even worse position.
Because an unmanned drone, as he said in his futile tweetstorm, is not worth going to war over, especially one whose position in in dispute.
And everyone knows it. Europe wouldn’t condemn Iran here. No one did. Only the U.S. And that silence is deafening as Pompeo, Bolton and Haspel again over-extend themselves.
Trump is right that he can afford to be patient and now re-frame this as him being the magnanimous God-Emperor but what he’s really doing is talking capital markets off a cliff.
Because that’s where the U.S. is the most vulnerable and where Iran’s greatest leverage lies. This incident should have sent oil prices far higher than they did if the threat of war was real.
Why? Because the markets discounted the U.S.’s stories immediately. There have been so many incidents like this that should have started a war in the past three years which turn out to be bogus that the market reaction was muted, at best.
It also tells you just how quickly the global economy is slowing down if a major military incident between Iran and the U.S. near the Strait of Hormuz only pushed the price of Brent Crude up to fill the gap on the weekly chart and confirm the recent low.
It did push gold through its massive resistance zone between $1360 and $1375 an ounce and it looks like a close above that for the week is likely.
That said, given this was just a drone and that Trump wasn’t likely to respond with starting a wider war….
Iran shooting down a U.S. drone shouldn’t have caused gold to pop through $1,375 and stay above it…
… It was {FOMC Chair Jerome} Powell’s dovish statement that provided the fuel for this move. Iran simply lit the match.
Now Trump has to respond to this. One could ask why our drone was flying in airspace we knew Iran would respond to.
Martin Armstrong is reporting that a lot of the buying came from the Middle East and that now that we’re above $1375 hedges are lifting and short-covering is what took gold to $1415.
But it also means that something bigger is brewing in the capital markets that both Iran and Trump understand. And maybe that muted response from oil has more to do with that.
As Pepe Escobar lays out convincingly in his latest article, Iran’s threats against global oil shipping aren’t aimed at disrupting the global economy per se. There’s plenty of oil stored in Strategic Reserves around the world to keep things operating during any U.S. military operation to destroy Iran’s navy (which wouldn’t take very long) and open the strait to oil traffic.
It is that a disruption in the price of oil will force the unwinding of trillions in interest rate swap derivatives already at risk because of the tenuous hold on reality Deutsche Bank has, since DB clears a super-majority of all such derivative contracts for the whole of Europe.
No one wants to see $300 per barrel oil. That Goldman Sachs is posting potential targets of $1000 per barrel tells you where they are positioning themselves, as if they know something? Goldman? Have insider knowledge?
Please! It is to laugh.
What we are looking at here is the ultimate game of brinkmanship. Trump is saying his maximum pressure campaign will break Iran in the end and if they go one step further (which they won’t directly) he will eliminate them.
Iran, on the other hand, is stating categorically that if Trump doesn’t allow Iran to trade than no one will. And that threat is a real one, given their regional influence. Incalculable financial and political damage can be done by Iran and its proxies around the region through attacks on oil and gas infrastructure.
Governments will fall, markets will collapse. And no one gets out without scars.
It’s the kind of stand-off that needs to end with everyone walking away and regrouping but is unlikely to do so because of entrenched interests on both sides and the historical grudges of the men involved.
What’s important is to know that the rules of the game have changed. Iran has taken all the punches to the nose it will take from Trump without retaliating. When you corner someone and give them no way out you invite the worst kind of counter-attack.
Last week I asked whether Trump’s “B-Team” overplayed their hand in the Gulf of Oman, staging a potential false flag over some oil tankers to stop peace breaking out and arrest the slide in oil prices.
Today everyone wants to think Iran overplayed its hand by attacking this drone. But given the amount mendacity and the motivations of the people involved, I’d say that it was yet another attempt by the enemies of peace to push us to the brink of a world war in which nothing good comes of it.
I give Trump a lot of credit here for not falling into the trap set for him. He now has to begin removing those responsible for this quagmire and I’m sure that will be on the docket when he meets with Vladimir Putin and Xi Jinping next week at the G-20.
It starts with John Bolton and it ends with Mike Pompeo.
And if he doesn’t replace them in the next six to eight weeks then we know Trump isn’t serious about keeping us out of war. He’s just interested in doing so until he gets re-elected.
2019 Third-Quarter Forecast
https://worldview.stratfor.com/article/2019-third-quarter-forecast-geopolitics-global-business-risk-q3
Overview
The U.S.-China Trade War Will Drag On. While there is a small window for a truce between U.S. President Donald Trump and Chinese President Xi Jinping, there is a stronger likelihood that the White House will follow through on its threat to impose tariffs on remaining Chinese imports. Nearly every move China makes to push back and cope with tariff pressure, including ramping up state backing for strategic industries and retaliating against U.S. businesses, will drive the two economic giants further apart as the trade war continues to damage the global economy.
Iranian Retaliation Will Raise the Risk of a Military Confrontation. Iranian retaliatory moves against the United States, including the resumption of nuclear activities and threats to shipping in the Strait of Hormuz, will raise the threat of U.S. punitive strikes on Iran. Even though the White House intent will be to limit offensive action and avoid bogging itself down in another politically unpopular war in the Middle East, the potential exists for a more serious escalation. Short of the negotiation Trump envisioned for Iran, progress could be made toward establishing a deconfliction channel via third-party mediators.
A High Stakes Tech Battle Will Drive Fragmentation in the Global Tech Sector. Far-reaching U.S. export restrictions against Chinese telecom giant Huawei Technologies Co. will nearly paralyze the company in the near term, and it could strengthen the White House's ongoing campaign to deter other countries from working with Huawei on 5G rollouts. Even if the United States agrees to a partial relaxation of its ban against Huawei, China will move full steam ahead to accelerate indigenous semiconductor development and software alternatives to its Western competitors. At the same time, U.S. regulators will ramp up their investigations of U.S. tech giants over antitrust, privacy and data protection concerns.
Mexico Faces an Uphill Battle to Appease Trump and Avert Tariffs. Though Mexico narrowly averted U.S. tariffs by pledging to do more on border security, it is not out of the danger zone yet. Mexico will fall short of meeting Trump's demand that it chokes off migrant flows, and Trump will likely rely on tariffs, or at least the threat of tariffs, as his preferred enforcement tool.
Geopolitical Risk Will Create Significant Headwinds for the Global Economy. Global economic growth estimates are headed for another downgrade in the third quarter. Intensifying U.S. trade conflicts with China, along with the lingering threat of a major disruption to North American trade, will continue to sap investor confidence and drive a U.S. Federal Reserve decision to ease interest rates. The Chinese yuan is likely to depreciate past 7 to the dollar, though China's Central Bank will intervene to avoid a much steeper devaluation that would accelerate capital flight and apply stress on a number of emerging markets. Between slowing consumer demand and a higher risk of supply disruptions from a potential Iran conflict, oil markets will remain in flux.
Brexit Chaos and Italy Will Weigh on Europe. The United Kingdom will get a new hard-line prime minister, who will inevitably hit a wall with Brussels when negotiating the terms of the United Kingdom's future relationship with the European Union. The risk of a no-deal Brexit will rise through the quarter, but the likely result will be more delays and possibly a path to early elections. And even as Rome manages to dodge EU sanctions over its ballooning deficit, Italy's fiscal policies, weakening banking sector and fragile government coalition will continue to stress the European Union.
Great Power Competition Will Create Opportunity But Mostly Risk for Middle Powers. As U.S. competition with Russia persists, Poland will be able to take advantage of the White House's strategic focus on Eastern Europe, advancing plans to rotate more U.S. troops through Poland and pushing for targeted U.S. sanctions against Nord Stream 2. Turkey and India, meanwhile, will remain in the White House's crosshairs over their energy relationships with Iran and defense ties to Russia, with New Delhi facing the additional threat of tariffs this quarter.
Military-Backed Transitions in North Africa Face Major Hurdles. The fall of legacy dictators in Sudan and Algeria have emboldened opposition groups hungry for political change. The militaries of each country trying to manage the tumultuous transition will struggle to satisfy opposition demands while navigating elite power spats behind the scenes. Sudan will rely more on brute force to quell unrest, while Algeria's more diverse set of power brokers will likely become mired in political negotiation as unrest persists.
The U.S. "Tariff Man" Strikes Again
U.S. President Donald Trump, the self-proclaimed "Tariff Man," is likely to be the single most important source of geopolitical risk to the global economy in the third quarter of 2019. A deepening standoff with China increases the probability that Trump will follow through with threats to impose 25 percent tariffs on all remaining Chinese imports. Tariff threats against Mexico over auto imports will continue to linger at a time during which global trade risk creates headwinds for global economic growth. Trump nonetheless appears to be operating under the assumption that the U.S. economy is on solid enough footing to justify tariffs, both as a wide-ranging negotiating tactic and as a means to drive down the U.S. trade deficit.
A graphic showing the impact of Trump's trade wars.
Of all its trade battles, the United States will maintain a particularly hard line on China as Washington's strategic competition with Beijing deepens on nearly all fronts. A deliberate attempt by the White House to cripple Chinese tech giant Huawei Technologies Co. has narrowed what little middle ground there was last quarter for a trade compromise. And for every U.S. action designed to coerce Beijing into making greater concessions, there will be a Chinese reaction that pushes the economic giants further apart in the negotiation. For example, U.S. trade assaults on China will prompt Beijing to increase financial support for strategic sectors, such as the semiconductor industry, directly violating a U.S. demand to reduce state support and level the playing field for foreign businesses. Chinese tariff retaliation and possible boycotts of U.S. goods will counteract Washington's demand for China to buy more American products to reduce the U.S. trade deficit. Chinese attempts to push back against the United States by selectively blacklisting and fining American firms only feeds into a familiar White House complaint: that China actively discriminates against foreign businesses.
Washington will not ease up on Beijing over the quarter, but every U.S. action will have a Chinese reaction.
A potential Chinese restriction of rare earth exports will amplify threats to U.S. commerce that the White House is citing to legally justify Section 301 tariffs in the first place. And the unavoidable depreciation of the yuan from the stress of the trade war will be used by the White House to name and shame China as a currency "manipulator" bent on disadvantaging U.S. exporters. This burning economic dispute is meanwhile unfolding against a backdrop of rising security tensions in the South China Sea and growing pushback against Beijing in China's periphery, where the United States has the potential to apply sanctions against the Chinese government and its affiliates in the name of protecting human rights and democracy.
A chart showing the estimated global cost of a U.S.-China trade war
This geopolitical climate does not bode well for Trump and Chinese President Xi Jinping to reach a breakthrough in negotiations if and when they meet at the G-20 summit in Japan in late June. Beijing will keep the door open for future dialogue, and Trump still has the option of buying more time in the negotiation before resorting to all-encompassing tariffs. But the window for a truce is closing fast, and Xi and Trump will have enough political backing to prolong their economic war well beyond the quarter.
A chart showing possible scenarios for the U.S.-China trade war
While Mexico has been among the main beneficiaries of the U.S.-China trade war, it has now found itself squarely in Trump's trade crosshairs. Having narrowly averted tariffs this time around, Mexico's government is facing a tight timeline and an uphill battle to appease the U.S. president. Given the Mexican national guard's questionable ability to crack down on migrant traffic coming across its southern border — coupled with escalating unrest in parts of Central America and the reluctance of countries in the region to overhaul their asylum laws — the best Mexico City may be able to hope for is a temporary lull in migrant flows as smugglers adapt to expanded border controls. Moreover, Mexico's already robust trade relationship with the United States and lack of market-based purchasing does not leave much room for the current administration to make a showy concession to Trump by increasing agricultural imports.
Fearing a descent into recession, Mexico will carefully avoid a confrontation with the United States this quarter as it tries to steer clear of costly tariffs.
Trump's tariff threats against Mexico could resurface around July 22 and again on Sept. 5, when the Mexican government is supposed to deliver to the White House its progress report on curbing illegal border crossings. Already on the edge of recession, Mexico will be careful to avoid a confrontation with the White House in an effort to steer clear of costly tariffs. After more than a quarter of a century of tariff-free trade on the U.S.-Mexico border, the economic impact of just 5 percent tariffs on Mexican imports, as Trump earlier threatened, would be tantamount to ripping up the North American Free Trade Agreement and returning to average World Trade Organization-level tariffs for most sectors. Supply chain disruptions would reverberate across the auto, electronic, industrial and food sectors. Furthermore, U.S. agricultural producers would be singled out for retaliatory tariffs, and Congress could even regain momentum to challenge the president's trade authority — though a veto-proof majority on such a measure would be far from assured. Even if Trump avoids the heavy economic and political toll that comes with disrupting North American trade through tariffs, the uncertainty that comes with merely keeping the threat alive will continue to erode investor confidence.
The threat of auto tariffs will meanwhile continue to loom large as Trump waits for U.S. trading partners to come to him with a "solution" by November, in the form of voluntary export restraints and/or acceptance of U.S. quotas. While Japan has a better chance of negotiating a trade compromise with the White House that includes agriculture and autos, EU leaders, too divided and consumed with horse-trading over political positions in the European Union for most of the quarter, will resist the White House's ultimatum on restricting auto exports to the United States. As a result, there won't be much movement in Continental trade negotiations with the Trump administration.
The psychological impact of Trump's tariff weaponization strategy will linger well beyond the quarter.
The White House has already raised the WTO's hackles by stretching the definition of national security to justify a variety of tariffs, all while discrediting the global trade body's authority to arbitrate trade disputes. With a Dec. 10 deadline pending for the United States to lift its siege on the WTO Appellate Body or else drive it into paralysis, European leaders will prepare for the worst and work on convincing other WTO members to sign onto an ad hoc solution that would have former WTO appeals judges settle trade disputes under WTO arbitration rules until a compromise — likely with the next White House — can be found.
The European Union's creative workaround at the WTO points to a growing assumption among U.S. allies and adversaries alike that negotiation with the current White House may be futile. Erratic U.S. negotiating tactics and the elusiveness of a final, negotiated settlement will bruise business confidence and investor sentiment globally. Hamfisted diplomacy will also convince a number of powers, including China, Europe and Iran, that seeing out the result of the 2020 U.S. election makes more strategic sense than entertaining heavy concessions in a negotiation with the Trump White House over a deal that may or may not last.
Geopolitical Risk Bludgeons the Global Economy
In the face of yet another major tariff escalation, China will erect stronger capital controls and draw on its reserves to defend its currency, the yuan. China's Central Bank will intervene to avoid a steep and sudden devaluation because a depreciation beyond 7 yuan to the dollar will exacerbate China's economic slowdown and place greater stress on emerging market currencies. Heavy downside risk from the White House's trade wars will drive the U.S. Federal Reserve to ease interest rates this quarter.
A variety of competing factors will slow but not quite stall the global economy in the third quarter.
The European Central Bank has already abandoned plans to tighten monetary policy this year as crises of the European Union's own making roil the bloc. We do not think this quarter will end in a no-deal Brexit, but an escalation of political chaos in the United Kingdom, along with a drawn-out confrontation between Rome and Brussels over Italy's expansive fiscal policies, will continue to sap at European growth amid rising global trade frictions.
For energy markets, between the opposing forces of slowing consumer demand and the threat of military conflict in the Persian Gulf creating a sharp supply disruption, oil prices will remain in flux. When the Organization of Petroleum Exporting Countries meets early in the quarter (with its expanded retinue of crude-producing partners, a collective known as OPEC+), Saudi Arabia and Russia will drive an agreement to extend production cuts into the second half of the year as the world's biggest oil producers try to contend with rising U.S. inventories and weaker global demand.
A chart showing geopolitical risk against oil markets
Great Power Competition Drives Global Tech Fragmentation
An aggressive U.S. move in the second quarter to ban Huawei from selling and operating in the United States and, more importantly, to proscribe U.S. tech suppliers from working with the company goes well beyond trade leverage and fits into a broader White House strategy to cripple China's tech giants as a U.S.-China battle for technological dominance intensifies. If Xi and Trump agree to de-escalate the trade war this quarter, the White House could offer a selective and partial relaxation of export controls on goods and/or licenses that fall outside of highly strategic applications — specifically, dual-use technologies that could be used for security, surveillance or defense purposes. Pressure from affected U.S. businesses and ongoing court challenges could also have the effect of weakening U.S. restrictions against Huawei.
Regardless of their country of origin, global tech companies will find themselves on the firing line as the U.S.-China trade dispute heats up.
Uncertainty surrounding the U.S.-China trade negotiation and the viral nature of U.S. export law, in which even a minimal amount of U.S. components, software and technology could subject a company to sanctions, will accelerate Chinese efforts to shore up indigenous semiconductor development. Huawei will further seek to roll out an independent operating system for smartphones to maintain the company's global market share. China will struggle to reduce its reliance on major international chip providers — such as Intel Corp., Samsung Electronics and the Taiwan Semiconductor Manufacturing Company (TSMC) — that are now liable for U.S. sanctions. But over time, the rise of Chinese competitors in the chip manufacturing sector and the rollout of Chinese software alternatives — such as Huawei's mobile operating system challenger to iOS and Android — are likely to contribute further to the fragmentation of the global tech sector.
A graphic showing global telecom operators and manufacturers
Ongoing U.S. diplomatic efforts to pressure countries in Europe, Latin America and Southeast Asia into imposing similar bans against Huawei equipment on national security grounds are already stalling. This is because most countries are unwilling to tolerate the much higher costs and implementation delays for 5G networks that would come with blacklisting Huawei. But the broad reach of U.S. export controls against Huawei will now give many of these governments and relevant telecommunications partners pause as they weigh a much bigger compliance risk in dealing with the Chinese firm.
Even as its efforts to defang Chinese tech leaders gain momentum, the U.S. government has also made a point of targeting the exact Silicon Valley tech giants that Washington relies on to outperform China in a global race for technological supremacy. In line with Stratfor's 2019 Annual Forecast, bipartisan momentum is quickening behind U.S. efforts to scrutinize Big Tech over antitrust, privacy and free speech concerns. Google and Facebook are likely at the top of the list for the Federal Trade Commission and the Justice Department, which share oversight duties over the United States' largest tech firms. U.S. tech companies will also remain a prominent target in the European Union, where Ireland has launched a probe into Google for violating the European Union's General Data Protection Regulation on privacy protections.
The White House Struggles to Find Order in Its Cluttered Foreign Policy
As well as juggling trade wars, the White House will also have to balance competing foreign policy priorities. Iran remains at the top of that list. The Trump White House is operating under an assumption that its ability to choke off Iranian exports and inflict heavy economic pain on the Islamic Republic will drive Tehran to the negotiating table or, better yet, instigate a grassroots overthrow of the clerical regime. Neither is likely to happen, though — and certainly not this quarter. At most, Tehran could rely on third-party mediators to establish a deconfliction channel with the United States as military frictions rise. Trump appears well aware of the political flack he would receive by committing the United States to yet another massive military conflict in the Middle East and so is likely to exercise some restraint in trying to avoid a costly military scenario with Iran. But there are a number of triggers that will arise this quarter, such as Iran telegraphing threats to shipping in the Persian Gulf and restarting parts of its nuclear program, that will embolden White House hawks to argue for punitive strikes against Iran.
A graphic outlining how Iran might respond to U.S. aggression.
A lingering threat of military confrontation between the United States and Iran will detract from Washington's focus on its burgeoning great power competition with both China and Russia. Beyond high-stakes economic battles, the potential for skirmishes between the United States and China in the South China Sea and in the Taiwan Strait will rise as the U.S. Navy and Coast Guard steadily expand their footprint in China's near abroad. Russia, meanwhile, will oscillate between instigator and mediator in multiple theaters that have the potential to dominate the White House's attention. While Russia already provides significant political and economic backing to Iran and Venezuela, it can always dial up military support should it see an opportunity to generate leverage against a highly distracted White House. U.S. attempts to coax Russia and China into a trilateral strategic arms control treaty are unlikely to gain much momentum this quarter as arms buildups continue on all sides.
The White House will have its hands full this quarter when it comes to foreign policy — Iran, Russia, China, Venezuela, North Korea and Afghanistan all require Washington's attention in differing measures.
Unlike most countries dealing with the current White House, North Korea is trying to accelerate negotiations while Trump is still in office. Now that the United States has little choice but to plan for a military contingency around Iran, Pyongyang will have more room to push the line on missile testing while trying to break through a stalemate in negotiations. North Korean leader Kim Jong Un remains confident that Trump would rather keep North Korea in diplomatic limbo and call it a foreign policy win than return to a military confrontation with Pyongyang.
When compared to a prospective nuclear-equipped nation, Venezuela inevitably falls much lower on the list of U.S. foreign policy priorities. Even as the persistent threat of another coup attempt and the specter of greater Russian involvement in Venezuela will vie for Washington's attention, the White House is unlikely to risk a messy military intervention at this stage to force regime change. A steady intensification of U.S. sanctions and ongoing backchannel dialogue with military leaders to try and crack the rule of President Nicolas Maduro will be the White House's preferred method of managing Venezuela as the country descends further into chaos.
Additional Forecasts
These Stratfor assessments provide additional insights for the Quarter
At the same time that the United States is trying to cripple Chinese tech giants, growing domestic antitrust moves threaten to undercut its own tech prowess globally.
Techno-nationalism, digital colonization fears and privacy concerns are accelerating the fragmentation of the internet.
A deadline is approaching for the United States and Russia to agree to a New START agreement, but China will demur U.S. efforts to draw Beijing into a new framework to limit nuclear arms.
The specter of a conflict between the United States and Iran in the Persian Gulf threatens to consume the United States at a time when great power competition is already demanding the White House's full attention.
Key Dates to Watch
--June 25-26: OPEC+ members meet in Vienna, Austria.
--June 28-29: Chinese President Xi Jinping and U.S. President Donald Trump are expected to meet at the G-20 summit in Japan.
--Early July: The United States could follow through on threats to impose tariffs on $300 billion worth of Chinese goods.
--July: If the U.S. economy continues to grow, this month will mark the longest U.S. economic expansion in its history.
--July 7: The 60-day deadline Iran gave to the European Union expires, after which time Tehran vowed a partial nuclear restart.
--July 22: 45-day review of the U.S.-Mexico deal on border security.
--Sept. 5: 90-day review of the U.S.-Mexico deal on border security.
As trade war continues, are the US and Chinese economies heading for a messy divorce?
-Separation is under way in manufacturing, technology and investment, and while it predates the trade war, the Trump administration tariffs have acted as turbo boosters
-Unconfirmed reports that Apple is considering moving part of its manufacturing out of China fuel suspicion that the two nations will increasingly go their separate ways
Finbarr Bermingham- Published: 7:00pm, 20 Jun, 2019
This is the first of four stories examining important issues ahead of the meeting between Chinese President Xi Jinping and US President Donald Trump at the G20 leaders summit on June 28-29 in Osaka, Japan.
Like many Americans who manufacture in China, Daniel Krassenstein will be watching Xi Jinping’s meeting with US counterpart Donald Trump on the sidelines of the G20 meeting in Osaka next week very closely.
Procon Pacific, Krasserstein’s company, makes 40 per cent of its industrial packaging products – “super sacks or bulk bags that can store anything from sugar milk powder to dangerous chemicals to fertiliser to mixed cement, you name it” – in China.
A few years ago, almost all of its products were made in China, initially in Changzhou, Jiangsu province. But as costs rose, it moved some production to the northern province of Shandong, where it could source cheaper land and labour through its Chinese partners.
Then the Chinese government “rightfully started shutting down plants who are non-compliant with pollution and emissions” and “cracking down on those Shandong suppliers not paying social credits correctly”, and so Procon shifted 50 per cent of its production to India and 10 per cent to Vietnam.
“This had nothing to do with Trump, or the trade war, it was purely due to labour costs and the cost of compliance impacting China in general. But in this case it started hitting Shandong province, which was our sweet spot for our lower end bags,” said Krassenstein, the company’s global supply chain director.
The company’s products are subject to an 8.4 per cent import duty when sold to companies in the United States, no matter where they are made. However, if Trump adds 25 per cent tariffs on US$300 billion worth of goods made in China, in what is the next potential tariff rise, it would push it to 33.4 per cent.
“We’d have to rush production out of China for sure,” added Krassenstein, who expects the US to enact a small tariff increase on China after the G20 summit in Japan
next week as “a slap on the wrist”, but said the long-term trajectory for US manufacturers in China is only going in one direction.
“The concern is what happens 12 months down the road, especially when you get into the US election season and Trump plays the China card to get more votes. Frankly speaking, I think while there might be a temporary truce with a small [tariff] increase, I'm more concerned with what happens next summer.”
The concern is what happens 12 months down the road, especially when you get into the US election season and Trump plays the China card to get more votes Daniel Krassenstein
This supply chain shift is a simple example of what many are terming the wider phenomenon of US-China economic “decoupling”. The trend predates the trade war, but the tariffs have acted as turbo-boosters. Now, what was regarded a year ago as a fringe view on the extreme edges of the Trump administration, is at the crux of mainstream conversations.
Most China watchers believe that some amount of decoupling, to some extent, is now inevitable, regardless of what is achieved at the G20 in Japan.
“I think that to the extent it is possible, it is going to happen. Business hates uncertainty, business does not want to be caught in the middle of political conflict. Business wants to find a stable environment. And so anyone that can move, will move,” said Jeff Moon, a public affairs consultant who was assistant United States trade representative (USTR) for China during the Obama administration.
Chen Li, an assistant professor at the Chinese University of Hong Kong, refers to the split as a “Balkanisation of supply chains”.
“If politicians want, they can always break the global market, right? But I don't think it's going to get that bad yet,” Li said.
While low- to medium-end manufacturing is relatively simple to disentangle, there are chasms and barriers appearing all over the US-China economic relationship, suggesting that a broad-based break-up may be underway, even in more complex sectors.
Early in June, US Senators Marco Rubio, Bob Menendez, Tom Cotton and Kirsten Gillibrand introduced legislation which, if passed, would “increase oversight of Chinese and other foreign companies listed on American exchanges and delist firms that are non-compliant with US regulators for a period of three years”. The implication is that Chinese companies that are not transparent would be banished from US financial markets.
The decoupling of investment is already clear. Last year, Chinese acquisitions of American companies plunged 95 per cent from its peak in 2017 after the US Congress gave the Committee on Foreign Investment in the US authority to broaden the scope of its reviews of Chinese acquisitions on national security grounds.
Add in the increasingly messy US-China technology rivalry after the US blacklisted Huawei, cutting China’s technology giant off from many of its important suppliers, while Washington aggressively lobbies other nations to ban Huawei equipment from their 5G networks.
Beijing, in turn, reportedly summoned US technology firms, including Dell and Microsoft, to warn them against cooperating with the blacklist, then formed a register of its own. The list of “unreliable” foreign entities singles out those deemed to have damaged the interests of Chinese firms and shows how deep the cracks in the relationship are becoming.
This week came the news that Apple was considering moving 15 to 30 per cent of its production out of China. The story by the ?Nikkei Asian Review followed claims last week from an executive at Foxconn, which assembles iPhones and iPads for Apple in China, that it had sufficient capacity in other countries to produce all US-bound Apple products, but some experts are skeptical.
“Apple has probably invested more in a China-centric supply chain than any successful company in recorded history. To just presume that they can jettison everything they have achieved with Foxconn and move to an alternative platform and get the same product with the same quality and the same assembly protocols without skipping a beat. I mean, anything is possible, but that to me sounds like a great tale of fiction,” said Stephen Roach, a professor at Yale University and former chairman of Morgan Stanley in Asia, the day before the? Nikkei story broke.
Apple would be following other technology giants out of China, with Samsung
on the verge of closing its last Chinese factory, although the company has yet to confirm its exit strategy.
China accounts for an important, but declining, share of Apple’s revenue: 10.22 per cent in the second quarter this year, according to Statista, down from 13.17 per cent in the previous quarter and its all-time peak of 17.96 in the first quarter of 2018.
“There is no question that if Apple goes, others will follow,” said Alex Capri, a visiting fellow at the National University of Singapore, who has been predicting decoupling for the past two years. “They are a primary link in the chain. There are a lot of links in that chain that are reliant on Apple. When you have something as big as Apple moving, others have to go where their customer needs them.”
Merle Hinrich, the founder of business media firm Global Sources and patron of the pro trade Hinrich Foundation, suggested that Apple would be wise to diversify its supply chain and intimated that “decoupling” is a natural evolution in global trade.
“There are companies like Apple who have become overreliant on China. Is that pure supply chain management on their part, or is it perhaps lack of foresight, they maybe did not foresee a time when it would become so politically charged?,” he said. “I think there are a lot of companies now that will reflect on their commitment to China and think it was a good decision when they made it, but it probably needs to be reviewed in conjunction with what we expect the geopolitical issues to be moving forward.”
However, that a move out of China is now being discussed at all points to the sudden decline in US-China relations, one which many feel is irreversible.
Indeed, it is China’s growing technological strength that many believe sparked decoupling. Five years ago, professor Roach wrote a book called Unbalanced: The Co-dependency of America and China, which said that the US and Chinese economies should not become codependent, since a fracture in the relationship would instigate decoupling. That fracture, he now said, came with China’s shift in economic policy, away from an industrial base and towards hi-tech innovation and consumption.
“The United States was far more comfortable with China staying in its old patterns of economic activity and views to a large extent this change as one that is more threatening and predictably, according to at least my theory, and has lashed out in response,” Roach said.
“My guess is that there is still a lot of hope that a lot of this is a bad dream and the tariffs will go away, and there will be some agreement on the structural issues that companies are complaining about. So I don't think we have completed a decoupling. We're in the early stages of a strong resistance to the relationship, catalysed by the very aggressive policy actions of the Trump administration.”
A US Chamber of Commerce in China survey published in May found that 60.4 per cent of companies had no plans to relocate their “China-based manufacturing facilities to other countries because of the tariffs and/or concerns over the future of US-China trade relations”, which suggested that many companies will not move unless they absolutely have to.
But there may be other factors at play, said Stewart Paterson, author of the 2018 book China, Trade and Power – Why the West's Economic Engagement has Failed.
“There will be no big announcements. Corporations should not be out there saying ‘we're closing this factory and reopening in Bangladesh’. It is all very ‘hush-hush’,” he said.
The Chinese government, meanwhile, has been at pains to discourage further fragmentation of the US-China relationship.
At a summit in St Petersburg at the start of June, Xi said: “I can hardly imagine a complete decoupling between China and the US. This is not the case that I would like to see, and I don’t think our American friends want to see it, and my friend Trump wouldn’t want to see it either.”
The following week, China’s foreign ministry spokesman Geng Shuang tried to further dampen thoughts of decoupling.
“Both countries have become each other's largest trading partner and important investment destinations,” said Geng. “The US has gained huge interests from China-US economic and trade cooperation.”
In the northern province of Shandong, however, the feeling of separation is becoming very real. Krassenstein’s suppliers have been in touch to ask if he needs better credit terms, whether there is an issue with price, desperately asking what they can do to keep his business. He stops short of using the word “decoupling”, saying that plenty of manufacturing will remain in China due to the quality of service and sheer size of the domestic market.
“But I've lived in China for the last 15 years and let’s just say more and more Americans are leaving China and setting up shop elsewhere. There is a feeling as an American leaving in China, it’s just not as warm and cosy as it used to be.”
Part two will ask whether the G20 summit will lack leadership and if important issues will go unresolved as the US-China standoff continues.
‘The countdown has started’: Iran says it will pass uranium stockpile limit in 10 days
-Announcement came after Tehran said it would stop observing nuclear restrictions agreed in a 2015 deal with the West in retaliation for the US withdrawing
-White House calls for Iran ‘nuclear blackmail’ to be met with international pressure
Agence France-Presse Published: 7:56pm, 17 Jun, 2019
Iran said on Monday it will surpass the uranium stockpile limit set under the nuclear deal with world powers on June 27, turning up the pressure after the US walked away from the landmark pact last year.
“The countdown to pass the 300kg reserve of enriched uranium has started and in 10 days time … we will pass this limit,” Iran’s atomic energy organisation spokesman Behrouz Kamalvandi said at a press conference broadcast live.
The move “will be reversed once other parties live up to their commitments”, he added, speaking from the Arak nuclear plant southwest of Tehran.
A White House National Security Council spokesman said on Monday that the move amount to “nuclear blackmail” and must be met with increased international pressure.
“Iran’s enrichment plans are only possible because the horrible nuclear deal left their capabilities intact,” NSC spokesman Garrett Marquis said, adding that US President Donald Trump “has made it clear that he will never allow Iran to develop nuclear weapons. The regime’s nuclear blackmail must be met with increased international pressure.”
On May 8, Iranian President Hassan Rowhani announced that Iran would stop observing restrictions on its stocks of enriched uranium and heavy water agreed under the 2015 nuclear deal.
He said the move was in retaliation for the unilateral US withdrawal from the accord a year earlier, which saw Washington impose tough economic sanctions on Tehran.
US Senator Patrick Leahy, a Democrat and vocal Trump critic, said on Monday that the US president’s decision to scrap the accord was “foolish” and now it is “harder for us to say much now”.
China scales back Iran nuclear cooperation ‘due to fears of US sanctions’
At the same time, Israeli Prime Minister Benjamin Netanyahu urged world powers to step up sanctions against Iran if it exceeds the enriched uranium limit.
“Should Iran deliver on its current threats, and violate the nuclear deal, the international community will have to implement, immediately, the pre-set sanctions mechanism, what is called ‘snapback sanctions’,” Netanyahu said. “In any event, Israel will not allow Iran to get nuclear weaponry.”
Tensions between Iran and the United States have escalated ever since, with Washington bolstering its military presence in the region and blacklisting Iran’s Revolutionary Guards as a terrorist organisation.
The US has also blamed Iran for last week’s attacks on two tankers in the Gulf of Oman, a charge Tehran has denied as “baseless”.
Iran has threatened to go even further in scaling down nuclear commitments by July 8 unless remaining partners to the deal – Britain, China, France, Germany and Russia – help it circumvent US sanctions and especially enable it to sell its oil.
Under the agreement, Iran pledged to reduce its nuclear capacities for several years and allow international inspectors inside the country to monitor its activities in return for relief from international sanctions.
The deal set a limit on the number of uranium-enriching centrifuges, and restricted its right to enrich uranium to no higher than 3.67 per cent, well below weapons-grade levels of around 90 per cent.
It also called on Iran to export enriched uranium and heavy water to ensure that the country’s reserves would stay within the production ceiling set by the agreement, yet recent US restrictions have made such exports virtually impossible.
According to Rowhani, his ultimatum last month was intended to “save the [deal], not destroy it”.
The three European parties to the accord created a trade mechanism meant to bypass US sanctions, but their attempt was dismissed by Iran’s supreme leader Ayatollah Ali Khamenei as a “bitter joke”.
If world powers do not step up to help Iran, the atomic energy organisation spokesman warned further steps could be taken.
“They range from going to 3.68 per cent to any other per cent according to the country’s needs,” said Kamalvandi.
Iran presses China and Russia to save nuclear deal
Authorities are still debating whether to “redesign or revive” the Arak reactor, he said.
Uranium enriched to much higher levels than Iran’s current stocks can be used as the fissile core of a nuclear weapon, while heavy water is a source of plutonium, which can be used as an alternative way to produce a warhead.
“A point to Europeans: if the first step took time to be done, other steps, especially increasing enrichment … need no more than a day or two,” said Kamalvandi.
Germany has acknowledged the economic benefits Tehran hoped for from the deal were now “more difficult to obtain”, but has urged Iran to fully respect the “extraordinarily important” nuclear deal.
The US and the 'Two-war' Defense Strategy
Hal Brands - Saturday, 15 June, 2019 - 05:30
Over the past 18 months, the Pentagon has been pursuing a radical change in US defense strategy. The Department of Defense has been working to overhaul the “two-war” defense strategy of the past quarter-century, in favor of one that focuses on winning a single high-stakes fight against China or Russia. This one-war strategy is rooted in an entirely correct judgment that defeating a great-power adversary would be far more difficult than anything the US military has done in decades. Yet it also runs the risk that America won’t have enough military power to deal with a world in which it could face two or more major threats at the same time.
During the post-Cold War era, the US military had a force-planning construct (a scheme that matches the size and capabilities of the force to the key scenarios it is likely to face) focused on fighting two major regional contingencies more or less simultaneously. The idea was that the US should be able to decisively defeat an adversary in the Middle East - Iraq or Iran - without fatally compromising its ability to take on North Korea. This two-war capability was deemed critical to preventing opportunistic aggression by one adversary while the US was engaged with another, and thereby upholding a grand strategy premised on deterring war in multiple regions at once. The two-war strategy, Pentagon officials wrote in 1997, "is the sine qua non of a superpower."
After the onset of budgetary austerity in 2011, the two-war strategy gradually eroded as defense cuts made it harder to handle two regional adversaries at once. And after the Russian invasion of Ukraine in 2014, it was clear that the US was facing a fundamentally different world, in which the country’s foremost adversaries were not inferior rogue states but major powers fielding formidable military capabilities. Add in that any war against Russia or China is likely to occur in their geopolitical backyards, and that both rivals have spent considerable time, money and intellectual effort seeking to neutralize America’s ability to project power, and the US military would have enormous difficulty in winning even a single war against a great-power challenger.
In the 2018 National Defense Strategy and subsequent statements, the Pentagon thus outlined a significantly different force-planning construct. It announced that the fully mobilized American military would be capable of defeating aggression by a great-power adversary, while also deterring (not necessarily defeating) aggression in a second theater. In other words, the US is now building a force not around the demands of two regional conflicts with rogue states, but around the requirements of winning a high-intensity conflict with a single, top-tier competitor — a war with China over Taiwan, for instance, or a clash with Russia in the Baltic region.
There is plenty of serious thinking behind this shift. The new strategy is meant to signal unambiguously — to allies, competitors and the Pentagon bureaucracy — that the US is now focusing squarely on great-power competition and the immense challenges it presents for a force that has been preoccupied with counterterrorism and counterinsurgency for nearly two decades. It recognizes that America’s military advantages vis-à-vis China and Russia have eroded gravely, and that the Defense Department will need new high-tech capabilities and creative operational concepts to defeat either country should war break out.
The new strategy therefore puts a priority on getting right those key concepts and capabilities — which are mostly still nascent — over expanding the force by acquiring more aircraft carriers, Cold War-era fighter jets and other legacy capabilities that would simply get chewed up in a fight against Moscow or Beijing. And it is meant to wrench the Pentagon away from America’s old way of war — one that relied on assembling overwhelming power in a theater and then launching the war at a time of our choosing — and toward a new way of war in which US forces will have to deny adversaries the ability to seize key terrain quickly, while operating in an incredibly deadly environment.
In sum, the Pentagon’s approach is based on the idea that the US has to nail down how to defeat just one great-power rival before it takes on anything more ambitious than that. This is a sensible approach, but one that also entails real risks in war and peace alike.
The major risk in wartime is that the world may throw more at the US than the Pentagon can handle. America faces not one but two great-power rivals, not to mention the lesser threats posed by North Korea, Iran and various terrorist groups. There is a non-trivial chance that the US could find itself dealing with serious military challenges in two or more theaters at the same time.
Indeed, if the US has to throw most of its military at defeating a Chinese bid for dominance in the Western Pacific, another hostile power — perhaps Russia — could decide to roll the iron dice while America is committed elsewhere. And even if that second country doesn’t launch a major war against the US or its allies, it could seek to gain diplomatic concessions by threatening — explicitly or implicitly — aggression at a time when Washington is ill-equipped to deal with it.
To be fair, the Pentagon and key former officials have argued that under a one-war doctrine the US can still “deter” in a second theater, and that the success the military has in handling the first challenger will be critical in determining whether it faces others. Yet as the congressionally mandated National Defense Strategy Commission (which I worked for) has noted, it is not clear how, exactly, the Pentagon plans to deter a second aggressor if it lacks the ability to prevent that aggressor from seizing key territory in the first place.
Trump trade war: India announces tariffs on U.S. products
India announced it's imposing higher tariffs on 28 U.S. products from Sunday, after Washington withdrew the South Asian country's preferential trade status.
Why it matters: It's the latest escalation in President Trump's trade war, designed to cut U.S. deficits. The tariffs on products including almonds and apples are as high as 70% on some items and are in response to Washington's refusal to exempt Delhi from higher taxes on steel and aluminium imports, the BBC notes.
The big picture: India was until the U.S. cut privileges on June 5 the biggest beneficiary of the Generalized System of Preferences scheme, which allowed duty-free exports of up to $5.6 billion, per Reuters.
India announced in June 2018 retaliatory tariff increases totaling $235 million on U.S. goods, but trade talks had delayed their implementation.
What they're saying: Secretary of State Mike Pompeo, who is expected to visit India this month, said this week the United States is open to resolving trade differences with the country if there's greater access for U.S. firms to its markets, according to Reuters.
Communist Party journal lays out China’s trade war stance ahead of possible Xi-Trump talks
-Beijing wants a ‘win-win’ deal to end conflict with Washington but will ‘struggle to the end’ if necessary
-Qiushi, or ‘Seeking Truth’, reflects leadership’s position and is required reading for all cadres
Keegan Elmer Published: 10:30pm, 16 Jun, 2019
The Communist Party’s top journal set out the leadership’s position on the trade war
in a series of essays published on Sunday, suggesting a “win-win” deal to end the dispute was still possible but vowing to “struggle to the end” if necessary.
Bimonthly journal Qiushi, or “Seeking Truth”, is required reading for all cadres and forms the basis for the rank and file of the party to understand the leadership’s position on key issues.
In the essays, the journal sought to clarify the party’s position on the trade war with the United States, laying out arguments that portray China as occupying the moral high ground in the conflict, while repeatedly questioning Washington’s logic for starting the dispute.
While China wishes to avoid a prolonged conflict, which would be in no one’s interest, it is prepared for one, the journal made clear.
The message comes ahead of a possible meeting – which Beijing has not yet confirmed
– between President Xi Jinping and US leader Donald Trump during the Group of 20 summit in Japan later this month. The journal also reiterated Beijing’s support for the G20, Asia-Pacific Economic Cooperation and other multilateral institutions.
In the main 13,000-character essay on US-China relations, it gave a 10-point explanation of the party’s stance, arguing that the conflict “comes down to whether the relationship is a zero-sum game or win-win, confrontation or cooperation, closed-door or open-door, monopoly or competition, unilateralism or multilateralism”.
The essay repeated Beijing’s complaints about US tactics during the 11 rounds of negotiations that broke down in early May, but suggested that a rapprochement was possible by “considering the big picture”. However, if that did not happen, it suggested a prolonged trade war was likely.
“China looks forward to a win-win agreement [to end the trade war] based on mutual respect and equality. Our sincerity remains the same, our principles are also impregnable. China will not fear an escalation of trade and economic conflict with the US, threats or pressure. China has no choice, no path of retreat, and can only resolutely struggle to the end,” the essay said.
“No one, no force should underestimate or look down on the iron determination and indomitable spirit of the Chinese people to fight a prolonged war.”
Since the breakdown of trade talks, Beijing has taken a tougher ideological posture towards the US, mobilising ambassadors, newspapers, and now the top party journal, to criticise US tactics in the trade war while attempting to bolster China’s global standing.
The journal’s main essay again sought to reinforce the perception that China is seeking to protect the existing global trading order while accusing the US of trying to destroy it through unilateral action.
“In the face of some people in the US continually sabotaging the current global order, China will resolutely defend the multilateral trading system, actively taking part in and leading the reform of the global system and its structure,” it said.
Pain of tariffs and sanctions behind China and Russia’s push to dethrone the US dollar
The journal also renewed Beijing’s long-standing call for developing markets like China to have a greater say in multilateral institutions. And it waded into the controversial topic of reforming the rules of the World Trade Organisation, but it did not address the US claim – which is the core of the US logic for the trade war – that China has ignored its obligations under those rules.
“As the world’s largest developing economy, China resolutely stands by and defends WTO rules, supports an open, transparent, inclusive, non-discriminatory multilateral trading system, as well as supporting necessary reforms to the WTO,” the essay said.
The journal said China would also strive to maintain control over its own destiny through self-reliance, while continuing to reform and open up its economy. Beijing would “resolutely go its own way, speed up innovation, strive to control key core technology, and firmly grasp the initiative of innovation development in our own hands”, it said.
“Strengthening oneself through reform is the underlying strategy in dealing with economic and trade conflict. China will continue to deepen its reforms, China will keep its front door open, never shut it, and only open it wider and wider.”
‘Chills Down My Spine’: Ex-State Dept. Official Warns That Trump Is Taking America To War
https://www.politicususa.com/2019/06/15/chills-down-my-spine-ex-state-dept-official-warns-that-trump-is-taking-america-to-war.html
The former State Department official said:
The truth is, no, we do not have to go to war with Iran today. It sends chills down my spine, too. The rhetoric I have seen coming out of the Trump administration over the past month feels so much like the lead up to the war in Iraq. They’re cherry picking intelligence, they’re upping what they consider to be the threat. And, look, there is a real threat. I don’t want to downplay that. But what worries me the most, Alex, is that something like this happens, or the Iranians do something else that is a provocation and we get locked in this cycle of escalation where John Bolton – don’t forget John Bolton is still there – Mike Pompeo push President Trump so he feels like he can’t back down and then we’re in this cycle of escalation that, quite frankly, could end very badly. There’ is no reason to go war with Iran today. We can counter them in many, many other ways. The Trump administration doesn’t seem to have a strategy to do that and that is scary to me.
Lessons from an old trade war: China can learn from the Japan experience
-In the last half of the 20th century US worries about a rising Japan led to tariffs and technology mistrust
-Differences in the Chinese experience may predict a different outcome
If history is a mirror to the future, the similarities between the spiralling technology stand-off between China and the US and the economic wars waged by the US with Japan – which peaked in the 1980s and 1990s – may be instructive. But there are differences between the two which may predict a different outcome.
The US-Japan economic tensions started in the 1950s over textiles, extended to synthetic fibres and steel in the 1960s, and escalated – from the 1970s to 1990s – to colour televisions, cars and semiconductors, as Japan’s adjusted industrial policy and technology development moved it up the industrial chain.
Boosted by government support, Japan’s semiconductor industry surpassed the US as the world’s largest chip supplier in the early 1980s, causing wariness and discontent in the US over national security risks and its loss of competitiveness in core technologies.
The Reagan administration regarded Japan as the biggest economic threat to the US. Washington accused Tokyo of state-sponsored industrial policies, intellectual property theft from US companies, and of dumping products on the American market.
The US punished Japanese companies for allegedly stealing US technology and illegally selling military sensitive products to the Soviet Union. It also forced Japan to sign deals to share its semiconductor technologies and increase its purchases of US semiconductor products.
“The Trump administration is using similar tactics against China that were used against Japan in the 1980s and 1990s,” said an adviser to the Chinese government, on condition of anonymity, adding that the US was continuing its hegemony to curtail China’s tech development and was trying to mobilise its allies to follow suit.
After talks to end the US-China trade faltered last month, Huawei – a global leader in the 5G market – is now standing at centre stage of a protracted technology stand-off between Beijing and Washington, which has grown increasingly wary of the rising competitiveness of Chinese tech companies.
Zhang Monan, a researcher with the Beijing-based China Centre for International Economic Exchanges, does not foresee an easing of the rivalry between the US and China.
“The current US-China conflicts are more complicated than those between the US and Japan,” she said.
“The US will only get more intense in its containment of China and the tech rivalry won’t ease, even if China and the US could reach a deal to de-escalate the trade tensions.”
Back in 1982, the US justice department charged senior officials at Hitachi with conspiracy to steal confidential computer information from IBM and take it back to Japan. IBM also sued Hitachi. The two companies settled the case out of court and Hitachi paid 10 billion yen (US$92.3 million) to IBM in royalties in 1983, while accepting IBM inspections of its new software products for the next five years.
Toshiba, a major electronics producer in Japan, and Norway’s Kongsberg Vaapenfabrikk secretly sold sophisticated milling machines to the Soviet Union from 1982 to 1984, helping to make its submarines quieter and harder to detect. This transfer of sensitive military technology in the middle of an arms race between the US and the Soviet Union was not revealed until 1986.
The US issued a three-year ban on Toshiba products in 1987 and the company ran full-page advertisements in more than 90 American newspapers apologising for its actions.
In 1985, the US imposed 100 per cent tariffs on Japanese semiconductors. A year later, in its five-year semiconductor deal with the US, Japan agreed to monitor its export prices, increase imports from the US, and submit to inspections by the Office of the United States Trade Representative.
This was followed by a second five-year semiconductor deal in 1991, in which Japan agreed to double the US market share in Japan to 20 per cent. In yet another bilateral semiconductor deal in 1989 Japan was required to open its semiconductor patents to the US.
Meanwhile, the US government boosted its efforts to help American businesses cement their industrial leverage in the chip sector and unveiled rules to protect its domestic chip industry.
The two countries were irreconcilable in 1996 on how to measure their respective market share. Overall market circumstances had also changed by then, with the US becoming competitive in microprocessing, and South Korea and Taiwan emerging as strong rivals to Japan.
Its dominance in semiconductors lost, Japan reached out to Europe for a range of cooperative technology deals.
Cooperate, don’t confront: academic advises Beijing on trade war tactics
“History can tell that high technology matters greatly to national security strategies. It is not a process of mere market competition. It follows the law of the jungle,” Zhang said.
The US has intensified its investment scrutiny by rolling out the Foreign Investment Risk Review Modernisation Act last year, which extends the regulation to key industrial technology sectors.
Zhang predicted the US would continue to contain China’s technological development in key sectors such as AI, aerospace, robots and nanotechnology – all of which are of great importance to Beijing.
The US has said Chinese tech giants Huawei and ZTE present a national security risk. Last April it cut US supplies to ZTE, citing violations of sanctions against Iran and North Korea. The ban was removed three months later after ZTE paid US$1.4 billion in fines.
It was a wake-up call for China to develop its own core technologies. The subsequent US ban on Huawei added to the urgency to do so, observers said.
8
Toshiba was one of the companies affected by US actions to prevent the rise of Japan in a trade war that echoes in today’s tensions between the US and China. Photo: ReutersToshiba was one of the companies affected by US actions to prevent the rise of Japan in a trade war that echoes in today’s tensions between the US and China. Photo: Reuters
Toshiba was one of the companies affected by US actions to prevent the rise of Japan in a trade war that echoes in today’s tensions between the US and China. Photo: Reuters
If history is a mirror to the future, the similarities between the spiralling technology stand-off between China and the US and the economic wars waged by the US with Japan – which peaked in the 1980s and 1990s – may be instructive. But there are differences between the two which may predict a different outcome.
The US-Japan economic tensions started in the 1950s over textiles, extended to synthetic fibres and steel in the 1960s, and escalated – from the 1970s to 1990s – to colour televisions, cars and semiconductors, as Japan’s adjusted industrial policy and technology development moved it up the industrial chain.
Boosted by government support, Japan’s semiconductor industry surpassed the US as the world’s largest chip supplier in the early 1980s, causing wariness and discontent in the US over national security risks and its loss of competitiveness in core technologies.
The Reagan administration regarded Japan as the biggest economic threat to the US. Washington accused Tokyo of state-sponsored industrial policies, intellectual property theft from US companies, and of dumping products on the American market.
The US punished Japanese companies for allegedly stealing US technology and illegally selling military sensitive products to the Soviet Union. It also forced Japan to sign deals to share its semiconductor technologies and increase its purchases of US semiconductor products.
“The Trump administration is using similar tactics against China that were used against Japan in the 1980s and 1990s,” said an adviser to the Chinese government, on condition of anonymity, adding that the US was continuing its hegemony to curtail China’s tech development and was trying to mobilise its allies to follow suit.
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After talks to end the US-China trade faltered last month, Huawei – a global leader in the 5G market – is now standing at centre stage of a protracted technology stand-off between Beijing and Washington, which has grown increasingly wary of the rising competitiveness of Chinese tech companies.
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Zhang Monan, a researcher with the Beijing-based China Centre for International Economic Exchanges, does not foresee an easing of the rivalry between the US and China.
“The current US-China conflicts are more complicated than those between the US and Japan,” she said.
“The US will only get more intense in its containment of China and the tech rivalry won’t ease, even if China and the US could reach a deal to de-escalate the trade tensions.”
Huawei is at the centre of a technology stand-off between Beijing and Washington. Photo: AP
Huawei is at the centre of a technology stand-off between Beijing and Washington. Photo: AP
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Back in 1982, the US justice department charged senior officials at Hitachi with conspiracy to steal confidential computer information from IBM and take it back to Japan. IBM also sued Hitachi. The two companies settled the case out of court and Hitachi paid 10 billion yen (US$92.3 million) to IBM in royalties in 1983, while accepting IBM inspections of its new software products for the next five years.
Toshiba, a major electronics producer in Japan, and Norway’s Kongsberg Vaapenfabrikk secretly sold sophisticated milling machines to the Soviet Union from 1982 to 1984, helping to make its submarines quieter and harder to detect. This transfer of sensitive military technology in the middle of an arms race between the US and the Soviet Union was not revealed until 1986.
The US issued a three-year ban on Toshiba products in 1987 and the company ran full-page advertisements in more than 90 American newspapers apologising for its actions.
In 1985, the US imposed 100 per cent tariffs on Japanese semiconductors. A year later, in its five-year semiconductor deal with the US, Japan agreed to monitor its export prices, increase imports from the US, and submit to inspections by the Office of the United States Trade Representative.
A display of chips designed by Huawei for 5G base stations on show at the China International Big Data Industry Expo. Photo: AP
A display of chips designed by Huawei for 5G base stations on show at the China International Big Data Industry Expo. Photo: AP
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This was followed by a second five-year semiconductor deal in 1991, in which Japan agreed to double the US market share in Japan to 20 per cent. In yet another bilateral semiconductor deal in 1989 Japan was required to open its semiconductor patents to the US.
Meanwhile, the US government boosted its efforts to help American businesses cement their industrial leverage in the chip sector and unveiled rules to protect its domestic chip industry.
The two countries were irreconcilable in 1996 on how to measure their respective market share. Overall market circumstances had also changed by then, with the US becoming competitive in microprocessing, and South Korea and Taiwan emerging as strong rivals to Japan.
Its dominance in semiconductors lost, Japan reached out to Europe for a range of cooperative technology deals.
Cooperate, don’t confront: academic advises Beijing on trade war tactics
“History can tell that high technology matters greatly to national security strategies. It is not a process of mere market competition. It follows the law of the jungle,” Zhang said.
The US has intensified its investment scrutiny by rolling out the Foreign Investment Risk Review Modernisation Act last year, which extends the regulation to key industrial technology sectors.
Zhang predicted the US would continue to contain China’s technological development in key sectors such as AI, aerospace, robots and nanotechnology – all of which are of great importance to Beijing.
The US has said Chinese tech giants Huawei and ZTE present a national security risk. Last April it cut US supplies to ZTE, citing violations of sanctions against Iran and North Korea. The ban was removed three months later after ZTE paid US$1.4 billion in fines.
It was a wake-up call for China to develop its own core technologies. The subsequent US ban on Huawei added to the urgency to do so, observers said.
Wang Yiwei, a professor in international relations with Renmin University, said China had to develop its own hi-tech know-how while continuing the opening up process.
“China has paid a price to learn whose globalisation it is,” he said.
“We may see some extent of disengagement with the US in technology and dual-use sectors, but China can speed up cooperation with European countries, and other countries such as Israel, to offset the risks from the US.”
In December, the US filed criminal charges against Huawei and its chief financial officer Sabrina Meng Wanzhou, alleging bank fraud, obstruction of justice and technology theft.
The squeeze continued last month with the US blacklisting Huawei, restricting its access to American hi-tech supplies and putting pressure on its allies to freeze the company out of the 5G market. So far, those allies, including Germany and Japan, have remained hesitant about meeting the US request and refrained from siding with either country.
Chinese foreign ministry spokesman Geng Shuang said on Monday that Huawei had obtained 46 commercial contracts in 30 countries as of June 6, “including some US allies and some European countries that the US has been working hard to persuade out of the contracts”.
For Zhang, the differences between Japan’s experience of US concerns of technological advancement and China’s may offer some hope for Chinese ambitions.
“Dependent on US for security protection, Japan was limited in [its ability to] push back and was already a developed country,” she said.
“But China has huge domestic market potential to address the imbalance [between] economic and technology development. This remains a big attraction to multinational companies, which would enable China to integrate into global innovation and technology cooperation, but China has to figure out how to dispel the doubts on its growth model.”
Pain of tariffs and sanctions behind China and Russia’s push to dethrone the US dollar
-Russia is looking to launch yuan-denominated bonds, and has agreed with China to work on settling more of their bilateral trade in the yuan or the rouble
-Other trading partners suffering from US sanctions and along China’s belt and road map are also open to de-dollarisation
Two weeks ago, Russia and China took a major step
away from the use of the American dollar in agreeing to develop bilateral trade using the Russian rouble and the Chinese yuan.
“Russia and China intend to develop the practice of settlements in national currencies,” said President Vladimir Putin after meeting President Xi Jinping in St Petersburg. He added that both countries had signed agreements to expand the use of their currencies in bilateral financial operations.
This move is long awaited and makes perfect sense, given the growing economic ties between Moscow and Beijing, and attempts by the United States to exploit the special position of its currency to force other countries to do its bidding. China-Russia bilateral trade reached US$24.2 billion in the first quarter of 2019, according to Chinese customs, up almost 30 per cent over the corresponding period last year. China has become Russia’s largest trade partner with about 14 per cent of payments in yuan and 7-8 per cent in rouble.
There are plans to reach US$200 billion in mutual trade by 2020, sign a local currencies settlement agreement later this year and extend the use of the national credit-card systems Union Pay and Mir in both countries.
Members of the Eurasian Economic Union and other emerging economies have also declared their readiness to avoid using the US dollar and to increase settlements in local currencies. In May last year, China and the Eurasian Economic Union signed a trade and economic agreement as a base to reduce dollar dominance in trade and as an important milestone in realising the linking of the union to the Belt and Road Initiative, China’s massive infrastructure project.
China is the world’s largest importer and second largest consumer of crude oil. Last year, it launched a yuan-denominated crude oil futures contract on the Shanghai Stock Exchange – the so-called petroyuan – amid a growing willingness from Iran, Russia, Saudi Arabia and Venezuela to settle oil payments in yuan and other non-dollar currencies. Despite the risk of currency fluctuations and the concerns of traders, the petroyuan is a necessary step in creating a potential rival to dollar-denominated benchmark oil prices – West Texas Intermediate and Brent Crude – and reducing the dollar dominance in the commodities trade.
The real reason behind Trump’s trade war
The US President wants to maintain the dollar’s reserve currency status and retain US’ monopoly in hi-tech
With the Turkish lira in free fall, Chinese yuan down by 8 per cent in July alone, and ?70 required to buy one dollar, experts warn that the trade war might soon escalate into trade plus currency war. But the ‘law of unintended consequences’ may not be at work here. Securing the interest of the US currency may be a less discussed yet real agenda behind the current trade war.
Trump is trying to deal with two serious concerns facing the American economy: Counter the threats to the dollar’s status as the reserve currency, and retain the near monopoly in Digital and Hi-Tech space. These issues, central to the US power and eminence, are now under serious challenge.
First the dollar issue. The dollar’s status as a reserve currency the world trusts is the primary reason for the US economic supremacy. Other countries need to export something to earn dollars. Not the US, which can print as many as it wants and buy any property, technology or pay for its massive imports. Also, it can invest a large amount of venture capital to buy any firm anywhere. Individual countries may face inflation if they print more local currency, not the US as the excess dollar is absorbed happily by the world.
Consider China-US trade. China sells all type of products to the US. In return, the US just prints dollars and gives them to China, which beyond a point has no use of these. So China deposits unspent trillions of dollars again with the US Treasury or buys firms and properties around the world.
The dollar has become the reserve currency because over 70 per cent of world trade happens in dollars. This may look strange as the US share in world trade is less than 15 per cent. The US manages this by ensuring that large trade contracts for commodities like crude oil are always denominated in dollars. Also, large US banks operating globally ensure that most export contracts are made in dollars even though it is not the currency of the buyer or seller.
Iraq example
And the US goes great lengths to deal with any threat to the reserve status of the dollar. In 2003, the US army captured Iraq and hanged its President Saddam on allegations that Iraq had Weapons of Mass Destruction (WMD). No WMDs were ever found. And we soon learned that Saddam started the process of denominating oil contracts in Euro and other currencies.
The dollar’s position as the reserve currency is under strain again. Many countries including China are taking steps to denominate their trade contracts in local currency and reduce dependence on the dollar. China plans to denominate all Belt and Road Initiative (BRI) contracts in local currencies. No wonder China is the primary target in the trade war.
The Saudi royal family has since the 1970s ensured that all OPEC oil contracts are denominated in US dollars. In return, the US ensured the continuation of the royal rule and fought Saudi enemies in the Gulf region. And this explains Trump’s action of isolating Iran. Since Iran is an enemy of Saudi, Trump announced sanctions to cripple Iran. Anyone buying from Iran after November would also face sanction.
Threat to hi-tech
Trump’s second concern is to retain the US lead in digital and high tech space. It is under threat from China which is going all-out to become a leader in Artificial Intelligence and high technology by 2025. Loss of US monopoly in digital space is a worry too.
Many of China’s home-grown firms are large unicorns ready for global operations in direct competition to the US firms. Worse, the China model of not allowing entry to Google and Facebook is being copied by Russia, Brazil, and many others. The EU is also thinking of creating an EU wide internet. All this would mean an end of the dominance of the US firms in digital space.
The US tariffs on imports from China will impact not only its exports to the US but to all countries. Most of China’s exports are produced in the tariff-free global supply chains (GVC) where collaborative manufacturing happens among a group of countries. Tariffs by partner countries will delay numerous Customs clearances and significantly reduce the effectiveness of GVCs. The US would love to think that this will rock the Chinese boat and force them to a compromise.
Discrediting WTO
The question remains, why discredit the WTO which served the cause of world trade well and pursued the earlier US priorities. A smart strategy is at work here. Trump is using tariffs as primary tools for trade war because raising tariffs requires no investments and they do the most damage in a world where trade accounts for more than a quarter of world GDP. He needs to raise tariffs, but doing so violates the WTO rules because the US has in 1995 tied its hands by agreeing to maintain very low tariffs (less than 3 per cent). So the solution is clear. Raise the tariffs, but discredit the WTO as being unfair to the US.
So these could be the real reasons for the trade war. Reasons such as imports posing a threat to national security or the US exports facing high trade barriers may just be used by Trump to buy peace with the WTO, humour rust belt voters and distract everyone else.
The US reasons for the trade war may look selfish, and harm world trade, production, and employment globally. But that’s what the US script is. And no other US President could have played this better. It required the persona of Trump to make everything look so real.
President Trump Called Former President Jimmy Carter To Talk About China
https://www.npr.org/2019/04/15/713495558/president-trump-called-former-president-jimmy-carter-to-talk-about-china
President Trump called former President Jimmy Carter for the first time this weekend.
Carter revealed that news during his regular Sunday school lesson at his home church, Maranatha Baptist Church in Plains, Georgia, on Sunday morning.
Earlier this year, Carter sent Trump a letter with some advice about managing the U.S.-China relationship. Carter oversaw the normalization of diplomatic relations between the two countries 40 years ago.
On Saturday evening, Trump called Carter to talk about it. It was the first time they'd spoken, Carter said. He said Trump told him that he is particularly concerned about how China is "getting ahead of us."
Carter said he agreed with Trump on this issue.
"And do you know why?" Carter said. "I normalized diplomatic relations with China in 1979. Since 1979, do you know how many times China has been at war with anybody? None. And we have stayed at war," he said. (China and Vietnam actually fought a brief border war in early 1979, weeks after U.S. relations with China were normalized.)
Carter said the United States is "the most warlike nation in the history of the world" due to a desire to impose American values on other countries, and he suggested that China is investing its resources into projects such as high-speed railroads instead of defense spending.
"How many miles of high-speed railroad do we have in this country?"
Zero, the congregation answered.
"We have wasted, I think, $3 trillion," Carter said, referring to American military spending. "China has not wasted a single penny on war, and that's why they're ahead of us. In almost every way.
"And I think the difference is if you take $3 trillion and put it in American infrastructure, you'd probably have $2 trillion left over. We'd have high-speed railroad. We'd have bridges that aren't collapsing. We'd have roads that are maintained properly. Our education system would be as good as that of, say, South Korea or Hong Kong.
"I wasn't comparing my country adversely to China," Carter qualified. "I was just pointing that out because I happened to get a phone call last night."
The former president said he understands that Trump is worried about China surpassing the U.S. as the world's top economic superpower.
"I don't really fear that time, but it bothers President Trump, and I don't know why. I'm not criticizing him — this morning," Carter said to laughs from the audience.
The White House confirmed the conversation in a statement released Monday.
"President Jimmy Carter wrote President Trump a beautiful letter about the current negotiations with China and on Saturday they had a very good telephone conversation about President Trump's stance on trade with China and numerous other topics," said the statement, which wasn't attributed to a spokesperson.
Much of Carter's Palm Sunday lesson was focused on peace and kindness and was given before an audience that was mostly composed of visitors, many of whom had lined up overnight for the service.
Last month, Carter became the nation's longest-living president.
A coordinated global response is needed to defend multilateralism
The world is moving towards a common position against the protectionist onslaught of the Trump administration
How well efforts are progressing will be apparent at the Group of 20 summit in Osaka, Japan, at the end of the month
The threat of an economic crisis and worse is moving the world towards a common position against the protectionist onslaught of United States leader Donald Trump’s administration.
With trade, technology and security in the balance, Vice-President Wang Qishan and German Chancellor Angela Merkel recently joined forces to defend the global multilateral order, the day the same sentiment was expressed by Singaporean Prime Minister Lee Hsien Loong.
Even Britain’s Queen Elizabeth has voiced concern, setting aside pomp for politics at the banquet for the visiting American to praise the institutions established after World War II that have ensured peace and stability.
As tariffs bite, stock markets falter and financial and security structures and alliances increasingly come under pressure, governments have to work together.
While meeting Merkel in Berlin on May 31, Wang asked Germany to work with China to build a more just governance system to deal with rising uncertainty.
The chancellor spoke of the need for international collaboration and coordination to counter threats; a day earlier, giving the commencement speech at Harvard University, she urged graduates to reject protectionism and “tear down walls of ignorance” that feed nationalism and isolationism.
With trade, “the very foundations of our prosperity” under fire, she called for nations to “work together rather than alone”.
But even as she spoke, US Secretary of State Mike Pompeo was in Germany pushing efforts for American allies to shut out the Chinese technology giant Huawei on national security grounds.
Harvard cheers as Angela Merkel takes aim at Trump’s politics
The US’ weaponising of trade, as with China and now Mexico, is the biggest threat to global economic growth and development.
It prompted Lee, speaking at the Shangri-La Dialogue security forum in Singapore, to raise the importance of multilateralism, particularly for smaller nations, so that they could strengthen their influence as a group.
Without referring to China or the US, he said big powers should ensure regional cooperation initiatives were open and inclusive and help bring nations together, not “create rival blocs, deepen fault lines or force countries to take sides”.
Merkel delivering the keynote speech at Harvard University's 368th commencement ceremony last month. Photo: AFP
Merkel delivering the keynote speech at Harvard University's 368th commencement ceremony last month. Photo: AFP
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But Trump’s criticism and shunning of the established global order are also cause for concern and that is what the British monarch turned to last Monday while feting Trump.
Highlighting the efforts made after World War II to ensure stability, she spoke of the importance of “nations working together to safeguard a hard-won peace”.
A coordinated global response is the best way to fight back. How well efforts are progressing will be apparent at the Group of 20 summit in Osaka, Japan, at the end of the month.
Brace for a global recession unlike any other amid a world polarised by the US and China
The 2019 recession will be different, in a heavily leveraged global economy with already slowing trade – where normal policy tools may no longer work.
Post-recession, Asian nations in particular should expect to have to take sides as the US and China vie for ownership of the new global economic narrative
Anthony Rowley Published: 11:00pm, 9 Jun, 2019
Global economic recession is no longer a threat but an inevitability. The question economists should be asking is not whether or when a recession will strike but rather what can be done once it does. Normal policy tools such as monetary easing and/or fiscal stimulus may be no more effective than pushing on the proverbial piece of string.
This time, it will be different — as optimists like to say when trying to convince themselves that crises cannot happen again; though not for the reasons they think. The 2019 recession will be different from the Great Recession
a decade ago, and indeed, from any slump since the Great Depression of the 1930s.
The comparison with 1930
— when the US introduced its Smoot-Hawley tariffs and plunged the world into depression in the wake of the 1929 US stock market crash — is obvious, except, this time, world trade growth is already crumbling. Global trade growth is at its slowest in 10 years, according to the World Bank.
Trade crises tend to cut deeper into the heart of global economic activity than any of the post-war financial or debt crises did. The onset may be slower and less dramatic but the adverse effects last longer.
It is easy to forget that what caused global economic growth to stagnate for seven or eight years after the 2008 financial crisis was the secondary shock to trade. World trade only began to pick up again in 2016, to then have US President Donald Trump clobber it with tariffs
.
The renewed slowdown in trade this time is more complex and systemic than the one that followed the Great Recession, and it is accompanied by a global economy still dependent on residual monetary stimulus from the 2008 crisis to keep investment and consumption moving forward, if uncertainly.
The World Bank expects global economic growth to ease
to a weaker-than-expected 2.6 per cent in 2019. Its president, David Malpass
, said: “There's been a tumble in business confidence, a deepening slowdown in global trade, and sluggish investment in emerging and developing economies.”
Yet, stock markets have chosen to focus on hopes that the US Federal Reserve and other central banks will conduct monetary easing again. This is clutching at straws. As former Deutsche Bundesbank president Axel Weber noted in Tokyo last week, markets have “overpriced” the chances of precautionary easing.
China has been easing off on easing.
China has been easing off on easing.
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China central bank says no need for easing after tariff hike
Another legacy of the 2008 crisis is the mountain of debt
in advanced and developing economies, a consequence of easing and historically low interest rates. As Malpass said, “Debt management and transparency need to be high priorities”.
In this situation of slowing economic momentum, declining business confidence and investment, and a general sense of economic malaise, who can doubt that the slowdown risks spilling over into a recession?
The world following a 2019 recession is likely to be more polarised
or even bifurcated, where the US and China, as the two biggest growth poles, seek to write their separate economic narratives.
They will be more mutually distrustful, and the nations that depend on them are likely to need to adapt their economic structures — including supply chains
for manufacturing and service sector activities — to new and more restricted areas of operation.
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Technological interchange and advancement is likely to slow. And the already growing tendencies towards nationalism and populism could prove a significant and persisting setback to globalisation.
The effects are likely to play out most obviously in Asia, where nations have so far been steering a successful, if fine, line between the two major economic powers. They are increasingly likely to have to take sides in trade wars that cannot be won.
US-China trade war will make or break Asean
Perhaps the most they can hope for is to survive a new cold war and avoid a “hot” war. Even if a stock market collapse (in the US or China) or a renewed debt crisis forces a truce between the US and China, a rapid return of business confidence, investment and consumption is unlikely.
Both Trump and Chinese President Xi Jinping are strong-minded leaders and they represent a clash of cultures and systems that, perhaps, was due for confrontation. There is still room for compromise and mutual coexistence, even if not a marriage of minds. But the room for manoeuvre is getting worryingly small.
White House seeks delay on Huawei ban for contractors
https://www.reuters.com/article/us-usa-trade-huawei/trump-acting-budget-chief-asks-for-delay-on-huawei-restrictions-idUSKCN1TA0T1
WASHINGTON (Reuters) - The White House Office of Management and Budget has asked the U.S. Congress for more time to phase in a ban on federal contracts with companies that do business with Chinese telecom giant Huawei, part of a defense law passed last year.
FILE PHOTO: Workers sit a the Huawei stand at the Mobile Expo in Bangkok, Thailand May 31, 2019. REUTERS/Jorge Silva/File photo
The ban is one part of a multifaceted U.S. push against Huawei Technologies Co Ltd, the world’s largest telecoms network gear maker, which Washington has accused of espionage and stealing intellectual property.
Huawei has repeatedly denied it is controlled by the Chinese government, military or intelligence services. It has filed a lawsuit against the U.S. government over the restrictions in the defense policy bill.
The defense law, called the National Defense Authorization Act (NDAA), placed a broad ban on the use of federal money to purchase products from Huawei, citing national security concerns.
It included a ban on direct federal purchases of Huawei equipment, which will take effect this year.
But the White House said the government needed two additional years to work out rules for another part of the law, which requires third-party suppliers and contractors to restrict their purchases and use of Huawei equipment.
“This is about ensuring that companies who do business with the U.S. government or receive federal grants and loans have time to extricate themselves from doing business with Huawei and other Chinese tech companies listed in the NDAA,” Jacob Wood, a spokesman for the White House OMB, said in a statement.
Acting OMB Director Russ Vought asked congressional leaders and Vice President Mike Pence for the delay in a letter earlier this week. The letter was first reported by the Wall Street Journal.
Vought said the delay would “ensure the effective implementation of the prohibition without compromising desired security objectives,” and said there would be a “dramatic reduction” in the number of contractors able to sell to the U.S. government without a delay.
Vought asked that restrictions against purchasing Huawei equipment imposed on government contractors begin in four years, rather than two years. The delay would allow “additional time to think through the associated potential impacts and possible solutions,” he said.
The requested delay would not stop or affect the timing of a separate Commerce Department rule that added Huawei to its “Entity List,” a blacklist that bans the company from buying parts and equipment from American firms without U.S. government approval.
President Donald Trump also signed an executive order last month that bars U.S. companies from using telecommunications equipment made by firms deemed to post a national security risk.
US-China trade war: the financial markets are focused on the wrong risk
US bond market investors have been acting in a terrifying fashion, assuming a deflationary shock is ahead.
Such logic ignores trends from the last 30 years of globalisation
Tom Holland Published: 7:00am, 10 Jun, 2019
The US political strategist James Carville once said that after his death, he would like to be reincarnated as the bond market. “You can intimidate everybody.”
Well, the US bond market is a lot bigger and scarier today than in Carville’s time. The US Treasury bond market alone is worth some US$22 trillion. Then there is another US$7 trillion outstanding in US corporate bonds And that’s without even considering all the US mortgage-backed securities out there.
And lately, as the US-China trade war escalated, threatening to reverse the globalisation trend of the last three decades, the bond market has been behaving in a fashion that is not just intimidating, but also downright terrifying.
Happily, however, there are some good reasons to believe the market may have got things wrong, and that the outlook may not be quite so frightening after all, or that at least it may be a different sort of scary.
While economists and politicians will be arguing about the impact of the trade war on the world’s economy for months, and probably years, to come, the bond market has already made up its mind.
The US bond market is unequivocally pricing in a deflationary bust: the combination of falling prices and contracting output that makes for the toughest economic environment of all in which to prosper. And that goes for Asian economies as well as the United States.
At first, the prospect of deflation might not sound so terrible. Who doesn’t like lower prices?
But there are two different sorts of deflation. First, there’s the good sort, when improvements in efficiency, enabled by globalisation or new technologies such as the internet, allow goods and services to be produced more competitively.
Developers slammed after China tightens access to bond market funding
Then there’s the bad sort. This often sets in after an economic or financial shock, when demand dries up as consumers and companies stop spending and instead hoard cash in an attempt to pay down debt and strengthen their balance sheets.
The trouble is that as prices begin to fall, companies have to sell ever more stuff to service their debts. But selling more stuff is tough in a demand drought, especially as potential buyers tend to postpone their purchases, expecting prices to be lower next week or next month.
As a result, the size of debt piles increases relative to output, companies go bust and workers lose their jobs, which further depresses demand in a self-reinforcing downward spiral.
This is the direction the bond market is now signposting. Investors’ inflation expectations for the next five years, as implied by the prices of US Treasury inflation-protected securities, have slumped from a rate of 1.9 per cent a year in the fourth quarter of last year to just 1.6 per cent last week.
At the same time, the yield on 10-year US Treasury bonds has fallen from 3.2 per cent to 2.1 per cent. At that rate, the return on 10-year Treasuries is 0.2 percentage point below the US three-month interest rate: a sure-fire signal in the past that a US recession is just around the corner.
But is the bond market right to be pricing in such a deflationary bust? Usually busts happen because central banks aggressively jack up interest rates to choke off a debt-driven boom, or because of an external shock, like an energy price spike.
This time around, the US Federal Reserve’s tightening has been modest, and has taken place off a very low base. As a result, borrowing costs remain comfortably below the returns US companies earn on their capital, which makes a central bank-triggered bust look unlikely.
In that case, the feared cause must lie elsewhere. It can’t be energy prices, which are at just half the level of a few years ago. So, clearly, bond market investors are worried that the reversal of globalisation threatened by the escalating US-China trade and technology conflict will deliver a deflationary shock severe enough to lead them to price in a recession.
On examination, these fears appear illogical. Tariffs themselves won’t be enough to push the US into recession. Even if the administration were to slap 25 per cent tariffs on all imports from China, the direct frictional cost would amount only to around 0.5 per cent of US GDP.
Nor is it clear that the dispute will be deflationary, as the bond market is assuming. Sure, heightened uncertainty would cause companies to delay their investment decisions, which at the margin would depress demand.
On the other hand, trade tariffs are an additional cost, which is inflationary.
If currency markets were freely floating, much of this cost would be absorbed by an offsetting depreciation of the Chinese yuan
.
But so far, the Chinese authorities have effectively blocked the yuan from weakening through the ¥7.00 to the US dollar threshold. As a result, at least some of the cost of the US tariffs is being passed on to US consumers in the form of higher sticker prices, as US retail giant Walmart has admitted. That’s clearly inflationary, not deflationary.
A trader works on the floor of the New York Stock Exchange. The US bond market has been pricing on the expectation that the US-China trade war may cause a deflationary bust.
And if multinational companies realign their supply chains to avoid producing in China, that too will involve additional costs, and will generate additional investment demand, both of which will be inflationary.
And if they relocate production to America, as President Donald Trump is demanding, the new demand for workers at a time when unemployment is close to 50-year lows will be highly inflationary.
In short, common sense dictates that if the globalisation trend of the last 30 years was deflationary, as we know it was, it stands to reason that the reversal of that trend will now be inflationary.
Of course, in the longer term this may throw up a whole different set of challenges. But it does suggest that, in the near term, the big bad bond market is focusing on the wrong risk, and that when it wakes up to the true picture, there could be a very sharp reversal in financial markets indeed. ¦
Trump’s method to the madness on trade
Lost in the tweets and partisan fights is a belief that a bet on freer trade has proved to be a loser.
https://www.politico.com/story/2019/06/06/donald-trump-trade-policy-global-translations-1355868
Donald Trump is not winging it.
Or at least he’s not totally winging it.
However improvisational his daily machinations on trade — presenting publicly as motivated by a random mix of mood and twitches of the news cycle, including the latest threat of tariffs against Mexico — Trump and his team are acting on a well-developed theory of the case, one that has been decades in the making.
In Trump’s case, that strategy is intuitive. He’s been saying since the 1980s — and by all evidence genuinely believes — that the United States is letting itself be played for the fool by foreign adversaries, on trade specifically and global competition generally. Strong nations robustly protect domestic industries and keep foreign competitors at heel. Back in the ’80s his focus was more typically Japan; in recent years, but long before 2016, he’s been focused on China.
In the case of his advisers, the theory of the case is more intellectual. They believe that the big bet free trade advocates made in the 1990s — that welcoming China into the WTO would encourage it to integrate into a rules-based global economy — has proved to be a loser. China, by these lights, is happy to take advantage of the U.S. and other players’ commitment to free trade and rules but will continue to steal and subsidize to advance its own interests.
This method to the apparent madness has emerged in interviews for the new Global Translations podcast — which launched Thursday — with people who have worked for Presidents Richard Nixon, George H.W. Bush, Bill Clinton, George W. Bush, Barack Obama, and Donald Trump. And it helps explain why the Trump administration has made such a break from the strategy of previous administrations.
“I and many others had deceived ourselves that China wanted to be just like us,” said Michael Pillsbury, an influential adviser to the Trump administration on China and author of the book, “The Hundred Year Marathon: China’s Secret Strategy to Replace America as the Global Superpower.”
“I finally woke up,” he said. “But I would not say everybody's awakened even at this point.”
The Trump doctrine marks a repudiation of decades of U.S. trade orthodoxy — that reached its high point in the 1990s, after the Soviet Union collapsed, and capitalism and liberalism appeared on the march. This “End of History” euphoria culminated in Clinton pushing past his party’s populist instincts on trade and embracing the elite view that the world was becoming more integrated, more rules-based, and more prosperous, and that this meant good things both for American and the rest of humanity.
In 1993, he signed into law NAFTA, which had been negotiated by the Bush administration, and enabled China’s accession into the WTO, stating in a 2000 speech: “By joining the WTO, China is not simply agreeing to import more of our products. It is agreeing to import one of democracy's most cherished values, economic freedom. The more China liberalizes its economy, the more fully it will liberate the potential of its people -- their initiative, their imagination, their remarkable spirit of enterprise. And when individuals have the power, not just to dream, but to realize their dreams, they will demand a greater say.”
That democratic dream now appears dead — and with it American patience to wait for China to reform itself.
The China hawks in the White House believe now is the best — and perhaps last — moment for the U.S. to take dramatic economic action against China, even at the cost of roiling markets and upending a strong U.S. economy.
And they have tethered the rest of U.S. trade policy — demands of Canada, Mexico, Europe and Japan — to an aggressive agenda of increasingly squeezing China out of global supply chains while pressing for structural change in Beijing. When U.S. business leaders have warned, cajoled, and pleaded about the economic risks of a trade war, they have been rebuffed with the argument that it is precisely the strong economy that has wedged open a historic window of opportunity to make the move.
Global Translations
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U.S. Trade Representative Robert Lighthizer, who has described China as an “existential problem,” wants to use U.S. economic leverage to demand serious structural changes in China — while the U.S. still has that leverage.
The urgency behind the strategy concerns technology: China’s attempts to supercharge the growth of nascent tech industries by subsidizing them and forcing the handover of U.S. intellectual property. The goal is to leapfrog from its past status as a developing nation exporting cheap plastic wares to a leader in strategic emerging technologies that will define the next technological age — such as 5G and the next-generation internet, artificial intelligence and renewable energy.
China has copied U.S. technology, sometimes by requiring joint ventures and the sharing of intellectual property and other times by outright theft. The end of these forced technological transfers is Lighthizer’s central aim — even if they mean that soybean farmers will pay the price. If America fails to do so and becomes “number two in technology,” he told a congressional hearing in February, “then the world is going to look very different for our children.”
Pillsbury, the Trump adviser, said the administration fears not only losing a commercial rivalry — but enabling an Orwellian future in which an authoritarian Beijing controls global surveillance, directs online speech and embeds government control into the very plumbing of the internet.
“Their idea is the whole world will have this combination of [surveillance] cameras, your shopping patterns, what magazines you subscribe to, who your friends are, where you go based on your cell phone being geolocated,” with the aim of creating a social credit score, he said. “To what degree do you support the Communist Party of China? Have you ever criticized anything? And then when you apply to get a loan or to go to college or to do anything, your social credit score will tell how the government’s going to treat you.”
“Everybody in the world will be under this kind of system,” Pillsbury said of the authoritarian vision of the future.
Increasingly, the U.S. military is concerned, too. The 2018 national security strategy, signed by former Secretary of Defense James N. Mattis, asserts that China seeks “regional hegemony in the near-term and displacement of the United States to achieve global preeminence in the future.”
poster="http://v.politico.com/images/1155968404/201906/2322/1155968404_6044582814001_6044586070001-vs.jpg?pubId=1155968404"
Mitch McConnell: ‘Not much’ GOP support for Trump’s Mexico tariffs
true
This big picture explains in part why the Trump administration has been willing to wrest open trade relations with allies in order to remake the terms of global trade — it’s not just about a better bilateral deal for the U.S., but about a particular approach to China. Take the steel tariffs against Canada and Mexico that were aimed at “closing the back door” to subsidized steel from China, among other places; and the insertion of language in the new North American agreement that would expel a country from the agreement if it entered into a free trade agreement with a “non-market economy,” or new requirements aimed at reducing the share of Chinese parts in North America car production. Likewise, the administration will have China in mind as it opens talks with Japan and Europe.
In Trumpland, the long-term goals apparently outweigh the short-term chaos and pain.
Dan Ujczo, an Ohio-based trade lawyer with Dickinson Wright, recalled a meeting with senior Trump administration officials and groups representing industries affected by tariffs, who argued that the economic effects of Trump’s economic policies would be undone by a trade war. “It was really one of the most brilliant presentations I’ve ever seen — PowerPoint graphics, the whole thing — that said, ‘If you do this, administration, if you do what you're talking about doing on trade,” he recalled, “you’re going to take back all the economic gains you’ve made from tax reform.”
“And everybody thought it was a mic drop moment, right? Aha! And everybody in the administration kind of looked at each other and said, ‘We know. You think we don't know that?’”
Over two decades, 9/11, the wars in the Middle East and the financial crisis and recovery, made action too difficult, according to Ujczo — and the possibility of a next recession could close the window. “If we don’t do this now, when will we ever do this? It’s really, I think, in the eyes of this administration, a now-or-never moment — and they may be right.”
While Democrats don’t agree with all of Trump’s tactics, long-standing concerns about China have been bipartisan. House Speaker Nancy Pelosi was an early opponent of China’s entry into the WTO. Senate minority leader Chuck Schumer has long decried Chinese currency manipulation. Schumer recently tweeted, “Hang tough on China, President @realDonaldTrump. Don’t back down. Strength is the only way to win with China.”
The Obama administration shared concerns about Chinese subsidies and technological theft but attempted to address them by negotiating the Trans-Pacific Partnership — a new agreement with 11 other nations. The idea was to encircle China by creating a free-trade zone with its neighbors and set high standards that China would eventually have to accept in order to join. In trying to sell the deal to a skeptical public in 2015, Obama said China had been “putting out feelers” about eventually joining the pact.
Sen. Thom Tillis
congress
GOP fractures over Trump’s tariffs
By BURGESS EVERETT, MELANIE ZANONA and MARIANNE LEVINE
But the agreement lacked public and Congressional support amid a backlash against globalization. Trump withdrew the U.S. from the agreement after he was elected and has opted instead for an increasingly bilateral approach to confronting China — using threats, tariffs and negotiations with other nations as a way to influence China. In many ways, it was the administration’s firmest rebuke of the international coalition-building approach of Republican and Democratic administrations that preceded it.
While critics of the TPP said it wasn’t enough to force structural changes in China, supporters say Trump gave up a powerful tool.
“I think [it] is perhaps the most significant strategic blunder in recent American history,” said Michael Froman, the U.S. Trade Representative under Obama. “We’ve lost that position for the United States at least for now, and we have created a void, a vacuum that China is quite effectively filling at the moment.”
Trump’s agenda doesn’t necessarily mean an end to trade. But it does mean surrendering faith in gauzy principles and far-reaching trade protocols. Instead, go toe-to-toe with trade competitors at times and in sectors of one’s own choosing — and know that adversaries won’t respect you unless you prove on occasion that you are willing to inflict pain on others (and accept it yourself) to win a conflict.
And it leaves open the possibility that the confrontation with China could embolden hawks on both sides.
“Over the next year or two we're going to find out — can we have a trade deal? Can we have some kind of reconciliation with China?” said Pillsbury. “Or… are we moving toward a new Cold War relationship?”
War With the World: Trump Puts Tariffs on India, Considers Australia
https://moneymaven.io/mishtalk/economics/war-with-the-world-trump-puts-tariffs-on-india-considers-australia-7Wn7iqEGf063DCqqTQG5YQ/
Add India to the list of countries the US is n a trade war with. For now, Australia barely avoided Trump's wrath.
“I have determined that India has not assured the United States that India will provide equitable and reasonable access to its markets,” Mr. Trump said on Friday.
Tariffs start June 5 as Trump Pressures India Over Open Markets.
Mr. Trump on Friday said India would be removed from the U.S.’s privileged-trading program called the Generalized System of Preferences on Wednesday. Under the decadeslong program meant for some developing economies, the U.S. had allowed India to avoid tariffs on certain exports to the U.S. in the interest of promoting tighter trade ties and development.
India, the U.S.’s ninth-largest trading partner, is a top beneficiary of the GSP program. Mr. Trump’s move will add tariffs of as much as 7% on Indian exports of goods like chemicals, auto parts and tableware to the U.S., which in 2018 accounted for more than 11%, or $6.3 billion, of India’s total exports of goods valued at $54.4 billion, according to the Congressional Research Service, a research agency for the U.S. Congress.
Spotlight Australia
Please consider Trump Administration Considered Tariffs on Australia.
Some of President Trump’s top trade advisers had urged the tariffs as a response to a surge of Australian aluminum flowing onto the American market over the past year. But officials at the Defense and State Departments told Mr. Trump the move would alienate a top ally and could come at significant cost to the United States.
The administration ultimately agreed not to take any action, at least temporarily.
The measure would open yet another front in a global trade war that has pitted the United States against allies like Canada, Mexico, Europe and Japan, and deepened divisions with countries like China. It would also be the end of a reprieve for the only country to be fully exempted from the start from steel and aluminum tariffs that Mr. Trump imposed last year.
The tariffs on Australia would have hit imports of aluminum, although measures that would have applied to other products had been discussed as well. Shipments of Australian aluminum to the United States have surged since last year, when Australia became one of the few countries not to face metal tariffs.
Unfair Competition
Trump wants to protect US steel and aluminum manufacturers from "unfair competition".
How come the rest of the world, including Canada and Australia can produce steel and aluminum cheaper than the US?
Even if there was a nefarious answer to that question (there isn't), the fact remains that far more US industries benefit from cheaper metals than are harmed by them.
Logically, no matter the reason, the US should welcome cheap steel and aluminum.
Chain Reaction
Trump put tariffs on steel and aluminum from Mexico, Canada, and China, so importers turned to Australia.
Aluminum imports from Australia rose by 45 percent from 2017 to 2018. They are up even more, by 350 percent, for the first three months of 2019, compared with the same period in 2018.
The same thing is happening across the board.
Tariffs on China drove imports from Vietnam, India, and other places.
For now, Australia is still a small supplier. Yet Trump is hopping mad.
Understanding Trade
I saw an interesting Tweet yesterday in which someone claimed "trade is a zero sum game".
That is seriously wrong. Unfortunately, that is how Trump views things. Trump believes there is a winner and loser to every deal. The fact is both sides have to believe they gain, or there is no deal.
Here's a simple example I gave someone other night in a discussion at karaoke.
Imagine an island with 8 people. Four are net makers and four are fishermen. The net makers make and mend nets, and perhaps gather coconuts in their spare time.
The net makers trade nets and coconuts for fish.
In the absence of trading nets for fish, the net makers would have to learn how to fish. The fisherman would have to learn now to make nets and plant and gather coconuts.
It's much easier to become skilled at one or two things than dozens of things. In essence, this is what trade is all about: Everyone wins.
Better Deal
By insisting on getting a better deal than the other side, Trump risks a slowdown in trade.
Trump thinks this will bring jobs back to the US.
It won't.
Steel and aluminum are particularly misguided tariffs because very few are employed in industries that produce steel. By a factor of 10 or more there are more US manufacturers who use steel and aluminum.
The US has some legitimate gripes, but tariffs never have, nor ever will, produce the results Trump hoes for.
Not Easy to Win
Instead of trade wars being easy to win, we see Trump is in a trade war with the world, with precisely zero victories.
Meanwhile, China Puts U.S. Soybean Buying on Hold as Tariff War Escalates.
No one wins trade wars. Upping the ante just makes for bigger losses all around.
This means war: furious Canada and Mexico launch retaliation after Trump imposes tariffs
Canada responded to the US tariffs on steel and aluminium by imposing billions worth of countermeasures, while Mexico put duties on food and steel and the EU vowed its own retaliation
Tribune News Service
http://themillenniumreport.com/2018/06/this-means-war-furious-canada-and-mexico-launch-retaliation-after-trump-imposes-tariffs/
US President Donald Trump’s decision Thursday to slap tariffs on steel and aluminium from Canada, Mexico and the European Union sharply escalated global trade tensions and widened a rift with America’s closest allies.
The Trump administration’s announcement that its once-delayed tariffs would take effect starting Friday was met swift condemnation and retaliation as well as a multilateral challenge at the World Trade Organisation.
Canadian leaders reacted particularly angrily to the tariffs, 25 per cent on steel and 10 per cent on aluminium. Trump had justified the import levies on the grounds of national security – a line of reasoning Canadian officials called absurd, illogical and illegal.
Bourbon, blue jeans and steel: here’s how the EU will fight US trade war
Canada, the largest exporter of steel and aluminium to the United States, said it would apply countertariffs of 25 per cent and 10 per cent on US$16.6 billion worth of American metals, farm goods and other products, to take effect July 1.
“That Canada could be a national security threat to the US is inconceivable,” said Canadian Prime Minister Justin Trudeau, noting the many Canadians who have died alongside US soldiers in joint military operations over the years. “These tariffs are an affront to the long-standing security partnership between Canada and the United States.”
Mexico responded to the news by announcing immediate retaliatory tariffs on US products including pork bellies, apples, grapes, blueberries and flat steel.
EU leaders already had drawn up a list of American imports worth several billions of dollars that would be subject to tariffs, including jeans, Kentucky bourbon and Harley-Davidson motorcycles – goods aimed at applying maximum political pressure as they are produced in home states of top lawmakers.
French President Emmanuel Macron said in a speech that the US tariffs would mean “war”.
“This decision is not only unlawful but it is a mistake in many respects,” Macron said in a speech after the US announcement. “Economic nationalism leads to war.”
These tariffs are an affront to the long-standing security partnership between Canada and the United States Canadian Prime Minister Justin Trudeau
International Monetary Fund chief Christine Lagarde meanwhile warned the G7 officials of an erosion of trust amid the trade frictions, saying that the action will “distort and damage and disrupt supply chains which have been established now for decades”.
“This is protectionism, pure and simple,” said Jean-Claude Juncker, president of the EU Commission, which represents the 28-member states in the union. He said the US “now leaves us with no choice” but to impose duties on American imports, although he did not specify the exact amount or timing of the retaliation.
Canada warns it will ‘respond appropriately’ if US steel tariffs take effect
European officials on Thursday met US Commerce Secretary Wilbur Ross in Paris in a last-ditch effort to dissuade the US from going through with the tariffs, arguing among other things that the administration was directing its aim at the wrong target. They said the source of the problem of excess global steel production is China, not Europe.
Trump first announced plans to tax imported steel and aluminium from all countries in March, but delayed applying the tariffs on the EU, Canada, Mexico and a handful of other countries as the administration sought voluntary quotas or other trade concessions from them. Ross indicated that negotiations could continue even after the tariffs are imposed, but EU officials insisted that the threat of metal tariffs be removed before broader trade discussions could take place.
The EU as a bloc is the United States’ largest trading partner, with exchange of goods and services exceeding US$1 trillion. Steel and aluminium make up a tiny fraction of the overall trade: US steel imports from all countries totalled about US$29 billion in 2016 – a fifth of that from the EU.
As such, if the US and its trading partners confine the tariffs and countertariffs to steel and aluminium, trade experts say, the threat of the global trade war expanding could pass, even as transatlantic relations have been strained by Trump’s pull-out of the Paris climate accord and nuclear deal with Iran.
Economic nationalism leads to war French President Emmanuel Macron
But what worries analysts now is how Trump might react to the trade retaliation. In a separate trade battle with China, Trump initially threatened tariffs on US$50 billion of Chinese goods for intellectual property theft, but after Beijing vowed it would match the tariffs, the president proposed tripling the duties on US$150 billion of Chinese imports.
“If the US ups the ante and this doesn’t remain just a steel issue, particularly with Canada, Mexico and the EU, then that would be a signal to me that we are spinning out of control,” said Douglas Irwin, an economics professor and trade historian at Dartmouth College. He added: “I can understand, in some sense, the administration starting a trade war with China, but it is enormously damaging and counterproductive to start a trade war with Canada, the EU and Mexico.”
That sentiment was shared by US lawmakers from both parties, many businesses and to some degree even by the United Steelworkers union. Congressional Republicans blasted Trump’s move to levy steel and aluminium imports, predicting it would hurt domestic companies and lead to higher prices for American consumers.
“This is dumb,” said Nebraska Senator Ben Sasse, adding that similar protectionist measures contributed to the Great Depression in 1929.
House Speaker Paul Ryan said flatly that he disagreed with the decision. “Instead of addressing the real problems in the international trade of these products, today’s action targets America’s allies when we should be working with them,” he said.
Some US aluminium producers and groups supporting domestic steel manufacturers and Trump’s “America first” agenda applauded the action.
But the steel and aluminium tariffs are likely to complicate, if not hamper, ongoing negotiations with Canada and Mexico to revamp the North American Free Trade Agreement, a major economic goal for the administration. Trump has made it no secret that the threat of steel and aluminium tariffs was intended as a lever to win concessions from Canada and Mexico.
US trade adviser denies that US-China trade war is ‘on hold’
“The most likely impact is the stalling of the negotiations,” said Christopher Wilson, deputy director of the Mexico Institute at the Wilson Centre in Washington.
The new tariffs come one month before Mexico’s July 1 presidential elections, and on Thursday, the country’s presidential candidates bristled at the news. “Don’t play with Mexico,” tweeted Jose Antonio Meade, of the ruling Institutional Revolutionary Party. “We will defend our jobs, our markets and our workers.”
Front-runner Andres Manuel Lopez Obrador, of the National Regeneration Movement, warned the Mexican government not to “fall into the trap of a trade war” because Mexico’s economy “is very weak. … Therefore we have to act firmly, but at the same time maintain trade relations with the United States, and so dialogue is very important.”
This is why we had a Great Depression. ‘Make America Great Again’ shouldn’t mean ‘Make America 1929 Again’ Republican US Senator Ben Sasse
Trudeau said he had spoken with Trump last Friday about meeting with the president to finalise a deal on a revised Nafta, as the parties appeared to have the makings of an agreement. But Trudeau said that vice-president Mike Pence contacted him Tuesday and said that Canada would have to accept a five-year sunset clause as a precondition to a Nafta deal. A sunset provision would automatically dissolve Nafta after five years unless the partners all agreed to extend it. Trudeau said that was unacceptable to Canada.
Last week Ross said his agency would consider whether imported cars and car parts are harming US national security and as such should be subject to new tariffs. The department initiated the investigation by tapping the same rarely invoked provision of US trade law, called Section 232, that was the basis for levying taxes on imported steel and aluminium.
Lawmaker delighted as US restricts Chinese hi-tech students’ visas
In the metals case, the administration concluded that the rise of foreign steel and aluminium over the years had hurt domestic producers and presented an economic and national security risk to the country because it had resulted in fewer American sources for military armour and infrastructure, such as the electric power grid.
Bad news that @POTUS
has decided to impose taxes on American consumers buying steel and aluminum from our closest allies--Canada, the EU, and Mexico (with whom we run a trade surplus on steel). In addition to higher prices, these tariffs invite retaliation.
— Senator Pat Toomey (@SenToomey) May 31, 2018
That announcement threatened to scuttle continuing talks with China, but Ross said Thursday that he planned to go to Beijing this weekend, as scheduled, for another round of negotiations.
If Trump starts trade war, EU will fight back with peanut butter
Earlier South Korea won a permanent tariff exemption on steel after it agreed to a quota, and similar deals have been cut with Brazil, Australia and Argentina. Japan, another major steel supplier to the US, earlier was slapped with steel duties as it has steadfastly declined the Trump administration’s overtures to sit down and negotiate a trade deal.
China or the US? Europe’s ‘impossible choice’ in the trade war
(May 29): Growing tensions between China and the United States over the escalating trade dispute – and the resulting global uncertainty – are forcing other countries to choose between the two economic superpowers.
The European Union, which is the world’s largest trading bloc and a top trading partner of both China and the US, is in a difficult spot since US President Donald Trump’s decision to ratchet up pressure on Beijing early this month – a move that included signing an executive order which effectively banned Chinese telecoms giant Huawei from accessing US supply chains.
“Europe is finding itself today in an extremely inconvenient position in which countries that seek to coexist with both China and the US are called to make an impossible choice and prove their allegiance to one of the parties over the other,” said Gal Luft, co-director of the Institute for the Analysis of Global Security, a Washington-based think tank.
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As nationalist rhetoric heats up in the wake of an early-May breakdown in US-China trade talks, top officials from both countries have engaged in intense shuttle diplomacy aimed at securing support and shoring up alliances across Europe.
Chinese Vice-President Wang Qishan, a close ally of President Xi Jinping who formerly led trade talks with the US, is visiting Germany and the Netherlands this week, just days after another top Xi aide, Li Zhanshu, the Communist Party’s third-most powerful cadre, wrapped up a trip to Hungary, Austria and Norway.
Wang’s trip will coincide with US Secretary of State Mike Pompeo’s arrival in Berlin for talks with Chancellor Angela Merkel on Friday. The US State Department said Pompeo would also visit the Netherlands, Switzerland and Britain.
Pompeo’s four-nation trip is expected to pave the way for further travel by Trump himself, who is set to visit Britain and France early next month.
The EU is in a delicate balancing act, as deteriorating US-China relations coincide with its own widening rift with the US over trade. European ties with Beijing stand at a crossroads, amid signs of a gathering storm and growing rivalry.
In a landmark shift in its policy on China, the European Commission – the executive arm of the EU – for the first time labelled it an “economic competitor” and “a systemic rival” in a policy paper in March.
Observers say that, with the return of trade war tensions, Europe – already caught in the middle of the unfolding US-China rivalry – will become an important battlefield for the two giant nations’ geostrategic political machinations.
“The common view in Europe is that the EU basically agrees with the substance of American criticism of China, but does not agree with the methods and manners of confrontation,” said Tamas Matura, a China specialist who is an assistant professor at Corvinus University of Budapest and president of the Central and Eastern European Centre for Asian Studies.
“The EU and its member states are deeply interested in the stability of a free and global economy, and disruption from any side is undesirable,” he said.
US and Europe’s shared cynicism over China masks different approaches
John Seaman, a research fellow at the French Institute of International Relations, said European countries in general shared most of the US’ concerns about China.
Those concerns include market openness and reciprocity, fair competition and the outsize role of the Chinese state and the Communist Party in China’s economy, security risks to critical infrastructure, authoritarian politics, human rights, Beijing’s political influence abroad and, in particular, China’s growing technological prowess.
Seaman called Washington’s latest moves against Huawei “a clear turning point in the US approach to China”.
“It seems that we’re still at the beginning of a much more structurally confrontational approach on the part of the US, wherein the Trump administration is looking to leverage all dimensions of American power,” he said.
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Philippe Le Corre, a senior fellow in the Europe and Asia programmes at the Carnegie Endowment for International Peace, also saw Trump’s actions on Huawei as the moment that the world’s largest telecoms equipment maker became “a symbol of Chinese brands going abroad”.
US officials have accused Beijing of reneging on commitments to end its allegedly improper trade policies – prompting the Trump administration to raise tariffs on US$200 billion worth of Chinese imports from 10% to 25% after the sides wrapped up an 11th round of talks earlier this month in Washington without reaching a deal.
Beijing, which has countered that any deal needs to be balanced, answered the US side by imposing punitive tariffs on US$60 billion of American products.
Trump had already turned up the pressure on Beijing two weeks earlier with his executive order that effectively banned US companies from supplying Huawei and its affiliates with critical components, on the grounds that national security was at risk.
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Washington has for months tried to forge an international alliance against Huawei, which has risen to become a pillar of Beijing’s bid to expand its global influence on trade and technology.
While Australia and Japan have taken their own action against Huawei, closing ranks behind the US, many American allies in Europe remain undecided about whether to adopt sweeping bans against the Chinese company.
This is despite having similar security concerns over Huawei’s leadership in the development of fifth-generation, or 5G, mobile telecommunications technology that enables data to be transferred at a speed 20 times faster than existing standards.
During their trip to Europe, Trump and Pompeo are expected to further press traditional US allies to side with Washington on China and Huawei in particular, citing concerns that the company’s products may support spying by Beijing and disrupt the allies’ communications networks.
But leaders in France, Germany, Britain and the Netherlands have so far vowed to stay the course and break with Washington over its effort to keep a ban on Huawei equipment.
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Despite concerns about the potential pitfalls of using the Chinese company to supply vital digital infrastructure, many European leaders insist they have set tough rules and security standards for the supplier.
Merkel and French President Emmanuel Macron have said they will not block Huawei or any other company because Europeans are “pragmatic and realistic”.
Seaman said the issue came down to what the Trump administration saw as the end goal of its confrontational approach and whether its hardline tactics would reflect a long-term strategy that could outlast Trump’s controversial, unconventional presidency.
For instance, on 5G, Seaman said, many governments had started from a network security approach. Their focus has been on measures that could be taken to make 5G networks safer and more resilient – and light on geopolitics.
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“There is a sense that the two cannot be separated, but focusing only on geopolitical risk and failing to develop the principles, procedures and practices that will ensure that the backbone of tomorrow’s ultra-connected society is secure, is just as dangerous,” the researcher said.
Duncan Freeman, a research fellow at the EU-China Research Centre of the College of Europe in Brussels, said that although trade and technology were separate issues, Washington’s ongoing disputes with Beijing on those topics underlined the changing balance in bilateral ties.
“The recent conflict over trade and technology is occurring in the wider context of the rise of China and the decline of the US that has been taking place in recent decades,” he said.
“The US’ dominant global position is based on its economic and technological power which underlies its military strength, but it has become clear that the US is losing that position in key areas.”
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While Freeman did not see Trump’s China policy as creating a tipping point in the long-term global balance of power, he agreed that the US approach to dealing with China marked a significant policy shift.
“The policy will not achieve its apparent aim of rebalancing the relative decline of the US and rise of China, and we can expect further friction as this process continues,” he said.
“A key factor will be how the US manages its long-term decline as a global power, and whether China manages its increasingly important position in the global system to avoid confrontation with the incumbent leading power.”
Freeman said it should also be remembered that, like Japan and many other US allies, the EU itself is a target of Washington on trade, as the Trump administration regards the EU as being almost as bad as China in its embrace of protectionism.
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“It is difficult for the EU to adopt a completely independent position as it is dependent on both the US and China in key areas of its security and economy,” he said.
Freeman said that although the Trump administration’s policies had raised Europe’s concerns over security and economic relations with the US, and put transatlantic relations under question, EU-US ties remained central to EU policy.
Therefore, “there is unlikely to be any major shift away from this in the short term”, Freeman said.
What is more, China had had little success in its attempt to create common ground with the EU since Trump’s election in November 2016, Freeman said.
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“In fact, the rhetoric on China in much of the EU has got tougher in recent years, although this is not uniform, especially in some member states which seek closer ties with China,” he said.
Matura of Corvinus University also said Trump and his top officials would be making a grave mistake if they were to alienate their European allies, when Trump clearly wanted to score a major success in his conflict with China ahead of next year’s presidential contest.
“The policies of the Trump administration have been very mixed so far, as it confronted China and degraded US global leadership at the very same time,” he said.
“If Washington really wants to contain China, the economic-political-social decoupling will continue. But the US cannot be successful without rebuilding global trust in its leadership.
“Bullying everyone, including its very own allies, is not a viable way to preserve US dominance in the world.”
Pompeo ‘saddened’ as Italy signs up for Chinese project
Matura and other observers agree the US’ allies in Europe and Asia eventually might be dragged into the looming economic cold war between Washington and Beijing.
“Although many say that it is due time for the EU to get more independent from the US, it would take many years to develop the necessary technological or military capabilities to act as an independent major player,” Matura said.
“Despite its theoretical ambitions, the EU has never been able or never been pushed to grow up to its potential.
Italy’s move to join New Silk Road may see EU tighten stance on China
“The most optimistic scenario is that in case of a US-China confrontation, Europe would try to gain just enough time to develop its own capacities.
“In reality, however, I expect the EU to play the role of a mediator between the two sides.”
Luft noted that although some European countries, such as Italy, had chosen to side with China on flashpoint issues – such as Xi’s aggressive trade and infrastructure push, the Belt and Road Initiative – “few in Europe are courageous enough to openly confront Trump for fear of his wrath”.
Seaman said Trump’s unilateral, “America first” crusade might have caused agitation in Europe and even fuelled some deep resentment of the US president, his policies and his country, but it had not led to an embrace of China.
“Broadly speaking, Europe is looking to hedge in the best way it can and avoid getting dragged into a US-China confrontation in which it has to make stark choices,” Seaman said.
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“The risk for the US comes in over-leveraging their economic power in such a way that it generates a rift [in Europe] that won’t play out in the short term, due to the state of dependency, but [leads to] a longer-term strategy to become more resilient to the various levers of American power,” he said.
And what will become of European political leadership and cohesiveness after the recent European parliamentary elections, which saw modest wins for the anti-EU populist right-wing movement?
“There is a risk that Europe itself will become even more fragmented than it is today, at a time when the geopolitical context demands that Europeans band together,” Seaman said.
“We’re already seeing Washington and Beijing trying to push their influence on the continent, with the Huawei/5G case as a clear example.
“But a further fragmentation of the EU will only increase the need for China and the US to pay closer attention to Europe as a field of competition.”
https://www.theedgemarkets.com/article/china-or-us-europes-impossible-choice-trade-war
The Thucydides Trap: Are the U.S. and China Headed for War?
https://www.belfercenter.org/index.php/publication/thucydides-trap-are-us-and-china-headed-war
In 12 of 16 past cases in which a rising power has confronted a ruling power, the result has been bloodshed.
When Barack Obama meets this week with Xi Jinping during the Chinese president’s first state visit to America, one item probably won’t be on their agenda: the possibility that the United States and China could find themselves at war in the next decade. In policy circles, this appears as unlikely as it would be unwise.
And yet 100 years on, World War I offers a sobering reminder of man’s capacity for folly. When we say that war is “inconceivable,” is this a statement about what is possible in the world—or only about what our limited minds can conceive? In 1914, few could imagine slaughter on a scale that demanded a new category: world war. When war ended four years later, Europe lay in ruins: the kaiser gone, the Austro-Hungarian Empire dissolved, the Russian tsar overthrown by the Bolsheviks, France bled for a generation, and England shorn of its youth and treasure. A millennium in which Europe had been the political center of the world came to a crashing halt.
The defining question about global order for this generation is whether China and the United States can escape Thucydides’s Trap. The Greek historian’s metaphor reminds us of the attendant dangers when a rising power rivals a ruling power—as Athens challenged Sparta in ancient Greece, or as Germany did Britain a century ago. Most such contests have ended badly, often for both nations, a team of mine at the Harvard Belfer Center for Science and International Affairs has concluded after analyzing the historical record. In 12 of 16 cases over the past 500 years, the result was war. When the parties avoided war, it required huge, painful adjustments in attitudes and actions on the part not just of the challenger but also the challenged.
Based on the current trajectory, war between the United States and China in the decades ahead is not just possible, but much more likely than recognized at the moment. Indeed, judging by the historical record, war is more likely than not. Moreover, current underestimations and misapprehensions of the hazards inherent in the U.S.-China relationship contribute greatly to those hazards. A risk associated with Thucydides’s Trap is that business as usual—not just an unexpected, extraordinary event—can trigger large-scale conflict. When a rising power is threatening to displace a ruling power, standard crises that would otherwise be contained, like the assassination of an archduke in 1914, can initiate a cascade of reactions that, in turn, produce outcomes none of the parties would otherwise have chosen.
War, however, is not inevitable. Four of the 16 cases in our review did not end in bloodshed. Those successes, as well as the failures, offer pertinent lessons for today’s world leaders. Escaping the Trap requires tremendous effort. As Xi Jinping himself said during a visit to Seattle on Tuesday, “There is no such thing as the so-called Thucydides Trap in the world. But should major countries time and again make the mistakes of strategic miscalculation, they might create such traps for themselves.”
More than 2,400 years ago, the Athenian historian Thucydides offered a powerful insight: “It was the rise of Athens, and the fear that this inspired in Sparta, that made war inevitable.” Others identified an array of contributing causes of the Peloponnesian War. But Thucydides went to the heart of the matter, focusing on the inexorable, structural stress caused by a rapid shift in the balance of power between two rivals. Note that Thucydides identified two key drivers of this dynamic: the rising power’s growing entitlement, sense of its importance, and demand for greater say and sway, on the one hand, and the fear, insecurity, and determination to defend the status quo this engenders in the established power, on the other.
In the case about which he wrote in the fifth century B.C., Athens had emerged over a half century as a steeple of civilization, yielding advances in philosophy, history, drama, architecture, democracy, and naval prowess. This shocked Sparta, which for a century had been the leading land power on the Peloponnese peninsula. As Thucydides saw it, Athens’s position was understandable. As its clout grew, so too did its self-confidence, its consciousness of past injustices, its sensitivity to instances of disrespect, and its insistence that previous arrangements be revised to reflect new realities of power. It was also natural, Thucydides explained, that Sparta interpreted the Athenian posture as unreasonable, ungrateful, and threatening to the system it had established—and within which Athens had flourished.
War between the U.S. and China is more likely than recognized at the moment. Indeed, judging by the historical record, war is more likely than not.
Thucydides chronicled objective changes in relative power, but he also focused on perceptions of change among the leaders of Athens and Sparta—and how this led each to strengthen alliances with other states in the hopes of counterbalancing the other. But entanglement runs both ways. (It was for this reason that George Washington famously cautioned America to beware of “entangling alliances.”) When conflict broke out between the second-tier city-states of Corinth and Corcyra (now Corfu), Sparta felt it necessary to come to Corinth’s defense, which left Athens little choice but to back its ally. The Peloponnesian War followed. When it ended 30 years later, Sparta was the nominal victor. But both states lay in ruin, leaving Greece vulnerable to the Persians.
* * *
Eight years before the outbreak of world war in Europe, Britain’s King Edward VII asked his prime minister why the British government was becoming so unfriendly to his nephew Kaiser Wilhelm II’s Germany, rather than keeping its eye on America, which he saw as the greater challenge. The prime minister instructed the Foreign Office’s chief Germany watcher, Eyre Crowe, to write a memo answering the king’s question. Crowe delivered his memorandum on New Year’s Day, 1907. The document is a gem in the annals of diplomacy.
The logic of Crowe’s analysis echoed Thucydides’s insight. And his central question, as paraphrased by Henry Kissinger in On China, was the following: Did increasing hostility between Britain and Germany stem more from German capabilities or German conduct? Crowe put it a bit differently: Did Germany’s pursuit of “political hegemony and maritime ascendancy” pose an existential threat to “the independence of her neighbours and ultimately the existence of England?”
Crowe’s answer was unambiguous: Capability was key. As Germany’s economy surpassed Britain’s, Germany would not only develop the strongest army on the continent. It would soon also “build as powerful a navy as she can afford.” In other words, Kissinger writes, “once Germany achieved naval supremacy … this in itself—regardless of German intentions—would be an objective threat to Britain, and incompatible with the existence of the British Empire.”
Three years after reading that memo, Edward VII died. Attendees at his funeral included two “chief mourners”—Edward’s successor, George V, and Germany’s Kaiser Wilhelm—along with Theodore Roosevelt representing the United States. At one point, Roosevelt (an avid student of naval power and leading champion of the buildup of the U.S. Navy) asked Wilhelm whether he would consider a moratorium in the German-British naval arms race. The kaiser replied that Germany was unalterably committed to having a powerful navy. But as he went on to explain, war between Germany and Britain was simply unthinkable, because “I was brought up in England, very largely; I feel myself partly an Englishman. Next to Germany I care more for England than for any other country.” And then with emphasis: “I ADORE ENGLAND!”
However unimaginable conflict seems, however catastrophic the potential consequences for all actors, however deep the cultural empathy among leaders, even blood relatives, and however economically interdependent states may be—none of these factors is sufficient to prevent war, in 1914 or today.
In fact, in 12 of 16 cases over the last 500 years in which there was a rapid shift in the relative power of a rising nation that threatened to displace a ruling state, the result was war. As the table below suggests, the struggle for mastery in Europe and Asia over the past half millennium offers a succession of variations on a common storyline.
Thucydides Case Studies
(For summaries of these 16 cases and the methodology for selecting them, and for a forum to register additions, subtractions, revisions, and disagreements with the cases, please visit the Harvard Belfer Center’s Thucydides Trap Case File. For this first phase of the project, we at the Belfer Center identified “ruling” and “rising” powers by following the judgments of leading historical accounts, resisting the temptation to offer original or idiosyncratic interpretations of events. These histories use “rise” and “rule” according to their conventional definitions, generally emphasizing rapid shifts in relative GDP and military strength. Most of the cases in this initial round of analysis come from post-Westphalian Europe.)
When a rising, revolutionary France challenged Britain’s dominance of the oceans and the balance of power on the European continent, Britain destroyed Napoleon Bonaparte’s fleet in 1805 and later sent troops to the continent to defeat his armies in Spain and at Waterloo. As Otto von Bismarck sought to unify a quarrelsome assortment of rising German states, war with their common adversary, France, proved an effective instrument to mobilize popular support for his mission. After the Meiji Restoration in 1868, a rapidly modernizing Japanese economy and military establishment challenged Chinese and Russian dominance of East Asia, resulting in wars with both from which Japan emerged as the leading power in the region.
The preeminent geostrategic challenge of this era is not violent Islamic extremists or a resurgent Russia. It is the impact of China’s ascendance.
Each case is, of course, unique. Ongoing debate about the causes of the First World War reminds us that each is subject to competing interpretations. The great international historian, Harvard’s Ernest May, taught that when attempting to reason from history, we should be as sensitive to the differences as to the similarities among cases we compare. (Indeed, in his Historical Reasoning 101 class, May would take a sheet of paper, draw a line down the middle of the page, label one column “Similar” and the other “Different,” and fill in the sheet with at least a half dozen of each.) Nonetheless, acknowledging many differences, Thucydides directs us to a powerful commonality.
* * *
The preeminent geostrategic challenge of this era is not violent Islamic extremists or a resurgent Russia. It is the impact that China’s ascendance will have on the U.S.-led international order, which has provided unprecedented great-power peace and prosperity for the past 70 years. As Singapore’s late leader, Lee Kuan Yew, observed, “the size of China’s displacement of the world balance is such that the world must find a new balance. It is not possible to pretend that this is just another big player. This is the biggest player in the history of the world.” Everyone knows about the rise of China. Few of us realize its magnitude. Never before in history has a nation risen so far, so fast, on so many dimensions of power. To paraphrase former Czech President Vaclav Havel, all this has happened so rapidly that we have not yet had time to be astonished.
My lecture on this topic at Harvard begins with a quiz that asks students to compare China and the United States in 1980 with their rankings today. The reader is invited to fill in the blanks.
Quiz: Fill in the Blanks
The answers for the first column: In 1980, China had 10 percent of America’s GDP as measured by purchasing power parity; 7 percent of its GDP at current U.S.-dollar exchange rates; and 6 percent of its exports. The foreign currency held by China, meanwhile, was just one-sixth the size of America’s reserves. The answers for the second column: By 2014, those figures were 101 percent of GDP; 60 percent at U.S.-dollar exchange rates; and 106 percent of exports. China’s reserves today are 28 times larger than America’s.
In a single generation, a nation that did not appear on any of the international league tables has vaulted into the top ranks. In 1980, China’s economy was smaller than that of the Netherlands. Last year, the increment of growth in China’s GDP was roughly equal to the entire Dutch economy.
The second question in my quiz asks students: Could China become #1? In what year could China overtake the United States to become, say, the largest economy in the world, or primary engine of global growth, or biggest market for luxury goods?
Could China Become #1?
Manufacturer:
Exporter:
Trading nation:
Saver:
Holder of U.S. debt:
Foreign-direct-investment destination:
Energy consumer:
Oil importer:
Carbon emitter:
Steel producer:
Auto market:
Smartphone market:
E-commerce market:
Luxury-goods market:
Internet user:
Fastest supercomputer:
Holder of foreign reserves:
Source of initial public offerings:
Primary engine of global growth:
Economy:
Most are stunned to learn that on each of these 20 indicators, China has already surpassed the U.S.
Will China be able to sustain economic-growth rates several times those of the United States for another decade and beyond? If and as it does, are its current leaders serious about displacing the U.S. as the predominant power in Asia? Will China follow the path of Japan and Germany, and take its place as a responsible stakeholder in the international order that America has built over the past seven decades? The answer to these questions is obviously that no one knows.
But if anyone’s forecasts are worth heeding, it’s those of Lee Kuan Yew, the world’s premier China watcher and a mentor to Chinese leaders since Deng Xiaoping. Before his death in March, the founder of Singapore put the odds of China continuing to grow at several times U.S. rates for the next decade and beyond as “four chances in five.” On whether China’s leaders are serious about displacing the United States as the top power in Asia in the foreseeable future, Lee answered directly: “Of course. Why not … how could they not aspire to be number one in Asia and in time the world?” And about accepting its place in an international order designed and led by America, he said absolutely not: “China wants to be China and accepted as such—not as an honorary member of the West.”
* * *
Americans have a tendency to lecture others about why they should be “more like us.” In urging China to follow the lead of the United States, should we Americans be careful what we wish for?
As the United States emerged as the dominant power in the Western hemisphere in the 1890s, how did it behave? Future President Theodore Roosevelt personified a nation supremely confident that the 100 years ahead would be an American century. Over a decade that began in 1895 with the U.S. secretary of state declaring the United States “sovereign on this continent,” America liberated Cuba; threatened Britain and Germany with war to force them to accept American positions on disputes in Venezuela and Canada; backed an insurrection that split Colombia to create a new state of Panama (which immediately gave the U.S. concessions to build the Panama Canal); and attempted to overthrow the government of Mexico, which was supported by the United Kingdom and financed by London bankers. In the half century that followed, U.S. military forces intervened in “our hemisphere” on more than 30 separate occasions to settle economic or territorial disputes in terms favorable to Americans, or oust leaders they judged unacceptable.
For example, in 1902, when British and German ships attempted to impose a naval blockade to force Venezuela to pay its debts to them, Roosevelt warned both countries that he would “be obliged to interfere by force if necessary” if they did not withdraw their ships. The British and Germans were persuaded to retreat and to resolve their dispute in terms satisfactory to the U.S. at The Hague. The following year, when Colombia refused to lease the Panama Canal Zone to the United States, America sponsored Panamanian secessionists, recognized the new Panamanian government within hours of its declaration of independence, and sent the Marines to defend the new country. Roosevelt defended the U.S. intervention on the grounds that it was “justified in morals and therefore justified in law.” Shortly thereafter, Panama granted the United States rights to the Canal Zone “in perpetuity.”
* * *
When Deng Xiaoping initiated China’s fast march to the market in 1978, he announced a policy known as “hide and bide.” What China needed most abroad was stability and access to markets. The Chinese would thus “bide our time and hide our capabilities,” which Chinese military officers sometimes paraphrased as getting strong before getting even.
With the arrival of China’s new paramount leader, Xi Jinping, the era of “hide and bide” is over. Nearly three years into his 10-year term, Xi has stunned colleagues at home and China watchers abroad with the speed at which he has moved and the audacity of his ambitions. Domestically, he has bypassed rule by a seven-man standing committee and instead consolidated power in his own hands; ended flirtations with democratization by reasserting the Communist Party’s monopoly on political power; and attempted to transform China’s engine of growth from an export-focused economy to one driven by domestic consumption. Overseas, he has pursued a more active Chinese foreign policy that is increasingly assertive in advancing the country’s interests.
Never before in history has a nation risen so far, so fast. In 1980, China’s economy was smaller than the Netherlands’. Last year, the increment of growth in China’s GDP was equal to the Dutch economy.
While the Western press is seized by the storyline of “China’s economic slowdown,” few pause to note that China’s lower growth rate remains more than three times that of the United States. Many observers outside China have missed the great divergence between China’s economic performance and that of its competitors over the seven years since the financial crisis of 2008 and Great Recession. That shock caused virtually all other major economies to falter and decline. China never missed a year of growth, sustaining an average growth rate exceeding 8 percent. Indeed, since the financial crisis, nearly 40 percent of all growth in the global economy has occurred in just one country: China. The chart below illustrates China’s growth compared to growth among its peers in the BRICS group of emerging economies, advanced economies, and the world. From a common index of 100 in 2007, the divergence is dramatic.
GDP, 2007 — 2015
Harvard Belfer Center / IMF World Economic Outlook
Today, China has displaced the United States as the world’s largest economy measured in terms of the amount of goods and services a citizen can buy in his own country (purchasing power parity).
What Xi Jinping calls the “China Dream” expresses the deepest aspirations of hundreds of millions of Chinese, who wish to be not only rich but also powerful. At the core of China’s civilizational creed is the belief—or conceit—that China is the center of the universe. In the oft-repeated narrative, a century of Chinese weakness led to exploitation and national humiliation by Western colonialists and Japan. In Beijing’s view, China is now being restored to its rightful place, where its power commands recognition of and respect for China’s core interests.
Last November, in a seminal meeting of the entire Chinese political and foreign-policy establishment, including the leadership of the People’s Liberation Army, Xi provided a comprehensive overview of his vision of China’s role in the world. The display of self-confidence bordered on hubris. Xi began by offering an essentially Hegelian conception of the major historical trends toward multipolarity (i.e. not U.S. unipolarity) and the transformation of the international system (i.e. not the current U.S.-led system). In his words, a rejuvenated Chinese nation will build a “new type of international relations” through a “protracted” struggle over the nature of the international order. In the end, he assured his audience that “the growing trend toward a multipolar world will not change.”
Given objective trends, realists see an irresistible force approaching an immovable object. They ask which is less likely: China demanding a lesser role in the East and South China Seas than the United States did in the Caribbean or Atlantic in the early 20th century, or the U.S. sharing with China the predominance in the Western Pacific that America has enjoyed since World War II?
And yet in four of the 16 cases that the Belfer Center team analyzed, similar rivalries did not end in war. If leaders in the United States and China let structural factors drive these two great nations to war, they will not be able to hide behind a cloak of inevitability. Those who don’t learn from past successes and failures to find a better way forward will have no one to blame but themselves.
At this point, the established script for discussion of policy challenges calls for a pivot to a new strategy (or at least slogan), with a short to-do list that promises peaceful and prosperous relations with China. Shoehorning this challenge into that template would demonstrate only one thing: a failure to understand the central point I’m trying to make. What strategists need most at the moment is not a new strategy, but a long pause for reflection. If the tectonic shift caused by China’s rise poses a challenge of genuinely Thucydidean proportions, declarations about “rebalancing,” or revitalizing “engage and hedge,” or presidential hopefuls’ calls for more “muscular” or “robust” variants of the same, amount to little more than aspirin treating cancer. Future historians will compare such assertions to the reveries of British, German, and Russian leaders as they sleepwalked into 1914.
The rise of a 5,000-year-old civilization with 1.3 billion people is not a problem to be fixed. It is a condition—a chronic condition that will have to be managed over a generation. Success will require not just a new slogan, more frequent summits of presidents, and additional meetings of departmental working groups. Managing this relationship without war will demand sustained attention, week by week, at the highest level in both countries. It will entail a depth of mutual understanding not seen since the Henry Kissinger-Zhou Enlai conversations in the 1970s. Most significantly, it will mean more radical changes in attitudes and actions, by leaders and publics alike, than anyone has yet imagined.
US Threatens Europe With "Loss Of Access To US Financial System" Over SWIFT-Evading Iran SPV
https://www.zerohedge.com/news/2019-05-29/us-threatens-europe-loss-access-us-financial-system-over-its-iran-funding-spv?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
It's going from bad to worse for Europe, whose currency had just hit session lows after Brussels confirmed that Italy faces a massive fine over its debt, when the Euro was hit with a double whammy after Bloomberg reported that the Trump administration is escalating its battle with "European allies" over the fate of the Iran nuclear accord, and is "threatening penalties against the financial body created by Germany, the U.K. and France to shield trade with the Islamic Republic from U.S. sanctions."
According to Bloomberg, the Treasury Department’s undersecretary for terrorism and financial intelligence, Sigal Mandelker, sent a letter on May 7 warning that Instex, the European SPV to sustain trade with Tehran, and anyone associated with it could be barred from the U.S. financial system if it goes into effect.
As a reminder, last September, in order to maintain a financial relationship with Iran that can not be vetoed by the US, Europe unveiled a "Special Purpose Vehicle" to bypass SWIFT. Back then we predicted that Washington would not be too delighted with this development seeking to undermine the dollar's reserve status. We were right.
“I urge you to carefully consider the potential sanctions exposure of Instex,” Mandelker wrote in the letter to Instex President Per Fischer. "Engaging in activities that run afoul of U.S. sanctions can result in severe consequences, including a loss of access to the U.S. financial system."
Germany, France and the U.K. finalized the Instex system in January, allowing companies to trade with Iran without the use of U.S. dollars or American banks, allowing them to get around wide-ranging U.S. sanctions that were imposed after the Trump administration abandoned the 2015 Iran nuclear deal last year.
Not surprisingly, a senior admin official behind the eltter said the U.S. decided to issue the threat "after concluding that European officials, who had earlier downplayed the significance of Instex in conversations with the Trump administration, were far more serious about it than they had initially let on."
The official, who asked not to be identified discussing internal deliberations, said the letter was intended to serve as a warning that the U.S. would punish anyone associated with Instex -- including businesses, government officials and staff -- if they were working to set up a program to help Iran evade U.S. sanctions.
“This is a shot across the bow of a European political establishment committed to using Instex and its sanctions-connected Iranian counterpart to circumvent U.S. measures,” said Mark Dubowitz, the chief executive officer of the Foundation for Defense of Democracies in Washington.
When asked to comment on the letter, the Treasury Department issued a statement saying “entities that transact in trade with the Iranian regime through any means may expose themselves to considerable sanctions risk, and Treasury intends to aggressively enforce our authorities.”
At the heart of the latest US move is the argument that Iran and its central bank use deceptive financial practices and haven’t implemented minimum global safeguards against money laundering and terrorism financing, according to Bloomberg.
While it is obvious that the US ire was sparked by the realization - and alarm - that cracks are appearing in the dollar's reserve status, opponents of Instex argue - at least for public consumption purposes - that the mechanism is flawed because the Iranian institution designated to work with Instex, the Special Trade and Finance Instrument, has shareholders with links to entities already facing sanctions from the U.S.
Meanwhile, during a visit to London on May 8, Mike Pompeo also warned that there was no need for Instex because the U.S. allows for humanitarian and medical products to get into Iran without sanction.
“When transactions move beyond that, it doesn’t matter what vehicle’s out there, if the transaction is sanctionable, we will evaluate it, review it, and if appropriate, levy sanctions against those that were involved in that transaction,” Pompeo said. “It’s very straightforward.”
In 2018, Europe made a huge stink about not being bound by Trump's unilateral breach of the Iranian deal, and said it would continue regardless of US threats. But now that the threats have clearly escalated, and Washington has made it clear it won't take no for an answer, it will be interesting to see if Europe's resolve to take on Trump - especially in light of the trade war with China - has fizzled.
Japan Then, China Now
https://www.project-syndicate.org/commentary/for-america-china-is-the-new-japan-by-stephen-s-roach-2019-05
May 27, 2019 Stephen S. Roach
Back in the 1980s, Japan was portrayed as the greatest economic threat to the United States, and allegations of intellectual property theft were only part of Americans' vilification. Thirty years later, Americans have made China the villain, when, just like three decades ago, they should be looking squarely in the mirror.
NEW HAVEN – “When governments permit counterfeiting or copying of American products, it is stealing our future, and it is no longer free trade.” So said US President Ronald Reagan, commenting on Japan after the Plaza Accord was concluded in September 1985. Today resembles, in many respects, a remake of this 1980s movie, but with a reality-television star replacing a Hollywood film star in the presidential leading role – and with a new villain in place of Japan.
Back in the 1980s, Japan was portrayed as America’s greatest economic threat – not only because of allegations of intellectual property theft, but also because of concerns about currency manipulation, state-sponsored industrial policy, a hollowing out of US manufacturing, and an outsize bilateral trade deficit. In its standoff with the US, Japan ultimately blinked, but it paid a steep price for doing so – nearly three “lost” decades of economic stagnation and deflation. Today, the same plot features China.Notwithstanding both countries’ objectionable mercantilism, Japan and China had something else in common: They became victims of America’s unfortunate habit of making others the scapegoat for its own economic problems. Like Japan bashing in the 1980s, China bashing today is an outgrowth of America’s increasingly insidious macroeconomic imbalances. In both cases, a dramatic shortfall in US domestic saving spawned large current-account and trade deficits, setting the stage for battles, 30 years apart, with Asia’s two economic giants.When Reagan took office in January 1981, the net domestic saving rate stood at 7.8% of national income, and the current account was basically balanced. Within two and a half years, courtesy of Reagan’s wildly popular tax cuts, the domestic saving rate had plunged to 3.7%, and the current account and the merchandise trade balances swung into perpetual deficit. In this important respect, America’s so-called trade problem was very much of its own making.Yet the Reagan administration was in denial. There was little or no appreciation of the link between saving and trade imbalances. Instead, the blame was pinned on Japan, which accounted for 42% of US goods trade deficits in the first half of the 1980s. Japan bashing then took on a life of its own with a wide range of grievances over unfair and illegal trade practices. Leading the charge back then was a young Deputy US Trade Representative named Robert Lighthizer. Fast-forward some 30 years and the similarities are painfully evident. Unlike Reagan, President Donald Trump did not inherit a US economy with an ample reservoir of saving. When Trump took office in January 2017, the net domestic saving rate was just 3%, well below half the rate at the onset of the Reagan era. But, like his predecessor, who waxed eloquently of a new “morning in America,” Trump also opted for large tax cuts – this time to “make America great again.”
The result was a predictable widening of the federal budget deficit, which more than offset the cyclical surge in private saving that normally accompanies a maturing economic expansion. As a result, the net domestic saving rate actually edged down to 2.8% of national income by late 2018, keeping America’s international balances deep in the red – with the current-account deficit at 2.6% of GDP and the merchandise trade gap at 4.5% in late 2018.And that’s where China assumes the role that Japan played in the 1980s. On the surface, the threat seems more dire. After all, China accounted for 48% of the US merchandise trade deficit in 2018, compared to Japan’s 42% share in the first half of the 1980s. But the comparison is distorted by global supply chains, which basically didn’t exist in the 1980s. Data from the OECD and the World Trade Organization suggest that about 35-40% of the bilateral US-China trade deficit reflects inputs made outside of China but assembled and shipped to the US from China. That means the made-in-China portion of today’s US trade deficit is actually smaller than Japan’s share of the 1980s. Like the Japan bashing of the 1980s, today’s outbreak of China bashing has been conveniently excised from America’s broader macroeconomic context. That is a serious mistake. Without raising national saving – highly unlikely under the current US budget trajectory – trade will simply be shifted away from China to America’s other trading partners. With this trade diversion likely to migrate to higher-cost platforms around the world, American consumers will be hit with the functional equivalent of a tax hike. Ironically, Trump has summoned the same Robert Lighthizer, veteran of the Japan trade battles of the 1980s, to lead the charge against China. Unfortunately, Lighthizer seems as clueless about the macro argument today as he was back then.In both episodes, the US was in denial, bordering on delusion. Basking in the warm glow of untested supply-side economics – especially the theory that tax cuts would be self-financing – the Reagan administration failed to appreciate the links between mounting budget and trade deficits. Today, the seductive power of low interest rates, coupled with the latest strain of voodoo economics – Modern Monetary Theory – is equally alluring for the Trump administration and a bipartisan consensus of China bashers in the US Congress.The tough macroeconomic constraints facing a saving-short US economy are ignored for good reason: there is no US political constituency for reducing trade deficits by cutting budget deficits and thereby boosting domestic saving. America wants to have its cake and eat it, with a health-care system that swallows 18% of its GDP, defense spending that exceeds the combined sum of the world’s next seven largest military budgets, and tax cuts that have reduced federal government revenue to 16.5% of GDP, well below the 17.4% average of the past 50 years. This remake of an old movie is disconcerting, to say the least. Once again, the US has found it far easier to bash others – Japan then, China now – than to live within its means. This time, however, the movie might have a very different ending.
Destined for War
Can America and China Escape Thucydides’s Trap?
By Graham Allison
https://pdfs.semanticscholar.org/b9ad/5c29be85e8e95a3a3a344c945394e5998faf.pdf
Professor Graham Allison gazes into the future of US-China
relations in Destined for War: Can America and China Escape
Thucydides’s Trap? only to find the best guide to the future is the
past. Specifically based on Thucydides’s well-known observation that “It
was the rise of Athens and the fear that this inspired in Sparta that made war inevitable,” Allison has popularized the phrase “Thucydides’s Trap” to describe the dangerous historical dynamic that develops when a rising power threatens to displace an established ruling power.
This dynamic was summarized aptly in an earlier article: “The rise of a new power has been attended by uncertainty and anxieties. Often, though not always, violent conflict has followed. The rise in the economic and military power of China, the world’s most populous country, will be a central question for Asia and for American foreign policy at the beginning of a new century. ”
In researching cases of rising powers challenging ruling powers over
the last 500 years, Allison and the Thucydides Trap Project at Harvard
University found 12 of 16 cases resulted in war. Avoiding Thucydides’s
Trap thus equates to avoiding war. Based on this analysis, Allison
concludes that “as far ahead as the eye can see, the defining question
about global order is whether China and the United States can escape
Thucydides’s Trap.”
The high percentage of cases that resulted in war provide persuasive
support to the overall argument that war between the United States and
China may be more likely than generally considered. Yet a few cautionary
notes on the data set and methodology are warranted.
First, while the principal result of the study (12 of 16 cases led to
war) seems objective, decisions on what cases to include necessarily
involve some subjective analysis. As such, the overall data supporting
the general argument have evolved since the initial Thucydides’s Trap
argument was presented. In 2012–14 the argument cited 11 of 15 cases
leading to war.
Why does Trump want to destroy the European Union?
https://www.quora.com/Why-does-Trump-want-to-destroy-the-European-Union
The Man Who Wants to Unmake the West
Europeans are starting to worry that Steve Bannon has the EU in his cross hairs. Here’s how the White House could genuinely help pull it apart.
It was the day after Britain voted to leave the European Union in June, and the Western world was still absorbing the shock. With no clear plan for what would come next, the globe’s fifth-biggest economy had abruptly announced a divorce from the neighbors it had been trading with for nearly 45 years. Markets plunged. “A calamity,” declared the New York Times. “Global panic,” proclaimed one London headline.
Steve Bannon had a different reaction. He booked the calamity’s chief architect as a guest on his radio show to celebrate.
This was then still weeks before Bannon emerged into the national spotlight as CEO of Donald Trump’s struggling presidential campaign. Bannon was an executive at Breitbart News, an activist-editor-gadfly known mostly on the far right, and the “Brexit” campaign was something of a pet project. He hitched onto the Tea Party movement early in Barack Obama’s presidency and noticed a similar right-populist wave rising across the Atlantic, where fed-up rural, white Britons were anxious about immigration and resentful of EU bureaucrats. The cause touched on some of Bannon’s deepest beliefs, including nationalism, Judeo-Christian identity and the evils of Big Government. In early 2014, Bannon launched a London outpost of Breitbart, opening what he called a new front “in our current cultural and political war.” The site promptly began pointing its knives at the EU, with headlines like “The EU Is Dead, It Just Refuses to Lie Down”; “The European Union’s Response to Terrorism Is a Massive Privacy Power Grab”; “Pressure on Member States to Embrace Trans Ideology.” One 2014 article invited readers to vote in a poll among “the most annoying European Union rules.”
Bannon’s site quickly became tightly entangled with the United Kingdom Independence Party, a fringe movement with the then-outlandish goal of Britain’s exit from the EU. In October 2014, UKIP’s leader, Nigel Farage, poached a Breitbart London editor to work for him. That September, Bannon hosted a dinner for Farage at his Capitol Hill townhouse. Standing under a large oil painting by the fireplace, Farage delivered a speech that left the dozens of conservative leaders in attendance “blown away,” as Bannon later recalled.
On June 23 of last year, Britons defied the pleas of Europe’s political elites and narrowly voted for Brexit. Many observers called it the most traumatic event in the history of a union whose origins date to the 1950s. Suddenly the future of all Europe, whose unity America had spent the decades since World War II cultivating, lay in doubt. It was the next day that Bannon hosted Farage for a triumphal edition of his daily radio show.
“The European Union project has failed,” Farage declared. “It is doomed, I’m pleased to say.”
“It’s a great accomplishment,” Bannon said. “Congratulations.”
Bannon now works in the West Wing as President Donald Trump’s top political adviser. He is, by all accounts, the brains of Trump’s operation—a history-obsessed global thinker whose vision extends far beyond Trump’s domestic agenda and Rust Belt base. Bannon co-wrote Trump’s “America First” inauguration speech, which hinted at a new world order, and will join the president’s National Security Council—apparently the first political adviser to get a permanent seat in the president’s Situation Room. And while commentators are focusing on Bannon’s views about nationalism here in the United States, his public comments and interviews with several people who know him make clear that, even as he helps Trump “make America great again,” he has his sights set on a bigger target across the Atlantic Ocean.
Bannon’s Favorite Europeans
Crowley-Sidebar1-MarineLePen.jpg
Donald Trump’s transition team denied scheduling the French nationalist Marine Le Pen’s visit to the Trump Tower café in January. But she met Guido Lombardi, an informal liaison between Trump and the European far-right, who claims Bannon gave his blessing.
Crowley-Sidebar1-FraukePetry.jpg
Breitbart often sets Frauke Petry, the leader of the anti-immigrant Alternative for Germany party, as a foil to Angela Merkel. “The achievements of the Reformation and Enlightenment are endangered,” Petry told Breitbart, arguing that defending immigrants has become a new religion in Europe—and echoing Bannon’s own defense of the Judeo-Christian West.
Crowley-Sidebar1-GeertWilders.jpg
Geert Wilders—the leader of the Dutch far-right Party for Freedom, which is on track to win the most seats in the Netherlands’ upcoming election, has contributed articles to Breitbart—such as “Britain Is The Brexit Pioneer and Others Will Follow” and “Muslims, Leave Islam, Opt for Freedom!” He was also the keynote speaker at Breitbart’s “Gays for Trump” party at the Republican National Convention in July.
Crowley-Sidebar1-BeppeGrillo.jpg
Breitbart has covered Italy’s Beppe Grillo and his nationalist movement with articles like “After Brexit and Trump, Italy’s Five-Star-Movement May Be The Next Surprise.” Grillo called Trump’s victory an “extraordinary turning point” for global populism, and he expects Italy will follow.
Crowley-Sidebar1-NigelFarage.jpg
In 2012, Nigel Farage accepted Bannon’s invitation to meet in Washington, where Bannon introduced the U.K. Independence Party leader to like-minded individuals. Farage became a regular on Bannon’s radio show, and defended critics who called Bannon anti-Semitic, telling Breitbart that the attacks amounted to “demonization.”
Credits: AP Images; Getty
“Bannon hates the EU,” says Ben Shapiro, a former Breitbart writer who split with Bannon last year but who shares the sentiment. “He figures it’s mainly an instrument for globalism—as opposed to an instrument for the bettering of Western civilization.”
“What we understand from Bannon is that the EU is abhorrent,” one Western European government official told me.
The idea that one man could threaten the European project might sound extreme. And it would be an exaggeration to say that even the full-throated support of Breitbart London was what tipped the scales toward Brexit. But having the ear of the president of the United States is different—and the question of just what Bannon plans to do with his influence has become a huge preoccupation of diplomats, European government officials and experts on the venerable trans-Atlantic relationship. In more than a dozen interviews, they recounted a creeping sense of dread about the very specific ways Bannon could use American power like a crowbar to pull the EU apart.
“The European Union is under serious threat,” Guy Verhofstadt, a former Belgian prime minister and now a senior EU official, told a London audience in late January. Its enemies, he said, now include Trump—thanks in large part to “the enormous influence of his chief political adviser, Mr. Bannon.”
Since the election, European officials have been combing the internet, including Breitbart’s archives, for clues to Bannon’s worldview and how he might counsel Trump. And what they’re finding is stoking their deepest anxieties. “They have a deep well of psychological reliance on the American-led order,” says Jeremy Shapiro, a Hillary Clinton State Department official now at the European Council on Foreign Relations in London. Now they’re bracing for an American assault on that order.
Europe as we know it has never been more vulnerable to such an assault. Economic malaise and high debt are testing the EU’s financial structures and pitting its members against one another. So is the historic influx of refugees from the Middle East and North Africa. Nationalist parties and candidates hostile to the Union are ascendant in France, Germany, Italy and the Netherlands—all of which are set to hold elections this year. Russia, which may stand to gain the most from a disunited Europe, is gleefully aiding the process by disrupting Europe’s domestic politics with propaganda and hacking meant to discredit the pro-EU establishment.
In an ordinary time, the White House would be the crucial counterweight to such nationalist passions. In what he billed as an address “to the people of Europe” from Hanover, Germany, last spring, President Barack Obama issued a plea for for European unity. “This is a defining moment,” he said, warning that “a unified, peaceful, liberal, pluralistic, free-market Europe” had begun to fray. America and the world, Obama said, “needs a strong and prosperous and democratic and united Europe.”
But as one European diplomat puts it: “With Obama gone, there’s no benign father figure anymore.” Instead, there is a threatening stepfather in Bannon, for whom unity is not the solution but the problem. Bannon’s vision, as laid out in public remarks and private conversations, opposes international organizations in favor of empowering nation-states. He has complimented the National Front, the party of the French right-wing presidential candidate Marine Le Pen, who pledges to extract France from the EU (and who was spotted in Trump Tower soon after the election). And he brokered a post-election meeting between Trump and Farage, who recently told Fox News that European leaders are “terrified” about what Trump means for their political union.
The EU, of course, can’t be pried apart overnight. The union—a borderless political and economic compact of 28 countries with a collective GDP of $16 trillion—is too large, its governments and economies too entangled. But if momentum toward dissolution continues after Brexit, possibly urged on by the United States, that too would be hard to reverse. The shakeup of the postwar European project could be one of Trump’s biggest legacies. Which is why European officials, former Obama officials and trans-Atlantic experts are starting to consider how it could really happen—and what the consequences for the world order might be if its most stable and prosperous political alliance comes undone.
***
Is that what Trump wants? It is Trump and not Bannon who is, at least notionally, in charge of U.S. foreign policy. But while vague, Trump’s own views about Europe also clearly fall outside American norms. Trump’s “America First” mantra implies a reduced U.S. commitment overseas. He has suggested that NATO is both obsolete and a bad deal for the American taxpayer, and in February, Defense Secretary James Mattis issued an unprecedented warning that the United States would “moderate its commitment” to the alliance if other members don’t contribute more to its budget. Nor does Trump like complex trade deals with multiple entities like the EU’s jumble of member states. (Trump did unexpectedly tell an interviewer in late February that he was “totally in favor of” the EU. But his rote language—“I think it’s wonderful, if they’re happy”—left many observers unconvinced.)
And then there is Trump’s unhappy personal experience with the EU, in a place called Doonbeg. In early 2014, Trump paid $15 million for an 18-hole golf course in the seaside town on Ireland’s western coast. The course and hotel, which Trump spent millions more to expand and upgrade, sits on eroding sand dunes that he wanted to protect with a 15-foot rock wall on the beach below. Locals fought the barrier, forcing Trump to back down.
When Trump talks about the barrier now, he frames it as a bitter parable about the EU’s growth-killing bureaucracy. “I learned a lot because I got the approvals very quickly from Ireland. … [But] to get the approvals from the EU would have taken years,” Trump told the Times of London in January. “I said forget it. I’m not gonna build it. … I found it to be a very unpleasant experience.”
In fact, Trump’s tale has little to do with the EU. It is true that one of several objections involved the beach’s EU-approved status as a sanctuary for a tiny endangered whorl snail. But the project never required Brussels’ approval. As for Ireland’s government, it rejected a petition to consider the dispute, leaving the matter to county officials, who are now evaluating a proposal for a smaller barrier.
So while Trump might lack clear policy goals, his visceral nationalism and disdain for rule-making in Brussels make him a ready vessel for Bannon’s world-historical ideas about the EU’s invidiousness. Bannon is a wide reader with a deep interest in history; a Breitbart editor recalled to the Los Angeles Times the “staggering collection of books” on Bannon’s desk. Bannon takes a special interest in Europe. In a 2014 speech to a European audience, he noted that the next day was the 100th anniversary of the assassination of the Archduke Franz Ferdinand in Sarajevo, the trigger for World War I and what Bannon casually called “the end of the Victorian era.”
Bannon’s public remarks, and accounts from people who have spoken with him, make clear that he believes Brexit and Trump’s election are part of something bigger, a global political revolt that could restore what he calls lost “sovereignty” on the continent. “I think strong countries and strong nationalist movements in countries make strong neighbors,” Bannon told an audience of religious conservative activists at the Vatican in 2014. “That is really the building blocks that built Western Europe and the United States, and I think it’s what can see us forward.”
The notion that this could happen—and that it might be a good thing—is a whiplash-inducing reversal from decades of American foreign policy. It has long been an article of faith in the West that a unified Europe represents a historic triumph of diplomacy, in which America itself has invested hundreds of billions of dollars and thousands of lives. The EU has real flaws, to be sure: Its bureaucracy is cumbersome; its common currency limits fiscal policy at times of economic crisis; and its now virtually borderless interior left it unable to control the huge influx of refugees from Syria and elsewhere. But consider those flaws in the context of what the EU has achieved: not just economic prosperity, but an end to the centuries of horrific armed conflict.
To Bannon, however, a strengthened EU is nothing less than a risk to civilization: a body that dilutes national identity and whose border policies allow Islam to invade the West, one refugee at a time. Bannon, who did not respond to interview requests, has repeatedly made clear his views about Europe. Most revealing is the widely read transcript of his Vatican talk, in which Bannon declared that “the world, and particularly the Judeo-Christian West, is in a crisis.” Europe’s citizens, he said, are restless for “sovereignty for their country, they want to see nationalism.” And, Bannon added: “They don’t believe in this kind of pan-European Union.”
To Bannon, a strengthened EU is nothing less than a risk to civilization: a body that dilutes national identity and whose border policies allow Islam to invade the West, one refugee at a time.
Bannon has also expressed admiration for the reactionary French philosopher Charles Maurras, according to French media reports confirmed by Politico. Maurras, like Bannon, was a Catholic nationalist, and he argued in the early 1900s that the Enlightenment had elevated the individual over the nation. (One person who knows Bannon said he has spoken of the coming end of the Enlightenment.) To Maurras, a hero of the modern French right wing, the French Revolution ideals of “liberty, equality and fraternity” were a liberal cosmopolitan corruption of France’s authentic identity. Bannon has approvingly cited Maurras’ distinction between the “legal country,” led by elected officials, and the “real country” of ordinary people, as a frame for the populist revolt underway. Maurras even warned about the nefarious influence of Islam in Europe.
As does Bannon. In February, a Danish newspaper editor named Flemming Rose recounted in the Huffington Post a conversation he had had with Bannon at a private gathering in New York last spring. In what Rose described as profane and “passionate” terms, Bannon “made it clear he had lost faith in Europe as secularism and arriving Muslim immigrants had eroded traditional Christian values as the founding pillar of our civilization,” Rose wrote. “Losing the Christian faith, in his view, has weakened Europe—it’s neither willing nor able to confront Islam’s rising power and some European Muslims’ insistence on privileged treatment of their religion.”
Bannon’s solution? Rebuilding the firm borders between European states—to keep the Muslim immigrants out, and to keep in the religious and national identity. “I have admired nationalist movements throughout the world,” Bannon told the Wall Street Journal shortly after the U.S. election. “I have said repeatedly, strong nations make great neighbors.”
But do they? Many a European leader, not to mention historian, disagrees. Runaway nationalism led to, among many other horribles, Franz Ferdinand’s assassination and World War I, and gave us Hitler, Mussolini and Milosevic. Those things, in turn, drew America’s military across the Atlantic.
“I don’t get it. Americans have spent a lot of their history either fighting against Europeans or fighting on behalf of Europeans against other Europeans,” says Charles Kupchan, who served until January as the top official for European affairs at the Obama White House. “Anybody who wants to bring Europe down risks putting us back in the 19th century or the early 20th century.”
European officials note that this happens to be a goal of Russia’s president, Putin, who is busily undermining the post-Cold War internationalist order in favor of a nationalistic, geography-based power politics. A U.S. effort to dismantle the EU, one Western European government official says with distaste, “would put America on the same side as Putin.”
The thought is rattling Europe at the highest levels. In January, Donald Tusk, president of the EU’s European Council—who calls himself “an incurably pro-American European who is fanatically devoted to trans-Atlantic cooperation”—sent a letter to member states characterizing the Trump administration as a menace to the Union, alongside the likes of Russia and radical Islam. “[W]ith the new administration seeming to put into question the last 70 years of American foreign policy,” Tusk wrote, America now had to be considered not a stalwart friend of the EU but a “threat.”
Wolfgang Ischinger, former German ambassador to the United States, put it in starker terms in remarks at a February security conference in Munich attended by top Trump officials. “Is President Trump going to continue a tradition of half a century of being supportive of the project of European integration, or is he going to continue to advocate EU member countries to follow the Brexit example?” Ischinger asked. “If he did that, it would amount to a kind of nonmilitary declaration of war. It would mean conflict between Europe and the United States. Is that what the U.S. wants?”
***
Seeking to allay such anxieties, Vice President Mike Pence flew a few days later to Brussels, the EU’s center of government, with a reassuring message. “The United States is committed to continuing its partnership with the European Union, and I wanted to make that very clear,” Pence said.
But whatever solace his words might have given to EU leaders was short-lived. The very next day, Reuters reported that, shortly before Pence’s olive branch to Brussels, Bannon had met with Germany’s ambassador to Washington and sent a very different message by repeating his idiosyncratic views about Europe. The White House downplayed the conversation, confirmed by a source to Politico, as a quick hello. But the encounter with Bannon affirmed fears in Germany’s government that Europe must prepare for a policy of what an unnamed source quoted by Reuters called “hostility towards the EU.”
A United States hostile to the EU would be terrifying for Europe at any moment, but never more so than right now. Economic weakness, a flood of refugees and a drumbeat of Islamic State terrorism have combined to create what EU official Verhofstadt calls “an existential crisis.” Making things worse, the EU-bashing Marine Le Pen has a chance in France’s spring presidential elections, while anti-EU candidates have gained traction in the Netherlands, which votes in March, and Italy, which may call elections this summer. In September, voters in the EU’s anchor state, Germany, will deliver a verdict on Chancellor Angela Merkel, a staunch defender of European unity whose popularity has severely eroded in recent months.
Some European leaders worry that Trump and Bannon could issue a de facto endorsement of Le Pen, turbocharging her supporters and her media coverage. In a post-election tweet, Le Pen’s niece Marion, who is also a prominent member of her party, wrote cryptically that she accepted Bannon’s alleged “invitation … to work together.” A few weeks later, French officials were startled to learn that Le Pen had been seen in the lobby of Trump Tower, though a Trump spokesman denied that she had been in any meetings there.
But tweets and photo ops might not be where Trump could inflict the most damage. The White House commands the awesome economic and political might of the United States, and can employ that power as a sledgehammer against the weakened, post-Brexit EU. “I think Brexit is going to be a wonderful thing for your country,” Trump told Britain’s prime minister, Theresa May, during her January visit to Washington. Last year, Obama had tried to discourage Brexit by promising it would put Britain “at the back of the queue” for American trade deals. Now Trump was making clear that it had a place safely at the front. “You’re going to be able to make your own trade deals without having someone watching you,” Trump added.
Many European leaders heard that as game theory. Signaling that he will reward countries that turn away from a united Europe creates an incentive for them to do so early. No one wants to be at the back of the queue. Trump’s pick for commerce secretary, Wilbur Ross, sees things the same way: As one member of Congress who recently spoke with the billionaire investor recounted his attitude, “Bilateral is where we’re going. Why would we trade with seven countries at once?”
EU rules bar member countries from striking up formal bilateral trade talks, but nothing stops the kind of informal discussions May has begun with Trump. And experts say there are plenty of other arrangements and loopholes that Trump and Bannon could exploit to pit EU members against one another.
Trump could even provoke a powerful backlash against Bannon’s anti-EU project. The new American president is deeply unpopular in Europe.
“For an American administration, breaking up the EU is like falling off a log. The majority of EU countries value their relationship with the U.S. more than they do with the EU, and are readily open to American requests that would even run counter to the letter of their European obligations,” Jeremy Shapiro says. That might apply to issues beyond trade, he says, speculating that Trump could roil EU members by rewarding some and punishing others with tax and immigration policies. “It’s trivially easy,” Shapiro says. “If you differentiated between countries, you could create a lot of damaging tension within the EU.”
The Trump team is already pressing on a purple bruise within the EU—the resentment of its lesser members toward mighty Germany, whose economy dominates the continent. “You look at the European Union, and it’s Germany. Basically a vehicle for Germany,” Trump told the Times of London. “That’s why I thought the U.K. was so smart in getting out.” A few days later, Trump’s trade adviser, Peter Navarro, piled on, arguing in the Financial Times that Germany’s use of the common EU currency, the euro, translates to an unfair trading edge. That Trump and Navarro have keyed in on anti-German resentment reflects a savvy understanding of the EU’s fault lines. Shapiro recalls meetings between Obama officials and European counterparts, who initially boasted about their unity. “Two or three meetings later, they’d be talking about keeping Germany off the [United Nations] Security Council,” he says.
***
Pressured by U.S. trade deals, harassed by Russian hackers, sniped at by local Breitbarts—does the EU stand a chance? Well, for now, yes. Although this year’s elections could greatly empower anti-EU nationalists, none are likely to trigger sudden Brexit clones. Even if Le Pen were to win, she would be unlikely to gain the needed parliamentary power for such a radical move. And while it will stun Europe if Merkel loses her own parliamentary majority in September, her right-wing rivals will be similarly limited. The same goes for the Netherlands and Italy. Polls show that clear majorities across Europe still support the EU. Modern Europe was built over 70 years and won’t be easy to tear down in a presidential term.
Trump’s unpopularity in Europe could even provoke a powerful backlash against Bannon’s anti-EU project. In Germany, for instance, the surging Social Democratic candidate for chancellor, Martin Schulz, has positioned himself against Trump and invoked the memory of Germany’s Nazi past. Trump’s “attacks on Europe are also attacks on Germany,” Schulz said at a February rally. “In a time when the world is drifting apart, in a time of Trumpism, we need values-based cooperation of the democracies in Europe now more than ever.”
Several European officials argued that attempts by Trump to meddle directly in their electoral politics—by, say, tweeting support for a specific candidate, like Le Pen or the Dutch right-winger Geert Wilders—would likely backfire given the new president’s toxicity on the continent. One person who has spoken at length to Trump and Bannon about Europe told me Trump understands the risk of backlash from openly backing populist European insurgents. “As far as Bannon,” the person began, before trailing off and adding in a knowing tone, “You’ll have to ask him.” Bannon could also get some help from his old colleagues at Breitbart, which recently announced plans to expand to Berlin and Paris. “The aim is to help elect right-wing politicians in the two European countries,” Reuters reported, citing sources “close to Bannon.”
At the top levels, there are signs the EU’s once-complacent leadership has genuinely woken up to the realities of a Trump-and-Brexit world. In Washington, the EU has kicked off a lobbying campaign to save itself. In mid-January, dozens of foreign policy reporters gathered at an elegant townhouse in Washington’s Kalorama neighborhood, so close to Obama’s new home they had to walk through a police checkpoint. Their host was the EU ambassador to Washington, David O’Sullivan. As the influential guests enjoyed white wine and hors d’oeuvres, the Irish-born O’Sullivan, who has the harried manner of a man playing defense, delivered a short speech in defense of the embattled institution he represents. He and his colleagues also held events at both national party conventions this past summer, and at the EU offices on Washington’s K Street lobbying corridor, visitors can find a thick glossy brochure, “The European Union: A Guide For Americans,” which explains the EU’s structure and functions, and declares that the U.S.-EU partnership “is the single most important driver of global economic growth, trade, and prosperity.”
In an interview at his office, O’Sullivan dismissed the most alarmist talk of Trump’s intentions as speculative and overblown. And, as at his evening cocktail party, he addressed the idea of dismantling the EU in Trump’s language: raw economics. “On the basest level, just look at it from America’s self-interest,” he said, arguing that a giant single market for American goods is the most profitable and efficient arrangement. “Would it be in America’s interest to see that fragmented to 28 separate markets?”
O’Sullivan seems torn—between wanting to downplay the specter of imminent disaster in the EU (which, after all, wants to be seen as a safe investment) and reminding Euroskeptics that they are playing with matches in a very dry forest. Brexit, he insists, was “a special situation,” made possible by Britain’s long uncertain relationship with the European continent. And he predicts that the EU can calm populist anger with gradual reforms to its immigration and border policies.
When pressed, however, O’Sullivan admits that the alternatives can get dangerous fast. “Anyone who would support a more assertive national identity in Europe has not read their history,” he says. “It doesn’t take long for people to say, we’re better than you.” Nationalist leaders in Europe will likely be quick to take up the cause of ethnic kin who live on the other side of foreign borders, some of which were disputed for centuries before the EU diminished their importance. The notion raises the specter of nationalist conflicts around Europe similar to implosion of the former Yugoslavia in the 1990s—conflicts that ended only after major American interventions. A small crack opened by preferential American trade or tax policy, with the help of some Russian meddling, could widen to a chasm with alarming speed.
“Before you call for France and Germany to go their separate ways, you better think about the longer-term consequences,” says Kupchan, the former Obama official. “Otherwise, we may be sending some armored divisions back that way.”
The Great Power Game is On and China is Winning
If America wants to maintain any influence in Asia, it needs to wake up.
From across the pond come two geopolitical analyses in two top-quality British publications that lay out in stark terms the looming struggle between the United States and China. It isn’t just a trade war, says The Economist in a major cover package. “Trade is not the half of it,” declares the magazine. “The United States and China are contesting every domain, from semiconductors to submarines and from blockbuster films to lunar exploration.” The days when the two superpowers sought a win-win world are gone.
For its own cover, The Financial Times’ Philip Stephens produced a piece entitled, “Trade is just an opening shot in a wider US-China conflict.” The subhead: “The current standoff is part of a struggle for global pre-eminence.” Writes Stephens: “The trade narrative is now being subsumed into a much more alarming one. Economics has merged with geopolitics. China, you can hear on almost every corner in sight of the White House and Congress, is not just a dangerous economic competitor but a looming existential threat.”
Stephens quotes from the so-called National Defense Strategy, entitled “Sharpening the American Military’s Competitive Edge,” released last year by President Donald Trump’s Pentagon. In the South China Sea, for example, says the strategic paper, “China has mounted a rapid military modernization campaign designed to limit U.S. access to the region and provide China a freer hand there.” The broader Chinese goal, warns the Pentagon, is “Indo-Pacific regional hegemony in the near-term and displacement of the United States to achieve global pre-eminence in the future.”
The Economist and Stephens are correct. The trade dispute is merely a small part of a much larger and even more intense geopolitical rivalry that could ignite what Stephens describes as “an altogether hotter war.”
As the Pentagon’s strategic paper posits, China’s overriding foreign policy goal is to squeeze America out of East Asia and force it back to the Hawaiian islands as its forward position in the Pacific. Thus would Hawaii cease to be America’s strategic platform for projecting power into Asia and become merely a defensive position. If this strategic retreat were to happen, it would be one of the most significant developments in international relations since the end of World War II.
America has been projecting significant power into Asia since the 1890s, when President William McKinley acquired Hawaii through annexation, then seized Guam and the Philippines in the aftermath of the Spanish-American War. For good measure, he cleared the way for the construction of the Panama Canal and continued his predecessors’ robust buildup of the U.S. Navy. President Theodore Roosevelt then pushed the Canal project to actual construction, accelerated the naval buildup, and sent his Great White Fleet around the world as a signal that America had arrived on the global scene—as if anyone could have missed that obvious reality.
With the total victory over Japan in World War II, America emerged as the hegemon of Asia, with colonies, naval bases, carrier groups, and strategic alliances that made it foolhardy for any nation to even think of challenging our regional dominance. Not even the Vietnam defeat, as psychologically debilitating as that was, could undercut America’s Asian preeminence.
Now China is seeking to position itself to push America back into its own hemisphere. And judging from the language of the National Defense Strategy, America doesn’t intend to be pushed back. This is a clash of wills, with all the makings of an actual military conflict.
China Has Already Lost the Trade War
China Isn't an Enemy and Hawks Shouldn't Turn It Into One
But if China represents the greatest potential threat to America’s global position, making an eventual war likely (though not inevitable), why is Washington not acting like it knows this? Why is it engaging in so many silly military capers that undermine its ability to focus attention and resources on the China challenge? While the National Defense Strategy paper suggests that U.S. officials understand the threat, America’s actions reveal an incapacity to grapple with this reality in any concentrated fashion.
Here’s a general idea of what a U.S. foreign policy under Trump might look like if it was based on a clear recognition of the China threat:
Iran: Since the end of the Cold War, the sheer folly of Trump’s Iran policy has been exceeded only by George W. Bush’s Iraq invasion. Barack Obama bequeathed to his successor a rare gift in the Iran nuclear deal, which provided an opportunity to direct attention away from Tehran and toward America’s position in East Asia. In no way did it serve America’s national interest to stir up tensions with Iran while the far more ominous China threat loomed. A policy based on realism would have seized that opportunity and used the channels of communication forged through the nuclear deal to establish some kind of accommodation, however wary or tenuous. Instead, America under Trump has created a crisis where none need exist.
Personnel: While the Iran policy might be difficult to reverse, a reversal is imperative. And that means Trump must fire National Security Advisor John Bolton and Secretary of State Mike Pompeo. While their bully boy actions on the global stage seem to mesh with Trump’s own temperament, the president also appears increasingly uncomfortable with the results, particularly with regard to their maximum pressure on Iran, which has brought America closer than ever to actual hostilities. Whether Trump has the subtlety of mind to understand just how destructive these men have been to his broad foreign policy goals is an open question. And Trump certainly deserves plenty of blame for pushing America into a zone of open hostility with Iran. But he can’t extricate himself from his own folly so long as he has Bolton and Pompeo pushing him toward ever more bellicosity in ever more areas of the world. He needs men around him who appreciate just how wrongheaded American foreign policy has been in the post-Cold War era—men such as retired Army Colonel Douglas MacGregor and former Virginia senator Jim Webb. Bolton and Pompeo—out!
Russia: Of all the developments percolating in the world today, none is more ominous than the growing prospect of an anti-American alliance involving Russia, China, Turkey, and Iran. Yet such an alliance is in the works, largely as a result of America’s inability to forge a foreign policy that recognizes the legitimate geopolitical interests of other nations. If the United States is to maintain its position in Asia, this trend must be reversed.
The key is Russia, largely by dint of its geopolitical position in the Eurasian heartland. If China’s global rise is to be thwarted, it must be prevented from gaining dominance over Eurasia. Only Russia can do that. But Russia has no incentive to act because it feels threatened by the West. NATO has pushed eastward right up to its borders and threatened to incorporate regions that have been part of Russia’s sphere of influence—and its defense perimeter—for centuries.
Given the trends that are plainly discernible in the Far East, the West must normalize relations with Russia. That means providing assurances that NATO expansion is over for good. It means the West recognizing that Georgia, Belarus, and, yes, Ukraine are within Russia’s natural zone of influence. They will never be invited into NATO, and any solution to the Ukraine conundrum will have to accommodate Russian interests. Further, the West must get over Russia’s annexation of the Crimean peninsula. It is a fait accompli—and one that any other nation, including America, would have executed in similar circumstances.
Would Russian President Vladimir Putin spurn these overtures and maintain a posture of bellicosity toward the West? We can’t be sure, but that certainly wouldn’t be in his interest. And how will we ever know when it’s never been tried? We now understand that allegations of Trump’s campaign colluding with Russia were meritless, so it’s time to determine the true nature and extent of Putin’s strategic aims. That’s impossible so long as America maintains its sanctions and general bellicosity.
NATO: Trump was right during the 2016 presidential campaign when he said that NATO was obsolete. He later dialed back on that, but any neutral observer can see that the circumstances that spawned NATO as an imperative of Western survival no longer exist. The Soviet Union is gone, and the 1.3 million Russian and client state troops it placed on Western Europe’s doorstep are gone as well.
So what kind of threat could Russia pose to Europe and the West? The European Union’s GDP is more than 12 times that of Russia’s, while Russia’s per capita GDP is only a fourth of Europe’s. The Russian population is 144.5 million to Europe’s 512 million. Does anyone seriously think that Russia poses a serious threat to Europe or that Europe needs the American big brother for survival, as in the immediate postwar years? Of course not. This is just a ruse for the maintenance of the status quo—Europe as subservient to America, the Russian bear as menacing grizzly, America as protective slayer in the event of an attack.
This is all ridiculous. NATO shouldn’t be abolished. It should be reconfigured for the realities of today. It should be European-led, not American-led. It should pay for its own defense entirely, whatever that might be (and Europe’s calculation of that will inform us as to its true assessment of the Russian threat). America should be its primary ally, but not committed to intervene whenever a tiny European nation feels threatened. NATO’s Article 5, committing all alliance nations to the defense of any other when attacked, should be scrapped in favor of language that calls for U.S. intervention only in the event of a true threat to Western Civilization itself.
And while a European-led NATO would find it difficult to pull back from its forward eastern positions after adding so many nations in the post-Cold War era, it should extend assurances to Russia that it has no intention of acting provocatively—absent, of course, any Russian provocations.
The Middle East: The United States should reduce its footprint in the region on a major scale. It should get out of Afghanistan, with assurances to the Taliban that it will allow that country to go its own way, irrespective of the outcome, so long as it doesn’t pose a threat to the United States or its vital interests. U.S. troops should be removed from Syria, and America should stop supporting Saudi Arabia’s nasty war in Yemen. We should make clear to Israel and the world that the Jewish state is a major U.S. ally and will be protected whenever it is truly threatened. But we should also emphasize that we won’t seek through military means to alter the regional balance of power based on mere perceptions of potential future threats to countries in the region, even allies. The United States won’t get drawn into regional wars unrelated to its own vital interests.
Far East: Once the other regional decks are cleared, America must turn its attention to Asia. The first question: do we wish to maintain our current position there, or can we accept China’s rise even if it means a U.S. retreat or partial retreat from the region? If a retreat is deemed acceptable, then America should secure the best terms possible over a long period of tough and guileful negotiations. But if we decide to maintain regional dominance, then China will have to be isolated and deterred. That will mean a long period of economic tension and even economic warfare, confrontations over China’s extravagant claims of sovereignty in the South China Sea and elsewhere, strong U.S. alliances with other Asian nations nurtured through deft and measured diplomacy, soaring technological superiority, and a continual upper hand in any arms race.
In this scenario, can war be averted? History suggests that may not be likely. But either way, America won’t remain an Asian power if it allows itself to be pinned down in multiple nonstrategic spats and adventures around the world. Asia is today’s Great Game and China is winning. That won’t be reversed unless America starts playing.
https://www.theamericanconservative.com/articles/the-great-power-game-is-on-and-china-is-winning/
Ron Insana: The market doesn’t realize this is more than a trade war — it’s a new Cold War
POINTS
The markets have been slow to recognize the high-stakes game that’s playing out on the world stage.
Like the neoconservatives, Trump’s closest advisors have all identified China as the foremost threat to the United States in the years, and decades, ahead.
While there is good reason to challenge China on a variety of fronts and force it to change behavior that disadvantages the U.S., it is not inevitable that China is as dangerous as members of this administration claim.
This is is a new Cold War to determine who will be the hegemonic power, economically and militarily, in the years to come.
https://www.cnbc.com/2019/05/24/ron-insana-the-market-doesnt-realize-this-is-more-than-just-a-trade-war-its-a-new-cold-war.html
Why China cares about this week’s EU elections
https://qz.com/1621047/eu-elections-2019-why-china-cares/
This week’s European Parliament elections will have immediate political consequences for many member states, and will serve as a referendum (paywall) on the 60-year experiment in cross-continental democracy that is the European Union. Thousands of kilometers away, another stakeholder in the bloc, one with an increasing amount of clout, will also be closely watching.
China’s involvement in the EU has ramped up significantly in recent years. That’s in part due to the enormous amount of trade that passes between the two parties: China is the EU’s second-largest trading partner after the US. Europe is also a crucial region for China’s growth ambitions, including its two signature initiatives: the Made In China 2025 plan and Belt and Road Initiative (BRI). But Beijing’s increasingly assertive role on the continent has some European nations, and their allies, worried.
The significance of that involvement was on display in March, when Chinese president Xi Jinping visited France, Italy, and Monaco (paywall) in a much-publicized tour meant to promote commercial partnerships between Chinese and European firms. During his visit, Xi said that China needs “a united and prosperous Europe” and that France and China should build a relationship based on “mutual trust, practical cooperation, and friendly sentiments.”
The visit was the culmination of months of unprecedented movement in the EU-China relationship. After a recent EU-China Summit in Brussels, Beijing agreed to work with the bloc to reform the World Trade Organization, a move European Council president Donald Tusk described as a “breakthrough.” In March, Italy became the first G7 country to sign a memorandum of understanding with China to join the BRI, for the tidy sum of €2.5 billion ($2.8 billion). Thus far, none of the bloc’s other large industrialized countries have signed up. China has also strengthened ties with western Balkan nations on the EU accession list and meets with them, as well as 12 EU nations, every year in what they have named the 16+1 group to discuss investment opportunities.
“In the Chinese original conception of the BRI, Europe is the final destination of this ambitious project, and still represents the largest and most attractive consumer market for Chinese products,” Philippe Le Corre, a senior fellow at the Carnegie Endowment for International Peace, testified to the US House of Representatives Foreign Affairs Committee earlier this month.
But China has also faced some setbacks. In March, the European Commission released an unusually confrontational strategic policy proposal (pdf) that called China a “systemic rival.” In April, the EU put in place a screening mechanism for foreign investments (pdf) aiming to make the process of foreign countries investing in Europe more transparent. Analysts say the move was a direct response to China’s business practices (paywall) in Europe. And anti-China sentiment is rising in the leadership ranks of the EU: Senior officials have expressed concerns about China’s role in the Balkans (paywall) and about Chinese companies threatening European companies in industries like commercial aviation, telecom infrastructure, robotics, and solar panels.
That’s why, at this critical juncture in their relationship, China is paying close attention to the results of an election that may influence its ability to do business on the continent. The country is reportedly reaching out (paywall) to individual European MEPs to “win support for [its] agenda through alternatives to official diplomatic channels.” And China has invited MEPs across the political spectrum (paywall), from far-right populists to staunch Communists, to visit in an effort to secure support for its European push, and hedge against the unpredictable results of this election.
“They realize in China that the European Parliament is not as insignificant a body as a lot of people say,” says Le Corre. “They are monitoring the situation in the European elections, because depending who runs the parliament … it may affect their interests.”
Le Corre gives the example of the EU’s policy on fifth-generation cellular networks, or 5G. Chinese telecom giant Huawei is the world leader in 5G technology, but the US accuses the company of using its tech to spy on behalf of the Chinese government. Brussels is in the process of building an EU-wide national security risk assessment for 5G technology. In the meantime, Huawei has already signed deals to install 5G networks in several European countries. The continent is divided (paywall) over its 5G strategy broadly, something both China and the US have criticized, for very different reasons.
“If the EU was to put together a plan on 5G that would help European players in that field to emerge to counter Chinese players, that would be of interest to the Chinese,” says Le Corre. “The European Parliament does have a say on trade and investments and on what China is doing economically in Europe, and that is the main concern of the Chinese government.”
By electing certain political parties to parliament, EU voters also have an indirect say in who will become the next president of the European Commission, a body that has huge power over EU policy, law, and funding, as well as EU expansion, issues that concern China.
The bloc’s approach to China’s growing presence in Europe has been mixed. Italy’s governing coalition is split over the decision to join the BRI because of concerns over China “colonizing” the country, as deputy prime minister Matteo Salvini put it. Intelligence agencies and opposition parties have objected to UK prime minister Theresa May’s decision to allow Huawei to supply “non-core” telecom equipment. And Emmanuel Macron has been vocal in his criticism (paywall) of China—but recently invited Xi to France, where he signed billions of euros worth of commercial agreements with Beijing.
China certainly knows what it wants to do in Europe. It won’t sit idly by while Europe decides what to do with China.
Why Trump wants to break up the European Union
Andrew Hammond is an associate at LSE IDEAS at the London School of Economics.
U.S. President Donald Trump meets with European Commission President Jean-Claude Juncker at the White House on Wednesday. While there are low expectations of a breakthrough in the U.S.-EU trade spat, Mr. Juncker’s broader objective is to try to calm wider transatlantic tensions that boiled over at the rancorous Group of Seven and NATO summits.
At the heart of this diplomatic discord is Mr. Trump’s disdain for the European Union, which goes significantly beyond that of any president since the bloc’s establishment. While he has concerns with Europe’s low levels of defence spending vis-a-vis Washington, it is on the economic front that the Brussels-based club is the deepest source of frustration for him with its large goods surplus with the United States.
On Tuesday, Mr. Trump tweeted that: “Tariffs are the greatest! Either a country which has treated the United States unfairly on Trade negotiates a fair deal, or it gets hit with Tariffs. It’s as simple as that – and everybody’s talking. Remember, we are the ‘piggy bank’ that’s being robbed.”
This latest tweet builds on remarks last week from Mr. Trump when he remarkably declared, “I think the EU is a foe, what they do to us [the United States] in trade.” While some have dismissed this remark as just another spur-of-the-moment presidential outburst, Anthony Gardner – who served as U.S. ambassador to the European Union under Barack Obama – has warned that, “Europe wake-up; the U.S. wants to break-up the EU. Remember Belgium’s motto L’Union Fait la Force (Unity creates strength).”
The contrast between Mr. Trump, with his calls for more “Brexits” within the European Union, and U.S. policy at the start of the European integration process could not be starker. Embodied in John Kennedy’s 1962 Atlantic Partnership speech, the core U.S. view then was that a united Europe would make future wars on the continent less likely; create a stronger partner for the United States in meeting the challenges posed by the Soviet Union; and offer a more vibrant market for building transatlantic prosperity. Yet, U.S. attitudes gradually became more ambivalent as integration deepened, particularly in recent Republican administrations.
In the economic arena, for instance, the drive toward the European Single Market led to U.S. concerns about whether this would evolve into a “Fortress Europe.” Similarly, the creation of the European Monetary Union prompted worries about the dilution of U.S. primacy in the financial sector and macroeconomic policy. Moreover, in competition policy, the increasing assertiveness of the European Commission has raised U.S. concerns about EU overreach. Only last week, for example, Mr. Trump tweeted “The EU just slapped a Five Billion Dollar fine on one of our great companies, Google. They truly have taken advantage of the US, but not for long!”
Before Mr. Trump, the administration of George W. Bush came closest to questioning the value of European integration. For instance, the controversy over the Iraq conflict saw Washington querying the benefits of EU collaboration in the security and defence arena. On the eve of the NATO defence review in 2003, U.S. defence secretary Donald Rumsfeld even drew a distinction between “old” and “new Europe” with the latter perceived as more favourable to U.S. interests.
However, while the Bush team eventually recognized the need to draw back from this approach, it appears Mr. Trump may not be willing to do the same and has indeed raised the rhetoric several notches. In so doing, one of the features of the President’s approach is an attempt to prise apart Germany and France, the traditional two motors of EU integration. In May, it is reported that Mr. Trump advised French President Emmanuel Macron, who he appears to hold in high regard, that France would be better to quit the European Union to get a better trade deal with Washington than the United States is willing to offer the European Union as a whole.
This remarkable suggestion comes in the context of the U.S. President’s denunciation of Germany, which he has called “very bad” because of its significant trade surplus with the United States. While the White House’s gambit in trying to split Germany and France is unlikely to succeed, it underlines how U.S. ambivalence about European integration has reached its apotheosis under Mr. Trump. The scale of the challenge facing Mr. Juncker is therefore huge, given that this is the first U.S. president who appears to want to not just weaken, but also splinter the Brussels-based club.
https://www.express.co.uk/news/politics/785813/European-Union-EU-boss-threatens-break-up-US-retaliation-Trump-Brexit-support
“Managing the Dollar: From the Plaza to the Louvre” (Peterson Institute for International Economics, 1989).
In the 1980s, during the Reagan administration, trade friction between the United States and Japan extended to every possible area: electronics, automobiles, machine tools, precision machinery, construction equipment, semiconductors, communication equipment, supercomputers, tobacco and rice. In the U.S., this led to a rising flood of calls for regulations on Japanese imports.
Left unaddressed, the trade imbalance would have prompted a greater eruption of protectionist appeals in the U.S., threatening the system of free trade. U.S. Treasury Secretary James Baker possessed both the historical perspective to recognize that “the isolationism and protectionism of that era [during the aftermath of World War I] in part helped caused the Great Depression,” and a determination to avoid repeating that folly.
The result of Baker’s initiative was the 1985 Plaza Accord between the U.S., Japan, (West) Germany, England and France, which centered on adjustments to the currency exchange rates. The Plaza Accord resulted in a 50 percent depreciation of the dollar relative to the yen and the deutschemark.
My book offered a behind-the-scenes account of the “currency diplomacy” conducted between the various countries during the negotiation of the accord.
A Chinese edition of my book, titled “Managing the Dollar: The Plaza Accord and the Fate of the Yuan,” was published by CITIC Press in China in March. The promotional words accompanying the Chinese language title read: “A behind-the-scenes look at macroeconomic policy, bargaining between the great powers, and a guide to the future of the yuan.”
The belated publication of a Chinese edition of my book can be explained by the current trade friction between the U.S. and China. Stressing the damages incurred by China’s intellectual property infringement, the Trump administration has invoked Section 301 of the U.S. Trade Act to sanction China by imposing tariffs on Chinese products. The Chinese government initiated retaliatory tariffs in response. The U.S. then initiated a complaint with the World Trade Organization, claiming China’s actions violate WTO agreements.
The Chinese financial market is on edge. There are concerns about a simultaneous depreciation of the yuan and fall in stock prices, as occurred in 2015-2016. Guiding macroeconomic policy is also proving difficult. Buying up huge amounts of the yuan in order to maintain its value will deplete the country’s foreign currency reserves. Raising interest rates may put a damper on the economy. Capital controls may scare off foreign investment.
At present, Chinese products account for 20 percent of American imports; this is the same as Japan’s share of the American import market in 1989. The Trump administration may be lashing out against all the countries that have a trade surplus with the U.S., but China remains its primary target.
In the U.S. today, just as in the early 1980s, fiscal spending is expanding while monetary policy is tightening. Meanwhile, the dollar is strengthening as the yuan depreciates. Thus, structurally speaking, the current trade friction between the U.S. and China is quite similar to the U.S.-Japan trade friction of the 1980s.
All of this has led China to suspect that the Trump administration will soon press for some kind of currency adjustment akin to the 1980s Plaza Accord — Plaza Accord II, if you will.
Several reviews of the Chinese edition of my book from the Chinese blogosphere caught my attention:
“We all saw the Plaza Accord as an attempt by the U.S. to crush the rise of Japan, and this was also the argument that Japan’s right wing fabricated to fan the flames of anti-American sentiment. I now know that this was not the truth of the matter.
“I was impressed that the author viewed the Plaza Accord rather as a positive development — as the product of policy coordination between the major countries of the world to counter protectionism and redress the global imbalance in trade revenue. Today, China is in the same position as Japan at that time. We should learn from the history of the Plaza Accord, and develop a strategy for handling trade wars.
“I thought that the Plaza Accord had brought about Japan’s recession, but I learned from this book that Germany was also pressed to accept a sweeping revaluation of its currency — but the German market did not collapse.”
The Plaza Accord and a broader set of international agreements, which included the easing of fiscal and monetary policies, were later criticized for bringing about Japan’s “bubble” boom. It has also been argued that the fact that these policies were not accompanied by structural reform in such areas as banking and residential housing regulations aggravated the effects of the bubble economy.
However, the Plaza Accord did prove effective in correcting the U.S. trade imbalance. By 1991, the U.S. had erased the deficit in its current account balance. Yet that did not mark the end of the U.S.-Japan trade wars. The fierce battle for dominance in high-tech industries continued. The conflict over semiconductors brought about the worst period of tension between the U.S. and Japan.
The U.S. demanded that Japan secure a specific share of domestic semiconductor sales for foreign-made products. While the Japanese side agreed, the U.S. later invoked Section 301 of the Trade Act to impose sanctions upon Japan for not meeting the specified target.
In 1991, the U.S. and Japan revised their semiconductor agreement, with Japan promising effectively to ensure a 20 percent domestic market share for foreign-made semiconductors. Of all postwar trade agreements between the U.S. and Japan, this can be cited as the worst example of managed trade.
The current trade friction between the U.S. and China is unlikely to end in a ceasefire following a long war of attrition involving endless imposition of punitive tariffs. On the contrary, it seems very likely that the current trade dispute will develop into a fierce conflict over currency and high-tech industries.
CNN Anchor Jim Sciutto Says the U.S. Is at War. We Just Don't Know It.
We made a good run of it, didn’t we? For the past three-quarters of a century, the United States dominated the world stage. We were the keepers of the peace, the pioneers of technological innovation, the top dogs of military might. Like all good things, American exceptionalism must come to end. We just didn’t realize how swiftly that reckoning would come.
In his new book, The Shadow War: Inside Russia’s and China’s Secret Operations to Defeat America, Jim Sciutto, chief national security correspondent for CNN, explores the many, varied ways our adversaries to the East have chipped away at the U.S.’s standing as king of the global hill. By design, their tactics have remained far enough under the radar so as to avoid provoking military conflict. The sooner we recognize the threat to the rules-based international order we helped build in the wake of World War II, the better chance we have of preserving our supreme standing.
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This is not a work of dispassionate analysis. Sciutto is unabashedly pro-America, and he casts Russia and China as our villains. If the U.S. is to blame, he argues, it’s for misapprehending and underestimating the competition. The sources he most relies on are former U.S. officials—Jim Clapper, Michael Hayden, Ashton Carter. Sciutto says he reached out to Chinese and Russian officials, but they rebuffed his requests.
This past Monday, fresh off the set of CNN Newsroom, which he co-anchors each weekday morning, Sciutto stopped by the offices of Esquire to talk about his book. During the conversation, which has been edited for length and clarity, we discussed which adversary in the shadow war we should be most concerned about, whether the U.S. has undermined its own international credibility, and the ways in which Donald Trump has sped up our decline.
Esquire: What is the shadow war?
Jim Sciutto: It’s an undeclared war that most Americans don't know about. China and Russia, two very different countries, are using a very similar strategy: The idea is to attack and undermine the United States on multiple fronts at the same time, just below the threshold of a shooting war in a way that doesn't lead the U.S. to fight back. They know if they were to attack us head on, aircraft carrier to aircraft carrier or nuclear bomb to nuclear bomb, they would lose. At least, no one would win. By attacking around the margins, they’ve gained a lot over time, particularly because we were not paying attention. Even now that we know about it, we still haven’t figured out how to respond.
Give me some examples.
Russia’s interference in our 2016 presidential election, for instance. They targeted one of our most sacred institutions—shouldn’t that lead to a sea change in our relations with them? Lo and behold, that’s a very political issue in the U.S. Our president won't even acknowledge that it happened, because he takes it personally. In effect, Russia gets away with it. Some sanctions here and there, but not enough to change their behavior. So they did it again in the midterm election, in 2018, and are probably going to do it in 2020.
China, for its part, has been stealing U.S. trade secrets for decades, to the tune of hundreds of billions of dollars in losses. Companies can't stand it, but at the end of the day the U.S. has to trade with China. Of course, there's a trade war going on now. Still, they kind of get away with it.
There are the more aggressive actions, like old-school territorial games in defiance of the global order established post-World War II. People forget that Russia invaded the Ukraine. They're like, "Ukraine's a billion miles away." Well, it's in Europe, and it's a U.S. ally. Russia now controls Crimea and a big portion of Eastern Ukraine. In the South China Sea, China decided to just up and create territory out of thin air. They thought the U.S. would not going to go to war over it, and they were right.
Then you have their use of new technologies. Both Russia and China have literal space weapons floating around above our heads, designed to take out satellites that control stuff that you and I depend on. They could take it out in seconds.
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A satellite image of Subi Reef, an artificial island being developed by China in the Spratly Islands in the South China Sea.
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The U.S. media has reported extensively on all of the examples you mentioned. Why do you say that most Americans are not aware of what’s going on?
For one, you have to connect the dots. Americans are aware of the dots but not how the dots connect. Most people grant that Russia interfered with the election. But do they connect that to territorial gain in Europe? Do they even know that there are satellite weapons? No.
Who should we be more worried about, Russia or China?
In the short term, arguably Russia. It’s like a cornered rat; it could be very dangerous if it lashed out. If that happens, the situation could escalate to a degree that no one wants.
But if you talk to folks in U.S. military, or who work on national security, almost without exception, they'll say China is the bigger long-term threat. They're bigger, stronger, and have more tools at their disposal. They're our real challenger.
Do you consider Russia and China as allies in the Shadow War, in the traditional sense?
No, because they're not working together on this, and they have their own interests. China out and out wants to surpass the U.S. in every way. Their ambition is to be king of the world, to reclaim their rightful place as the most dominant country—economically, militarily, politically, diplomatically.
Russia is more of a spoiler. They don't think they're going to overtake the U.S. But they act from a place of feeling victimized, brought down by the fall of the Soviet Union. They’re playing a zero-sum game: “If I poke the U.S. in the eye, it’s a gain for us.”
Their goals may differ, but China and Russia have struck on the same asymmetric tactic as a way to beat their stronger competitor.
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Russians rally of "We are together" at the Red Square after Russias president Vladimir Putin signed the treaty of annexation of Crimea, on March 18, 2014 in Moscow, Russia.
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This sounds a lot like Cold War 2.0.
It's similar in the sense that it is global. During the Cold War, everything was seen through that Cold War lens. This is similar, except that the fronts are arguably closer to home: Our elections, our technology. The other way it's similar is that you have the potential for escalation in any one of these arenas. At some point, do you push that threshold too far and end up in a place where you don't want to be?
I'll give you two examples. Since China succeeded in the South China Sea, there’s been a lot of talk about whether they’ll invade Taiwan. If they do, will the U.S. go to war? We have a military alliance with Taiwan, but will we really honor it? Will there be political support here for sending Americans there to die in a bloody conflict? And what if Japan is invaded next?
One chapter of my book is about Russia’s cyberattack on Estonia, our NATO ally, in 2007. What if Moscow were to send troops there? Will Americans go fight for Estonia?
In the book, you take it as a given that the U.S. remains the best country to lead global affairs. Is there a chance that our time at the steering wheel is over?
Well, I would question whether I'm making the case for America being number one. What I do believe is that Russia and China are challenging an American-designed system, or at least a rules-based international order that we’ve invested in and fought to preserve for decades. My argument is for that kind of system, because it keeps the peace and, arguably, the prosperity.
Now, when I make that case, I'm an American speaking from New York City, and I carry some bias. People in China and Russia might say, "But those are rules that you imposed. Why should you be allowed to police my backyard?"
This is a clash of systems—authoritarianism in Russia and China, and democracy, however imperfect, in the U.S. The question is, who do you want to be in control of making those rules?
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Donald Trump and China’s President Xi Jinping leave a business leaders event at the Great Hall of the People in Beijing on November 9, 2017.
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Aren’t we dialing back on that notion of Pax Americana? It’s hard to make our case when we’ve, for example, left the Paris Climate Accord and abandoned the Trans-Pacific Partnership.
Clearly, we are pulling back. Some of that is driven by domestic politics and an exhaustion over endless wars. We're still in Iraq; we're still in Afghanistan. Many of the former officials I talked to for the book implied that we’ve been fighting the wrong war.
It’s more than that, right? We invaded Iraq based on faulty and outright wrong intelligence. Afghanistan is now the longest war in American history. Why should we, let alone other countries, maintain faith in the ability of the U.S. to lead global affairs?
I get it. The U.S. has made enormous mistakes with its exercise of power. I just finished watching the Ken Burns Vietnam documentary. What a chronicle of repeated mistakes and unnecessary losses. The U.S. has a faulty record, no question. But don't compare it to Russia and China. I don't think it's a close call between whose system is better.
That assumes it’s either/or: Russia and China will lead, or we will. Can you foresee an outcome in which no one country dominates the world stage?
We may be. We may be.
"China is basically on par with us. They don't have the same military, nor the same influence in various international organizations. But they’re moving closer."
Maybe? Or definitely?
Well, economically, we clearly are. China is basically on par with us. They don't have the same military, nor the same influence in various international organizations. But they’re moving closer. Maybe that's a fact of life that we'll have to deal with. Then the question becomes, how much do you lose by backing off?
How has the U.S. exacerbated the Shadow War?
One universal assessment, and this is from sources who served in Republican and Democratic administrations, is that we misunderstood the other side. George W. Bush famously said that he looked into Putin's eye and saw a guy he could deal with. We thought Russia and China wanted the same thing we wanted—an international rules-based system. Not only were we wrong; we were slow to realize it.
What about offensive moves? We, along with Israel, built a computer virus designed to cripple Iran’s nuclear facilities. If you ding Russia for its cyberattack on Estonia, shouldn’t you ding us for Stuxnet?
It's a fair question. The Obama administration debated this kind of stuff for a while. Once you go on the offense in cyber space, your adversaries are going to, too. I don't mean to portray the U.S. as an innocent actor here. We've done our own things to spark this conflict.
How would your book be written from their side? Could you understand the perspective of the Jim Sciutto of Russia?
I could if I was willing to swallow that my leaders are not elected, and that criticizing them might land me in prison. Listen, one motivation to write this book was because I’m a concerned American. I care about my country, and I'm not shy about saying that I think that we have more to offer the world. For me, there's not a gray area as to who's the better actor.
I say that as a person who’s witnessed it firsthand. I've lived in China, where I saw people carted away to prison for writing a controversial tweet. I've chased around the murderer of a Russian dissident in the U.K.
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People hold banners of Jamal Khashoggi during a symbolic funeral prayer for the Saudi journalist, killed and dismembered in the Saudi consulate in Istanbul.
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We may not openly kill our own citizens. But the current administration refuses to acknowledge the all-but-certain fact that the Saudi Crown Prince ordered the brazen murder of Saudi journalist Jamal Khashoggi in Istanbul.
Well, the president and his supporters presented a false choice with how to respond to the Khashoggi killing. They said we can't abandon a relationship with one of our few allies in the region because of this one murder, no matter how horrible. I do believe we stand for more than that. The U.S. has taken its allies to task before and have managed to maintain the relationship. But what is different about our system if we don't hold an ally accountable when they intentionally murder their own? If you're willing to give up that, you've given up the ball game.
So, we’ve given up the ball game?
On that issue, it seems so. Does Trump bring up human rights during negotiations with North Korea, or with China? No. He talks about trade. I'm not saying that we've abandoned human rights, but it's clearly not a priority for him.
How has the current administration has affected the Shadow War?
Each administration has thought they could get it right but didn’t. The Trump administration is full of contradictions on this issue. His senior intelligence officials say Russia interfered, and he says, “Maybe they didn’t.” Diplomats, secretaries of state, and military commanders say NATO is a bedrock that we’ll always stand behind, then the president accuses our allies of not paying their fair share. You have very public contradictions in this administration about America's foreign policy. That opens an opportunity to our adversaries to push the limits. But I’ll give credit where credit is due. Trump is confronting China in a way that no previous president has.
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Donald Trump and Russia’s President Vladimir Putin shake hands before attending a joint press conference after a meeting at the Presidential Palace in Helsinki, on July 16, 2018.
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About that: Last Friday, Trump escalated the trade war against China—which he began—by imposing tariffs on an additional $200 billion worth of Chinese goods. Today, China responded in kind, which will surely raise the cost on all sorts of things we depend on. One of Trump’s main motives is the theft of intellectual property from U.S. companies. Yet, during a press conference in Beijing in 2017, with Xi Jinping by his side, Trump said, "I don't blame China. Who can blame a country for being able to take advantage of another country for the benefit of its citizens?" How do you reconcile those two things?
Listen, the president is just flat-out wrong on much of this stuff. He’s even said that we're just as bad as the Russians. That’s the president of the United States saying that. I’m amazed his comment fell by the wayside like water off a duck’s back. His supporters find themselves in the position saying, "That's just Trump being Trump.” But it’s not clear that his art-of-the-deal method is working. Russia certainly hasn't changed its behavior.
What would losing the Shadow War look like, practically speaking?
I'm not Kissinger, but: Less influence abroad, and consequences for us and our allies. Arguably, an international system that doesn't maximize the public good.
Does Trump’s approach have any chance of working?
I don't know. Because what's the strategy? He hasn't articulated it, and he contradicts himself in the span of a day or even a tweet. We don't know what the strategy is. His own aides and cabinet members can't articulate it.
We’re almost two and half years into his presidency. Shouldn't we know by now?
Absolutely.
2019 Second-Quarter Forecast
https://worldview.stratfor.com/article/2019-second-quarter-forecast-geopolitics-global-business-risk
A Trade Truce Won't End the U.S.-China Trade War. A deal on trade between the United States and China is imminent. However, competition between two of the world's most dominant powers will continue this quarter, even broadening out to envelop other sectors — including but not limited to emerging technologies. Beijing won't sit idly by in the face of continued U.S. action and will attempt to counter Washington's activities using its economic heft, trade relationships, market access and considerable influence to compel other countries. Those on the sidelines will be increasingly drawn into the fight, and even countries trying to balance between Washington and Beijing will be pulled into the fray as harsher measures are applied to force a choice for one side or the other.
The United States is the Key Dynamic Actor on the World Stage. Washington will make a decision on whether or not to enforce its tariff threat against auto imports in Q2. Most major exporters to the United States will receive some type of exemption, though exceptions for Japan and the EU will not be indefinite. Because of this, Washington will wield the continued specter of tariff implementation to wrest serious concessions on pending trade deals from Tokyo and Brussels. The United States is also making tangible changes to its military posture and focus throughout the world, most notably in Syria and Afghanistan, forcing regional actors to take up the slack. The eventual U.S. departure from certain theaters, such as Syria, increases the potential for state-to-state conflict and could facilitate a resurgence of regional and transnational militancy.
Key Pillars of the Global Economy Will Experience Tremors. In the Asia-Pacific region, China's economy will slow throughout the second quarter, affecting a number of local trading partners in the short term. Europe is experiencing a similar economic malaise. Italy and Germany have both slashed growth estimates, and Rome's banking sector faces the most economic risk in the eurozone. On top of this, there is much uncertainty on the Continent surrounding exactly how the United Kingdom exits the European Union. Within the quarter, however, there will be no hard Brexit.
Nuclear Deals and Negotiations Hang in the Balance. Iran will be increasingly dissatisfied with the Joint Comprehensive Plan of Action (known as the JCPOA or the Iran nuclear deal) but will stay within the framework for now. European payment mechanisms such as INSTEX will keep an economic lifeline open for the Islamic republic and are contingent upon Tehran complying with the terms of the deal. Still, this will not be enough to offset the pain from continued U.S. sanctions, though Iran won't resume nuclear activities prohibited by the JCPOA this quarter. On the Korean Peninsula, the abrupt end of the nuclear summit between North Korea and the United States doesn't mean that negotiations are dead. They will, however, remain in a stalemate this quarter as regional stakeholders — primarily China and South Korea — work to reset the talks.
Venezuela Under Pressure From Within and Without. Starved by U.S. sanctions, Venezuela will experience increasing support for the country's political opposition over the quarter. The ultimate success of a forced political transition, however, will depend on the country's armed forces breaking from Maduro en masse. In the coming weeks, lower-level military personnel will continue to throw in with the opposition while crucial high-ranking officers debate their prospects. Protests will continue to grow and more violence is expected. The United States and its allies will exert influence from afar, but a foreign military intervention is unlikely.
EU Parliament Elections Will Suck All the Oxygen From the Room. The leadup to — and results of — the European Parliament elections will fundamentally delay decisions on significant issues beyond the quarter. Major structural reform initiatives will be put on hold until the end of May, when voting concludes and results are announced. Following the elections, a more fragmented body can be expected as Euroskeptic parties gain influence. Though pro-EU parties will ultimately maintain control, representatives of EU countries will be more heavily guided by domestic concerns when it comes to deciding matters of the Continent, leading to a political stalemate in Brussels.
The Thucydides Trap: How to stop the looming war between China and the U.S.
https://bigthink.com/mike-colagrossi/thucydides-trap-historical-conflicts-of-nation-states
The Thucydides Trap leads us to believe a U.S.-China war is inevitable. But is a 2,400-year-old school of thought really what the U.S. should base its foreign policy on?
Brutality and warfare have followed humankind wherever we have gone. Throughout the years there have been epic battles between people that have been carved into Neolithic caves and immortalized in the Homeric Hymns. If we were naive enough, we might actually believe that this was the only mode of human existence and interaction.
By looking at the historical clashes of nations we can learn how the ancients overcame adversity through warfare and early types of diplomacy. Studying the choices of ancient nations can also prompt us to ask whether these solutions are still relevant to us today. Everyone now faces a new enemy worldwide that we must face together: ourselves. In a globalized and interconnected cultural ecosystem such as ours, we are required to come up with solutions for the common good of the world.
Through diplomatic and humanitarian efforts we can enter into a new world stage where peace and prosperity are the norm and diplomacy is the ultimate goal of those in power.
Revisiting the Thucydides Trap with China
Harvard Professor and political scientist Graham T. Allison has weighed the historical theory told originally by the ancient Greek historian Thucydides and put it into perspective with current U.S.-Chinese relations. In History of the Peloponnesian War (431–404 BC), Thucydides writes:
"War began when the Athenians and the Peloponnesians broke the Thirty Years Truce which had been made after the capture of Euboea. As to the reasons why they broke the truce, I propose first to give an account of the causes of complaint which they had against each other and of the specific instances where their interests clashed: this is in order that there should be no doubt in anyone's mind about what led to this great war falling upon the Hellenes. But the real reasoning for the war is, in my opinion, most likely to be disguised by such an argument. What made war inevitable was the growth of Athenian power and the fear which this caused in Sparta."
Allison coined the term 'Thucydides Trap' to describe the idea that when one great power is rising it will inevitably threaten to displace the established power, consistently resulting in war.
Allison believes that this doesn't have to be the case, and David C. Kang, Professor of International Relations at the University of Southern California who spoke with Big Think recently, also believes that the Thucydides Trap must be avoided at all costs.
Throughout time, the Thucydides Trap has been reenacted multiple times across the world stage. Allison writes that over the past 500 years, of 16 documented cases where one rising power threatened to displace a ruling one, 12 resulted in war.
We're all unconsciously familiar with this phenomenon. If you're an American, it's part of the history that's celebrated every year: The United States rebelled against the British Empire and war was waged in the 18th century, a victory that led to America overtaking Britain as the world's dominant superpower in the 20th century.
While there are lingering fears that China's rapid economic and political growth will leave us in a similar state of competition and warfare, many great thinkers believe that we can avoid this trap. Professor Allison thinks we can avoid war with China by taking into account five lessons from the Cold War:
War between nuclear superpowers can't work because of “mutual assured destruction" or MAD.
The nuclear paradox: Leaders must be prepared to engage in a war they may not be able to win just to intimidate adversaries. If war occurs, both nations lose and millions die. See the above point.
The superpowers must define a list of “precarious rules of the status quo ... By reaching agreements on contentious issues, the United States and China can create space to cooperate on challenges..."
Domestic performance is just as important as what a nation does abroad. The U.S.'s democratic-capitalist model must succeed at home to win against Xi's Leninist-Mandarin authoritarian model, and vice versa.
Coherent, concrete policy strategies for dealing with China must be created. As Allison succinctly puts it: "Hope is not a strategy."
Leaders must realize that all-out war spells the end of the human race when it comes to superpowers with nuclear weapon stockpiles. This is planetary suicide and there won't be any game theorists or policymakers left to debate the outcome.
Even so, military men in Washington and Beijing must play through these wargames in their minds in order to keep the risk of total annihilation a thought that must never be acted upon. They must both do their best to deter potential actions that could lead to this world-ending situation. This same idea must be applied between all nuclear powers, which makes it relevant for curbing any battle between nuclear superpowers.
Policy, or "precarious rules of the status quo" as President John F. Kennedy called it during the Cold War, must be enacted to ensure arms-control treaties are upheld and mutual guidelines might limit any future cyber attacks or border disputes between allies. Also by ensuring domestic performance and international policy are on the forefront, our diplomatic channels will always be open with a rising power. Thus we can reduce the challenges of the Thucydides Trap arising once more.
Allison believes that this will lead to more prosperous times in America and around the world—particularly at a time when he believes America needs it the most. In Destined for War: Can America and China Escape Thucydides's Trap?, Graham Allison states:
“I am a congenital optimist about America, but I worry that American democracy is exhibiting fatal symptoms. DC has become an acronym for Dysfunctional Capital: a swamp in which partisanship has grown poisonous, relations between the White House and Congress have paralyzed basic functions like budgets and foreign agreements, and public trust in government has all but disappeared.
These symptoms are rooted in the decline of a public ethic, legalized and institutionalized corruption, a poorly educated and attention-deficit-driven electorate, and a 'gotcha' press — all exacerbated by digital devices and platforms that reward sensationalism and degrade deliberation. Without stronger and more determined leadership from the president and a recovery of a sense of civic responsibility among the governing class, the United States may follow Europe down the road of decline."
Roots of historical diplomacy
There is some scant evidence that proto-diplomatic practices existed in some of the earliest of civilizations. We do know that the Romans used envoys to spread their messages in the late antiquities.
Left: The Egyptian–Hittite peace treaty, between the New Kingdom of ancient Egypt and the Hittite Empire of Anatolia. Right: A French ambassador in Ottoman dress, painted by Antoine de Favray, 1766, Pera Museum, Istanbul.
One notable instance of early diplomacy was between the Pharaoh of Egypt and rulers of the Hittite Empire in 1274 BCE. There is evidence on a stone tablet that a peace treaty was signed between the two rulers and it is considered one of the first known international peace accords.
Some of our earliest foundations of modern diplomatic practices can be traced to medieval Europe and beyond. In nation-states that were emerging during the 14th to 16th century (in the early days of the Renaissance) diplomacy was beginning to be conducted between ambassadors and consuls of different countries. These professional diplomats would eventually form into the ambassador practices we use today.
Furthermore, the Italian city-states began to develop new forms of diplomacy as their empires grew richer and stronger. For example, a city state such as Milan would send a resident diplomat on a mission with a clear code of conduct. This was a new way of thinking about intrastate and international relations. Italian diplomatic culture began to lead the way forward as these missions would become the equivalent of our modern permanent resident diplomatic missions.
Globalization's effect on avoiding future wars
There have been many false starts and stops with the future of a globalized network of peaceful interaction. For example, after World War I the impetus to join the League of Nations with the herculean efforts shown by President Woodrow Wilson were largely ignored by opposition in the Senate. The onset of World War II would prove that this was a failed endeavor for striving towards world peace.
Eventually, the United Nations was created with the hope that it would ensure diplomatic international cooperation on a global scale. It now boasts over 193 members and it just could be one of the ways we deal with future clashes between nations.
The UN's mission to ensure peace between nations has been challenged throughout the years, but arguably upheld as we have never experienced a massive all-out war between two superpowers.
As a result of international governing bodies like the UN and increased communication lines between foreign powers, we've slowly built up a world political apparatus that can withstand potentialities of war. The Thucydides Trap is just that—a potential trap, but not a destiny.
Trump’s trade war with China is a blame game that has been played before – against Japan
http://theconversation.com/trumps-trade-war-with-china-is-a-blame-game-that-has-been-played-before-against-japan-109923
Nearly 30 years ago, Donald Trump complained on a US chat show about the trade practices of Japan. This was during Japan’s boom of the 1980s, which propelled it to become the world’s second largest economy. Now, China has taken that spot – and Trump is using the same rhetoric to attack it.
China is the bugbear of Trumpian foreign policy. According to one Wall Street Journal commentator, the US president is seeking to unify the world against China just as Reagan sought to isolate the Soviet Union.
Today’s China, as America’s primary economic challenger, can be seen as the latest incarnation of the East Asian model of authoritarian state capitalism. This was pioneered by Japan with its industrialisation and development during the 19th century.
China’s current communist rulers see industrialisation as the “magic key” to Great Power status – made clear from the message behind the Made in China 2025 scheme which asserts:
Since the beginning of industrial civilisation in the middle of the 18th century, it has been proven repeatedly by the rise and fall of world powers that without strong manufacturing, there is no national prosperity. Building internationally competitive manufacturing is the only way China can enhance its strength, protect state security and become a world power.
Ironically, a variant of this approach has been praised by some British MPs, in their suggestion of the Singaporean model as an example for post-Brexit Britain to follow. But they overlook how such a model is one of state capitalism, rather than the free-market nirvana they perceive it to be.
For it is state capitalism which enabled Japan and China to become manufacturing powerhouses. They both started with cheap, poor quality goods, and then created more sophisticated innovations – see, for example, the recent moon landing of a Chinese probe, the Chang’e 4.
The particular nature of China’s challenge is that its authoritarian system undermines the assumption that capitalism and democracy go hand in hand. A capitalist China is not necessarily a democratic China.
The war that never came
The most notable parallel between the rise of Japan in the 1980s, and China today, is the rhetoric used to describe them. While this includes references to seemingly unfair practices alluded to by Trump, it is more drastically articulated in predictions that conflict lies ahead.
This was expressed by Trump’s economic advisor, Peter Navarro, in The Coming China Wars, and followed George Friedman’s 1989 bestseller The Coming War with Japan, which predicted a shooting war between the US and Japan by the turn of the century.
In addition, both today’s China – and Japan three decades ago – have been held up as a cause of economic malaise in the Western world, with politicians promising to “get tough” with these nations. Yet this repeated rhetoric also demonstrates the perils of following such a simplistic vision.
For a start, the predicted Japanese-American conflict was based on the assumption that the end of the Cold War would see a divergence between Japanese and American interests and a dissolution of their alliance. However, rather than falling as the former Soviet communist states did, China went from strength to strength. This served to reaffirm the necessity of America’s alliance with Japan as a counter-balance in Asia.
It was the alliance that granted the US a degree of leverage over Japan, as illustrated by the 1985 Plaza Accord, which, in strengthening the yen, has often been held up as one of the causes of Japan’s subsequent economic slump. Repeating this with China is a far more challenging proposition for Washington.
The similarities in the rhetoric between these periods also illustrate the flaws in placing the blame of current Western economic malaise solely on Japan or China. The former’s economic rise of the 1980s came in the period of deindustrialisation throughout much of the Western world, bringing social dislocation which has not been fully resolved.
Problems and populism
The West’s failure to resolve the transition from manufacturing was amplified by poor global infrastructure and the failure to resolve the causes of the 2008 crisis, which played a significant role in the rise of populism. The impact was palpable in the “Rust Belt” states of the US, and the old factory towns of northern England, focal points for Trump and Brexit respectively.
These had also been among the perceived losers from the rise of Japan and China, with the belief that success in those countries came at the expense of the old industrial heartlands of the West. This is a sentiment which populist movements have been keen to exploit. Yet while the ascendant economic powers may change, the problems remain unsolved.
So while the rhetoric of the Japanese-American economic rivalry has compelling parallels with the current Sino-US trade conflict, it would be a mistake to follow these too closely. The underlying domestic structural factors behind current problems should not be overlooked in favour of externalising the causes.
Even if Trump achieves a perceived “win” over China, as his predecessors did with Japan, it does little to remedy these problems. Instead, it merely furthers temptation to blame an external “other” when the next wave of problems emerges.
The Old U.S. Trade War With Japan Looms Over Today’s Dispute With China
https://www.wsj.com/articles/the-old-u-s-trade-war-with-japan-looms-over-todays-dispute-with-china-11544717163
A fast-rising Asian power has built up a huge trade surplus with the U.S. and threatens American economic supremacy. Washington is outraged at how this new giant has acquired U.S. technology—often, U.S. officials warn, by theft—and how it has used the heavy hand of government to thrust its companies into a dominant global position. Now a Republican president who won election with surprising support from blue-collar men in the Midwest says that the economic rival had better make a deal, or else.
That, of course, is a description of the mid-1980s, when the rise of Japan was a top challenge for President Ronald Reagan and the U.S. was constantly setting deadlines and threatening tariffs. Now the U.S. has a similar challenge on its hands—only this time, it is China, which has replaced Japan as the world’s No. 2 economy and America’s No. 1 challenger.
President Donald Trump announced a temporary truce after a grilled sirloin dinner with Chinese President Xi Jinping in Buenos Aires on Dec. 1, and talks have resumed with a quick Chinese offer to trim auto tariffs. But a U.S. deadline looms: Without a new overall agreement in 90 days, Washington will slap 25% tariffs on $200 billion in Chinese goods. Days before the dinner, Mr. Trump told The Wall Street Journal, “They have to open up China to the United States. Otherwise, I don’t see a deal being made.”
Under similar pressure three decades ago, Tokyo made a fateful choice: major concessions to the U.S., including in the 1985 Plaza Accord that let Japan’s currency rise against the dollar. What happened next offers important lessons for the U.S. about how trade conflicts can end in unanticipated ways.
Faster than anyone thought possible, Japan ceased to be a threat to U.S. economic primacy. Under U.S. pressure, it cut interest rates to stimulate demand for imports. That spurred a historic bubble, which collapsed in the early 1990s, sending Japan into a tailspin. Soon after, all the hand-wringing about a world economy controlled by Tokyo ceased.
Like Japan, China may show vulnerabilities America isn’t prepared for.
By that measure, the U.S. emerged from that trade war a winner, and many of those pushing Mr. Trump to get tough on Beijing would be more than happy to see a similar outcome this time. A weakened Beijing would have trouble threatening the U.S. Navy in the Pacific or dictating how the globe’s cellphones should work.
But Japan’s case shows that slapping down No. 2 doesn’t necessarily solve the fundamental problems driving trade imbalances—including America’s propensity to spend money it doesn’t have. The imbalances with Japan transferred, in effect, to China. The blue-collar, Midwestern manufacturing jobs that Mr. Reagan and later presidents hoped to protect continued disappearing, with consumers no more likely to buy a U.S.-made TV or microwave oven than before.
In 1981, amid tensions over Japanese exports and the loss of American jobs, members of the United Autoworkers Local 588 of Ford Motor Co. in Chicago Heights, Ill., used sledgehammers and crowbars to destroy a Toyota Corolla. . Photo: Associated Press
China has closely studied Japan’s experience and is likely to put up greater resistance to the concessions that the U.S. wants. But whether it gives in to Washington’s demands or resists and suffers a big tariff hit, the Chinese economy is in for a destabilizing jolt. Like Japan, China may show vulnerabilities America didn’t expect and isn’t prepared for.
The passage of three decades has erased some memories of just how big a challenge Japan was thought to pose in the 1980s. In 1984, the U.S. trade deficit soared to more than $100 billion for the first time. Democrats pushed legislation that would retaliate against countries running large trade surpluses with the U.S. with punitive tariffs. Japan was the top target.
“The Americans were always threatening Japan,” recalls Toyoo Gyohten, then a top Finance Ministry official in Tokyo, in an interview. Mr. Gyohten, now 87, says that Japan realized that it had to placate its American ally or risk getting blocked from the U.S. market. So one day in September 1985, Japanese Finance Minister Noboru Takeshita slipped out of his house wearing golf shoes, to put any reporters off his scent, and played nine holes. But instead of completing the back nine, he headed to the airport and boarded a flight to New York, as Mr. Gyohten recalled in a 1992 book co-authored with former Federal Reserve Chairman Paul Volcker.
On Sunday, Sept. 22, 1985, at the Plaza Hotel in New York City, the U.S., Japan and three European countries announced what later became known as the Plaza Accord, calling for a sharp devaluation of the dollar. The goal was to make American exports more attractive and to cut the U.S. trade deficit. Otherwise, warned the finance chiefs, the result could be “mutually destructive retaliation.”
One participant said “the element of surprise was complete.” The devaluation happened with breathtaking speed—“unstoppable,” Mr. Gyohten recalls. A dollar bought about 240 yen just before Plaza. Within a year, it bought only 154 yen.
Pressures Then and NowA breakthrough deal known as the PlazaAccord helped ease a major trade skirmishwith Japan in the 1980s. But many of theproblems Washington wanted to fixpersisted, with China simply replacing Japanas the U.S.'s main trade adversary.Share of global gross domestic product*
%U.S.Japan
China19902000’10010203040
U.S. current-account deficitSources: International Monetary Fund (GDP); FederalReserve Bank of St. Louis (current account deficit)Note: 2018 figure is a projection
%
1985: Plaza Accord19902000’10-6-5-4-3-2-101
President Reagan wanted more action. The day after Plaza, with Japan in mind, he told a business group, “When governments permit counterfeiting or copying of American products, it is stealing our future, and it is no longer free trade.” U.S. companies, belatedly noticing Japanese rivals grabbing a bigger share of global markets, sometimes said they were getting cheated. International Business Machines Corp. alleged that Fujitsu Ltd. copied IBM’s mainframe operating-system software; Honeywell said Minolta stole its patented technology for a hit camera in 1985. Both disputes were later settled, but Washington barred foreign scientists from a 1986 conference on superconductivity for fear that Japan would take the lead, and pushed Japan to do more basic research on the theory that it would stop Japanese scientists from free-riding on American innovation.
Meanwhile, urged on by U.S. officials, Japan embarked on a quick stimulus program to boost imports. The Bank of Japan ratcheted down interest rates by half within a year and a half. The U.S. economy boomed, and the trade surplus shrank somewhat.
Still, America’s concern deepened. The late 1980s and early 1990s were full of alarms from trade officials and experts about how Japanese bureaucrats were plotting to control the world. U.S. trade officials warned in 1989 that a Japanese technology standard called Tron could undercut American dominance in computers.
A 1991 book, “The Coming War With Japan,” by George Friedman and Meredith LeBard, predicted that Japan, irked by U.S. trade demands, would “once more seek to become an empire on its own, dominating the western Pacific and eastern Asia.” Reviewers called it thought-provoking and disturbing. James Fallows, in the New York Review of Books, wrote that the authors’ prediction of “more and more open rivalry” between Japan and America “may well seem prescient.”
Japan’s Finance Minister Noboru Takeshita, right, meets with U.S. Treasury Secretary James Baker in Tokyo in 1986. The year before, Mr. Takeshita met secretly with Mr. Baker and others to hash out the multi-nation Plaza Accord. Photo: Associated Press
What few saw coming—even though it was already happening—was the crumbling of Japan’s juggernaut. The Plaza Accord and interest-rate cuts had exposed little-noticed flaws in economic management. Conflicted regulators let banks lend huge sums with inflated real estate as collateral. The Bank of Japan, lacking independence, hesitated to remove the punch bowl when Japan’s party of the century was in full swing. “Easy money, instead of generating greater demand for consumption and imports—it stimulated an asset bubble. Every Japanese was totally mesmerized,” says Mr. Gyohten, the former Finance Ministry official.
When the inevitable crash came, regulators were caught with their pants down—almost literally—as it was discovered that Finance Ministry officials and the bankers they regulated had enjoyed “no-pants shabu-shabu” meals together, where scantily clad waitresses served a beef delicacy.
Japan plunged into two decades of stagnation. Banks went bankrupt under the weight of bad loans, and prices started falling. Personal-computer software and chips based on the Tron technology proved no match for Microsoft Corp.’s Windows and Intel Corp.’s processors as a global standard. The Japanese bureaucrats pushing it watched helplessly as giants such as Google and Amazon were born on the West Coast.
Washington learned that it had limited skill at micromanaging a distant economy to lift imports, but America’s power to innovate surpassed anything the Japan doomsayers foresaw. By the turn of the century, Japan had ceased to be a top trade issue for the U.S. It was no longer worth arguing about.
There was one place where people didn’t forget the U.S. tussle with Japan: China.
“We have been paying close attention to the Japanese experience,” says Yu Yongding, a leading Chinese economist who has served as a planning adviser to the government. Mr. Gyohten and other top Japanese officials who lived through the bubble and its aftermath describe frequent visits from Chinese representatives.
Trading PlacesChina now represents the biggest portion of the U.S. trade deficit.U.S. trade deficits with Japan and China as percentage of total U.S. trade deficit.Source: U.S. Census Bureau
%JapanChina
1988’90’92’94’96’982000’02’04’06’08’10’12’14’16010203040506070
Initially, many in China focused on the simplest lesson of the Plaza Accord: the need to control one’s own currency. Even today, when most nations of China’s economic stature let their currencies move freely against the dollar, Beijing keeps daily trading of its renminbi within a narrow band.
“I wish to advise people to give up the illusion that another Plaza Accord could be imposed on China,” China’s ambassador to the U.S., Cui Tiankai, said in August. “They should give up the illusion that China will ever give in to intimidation, coercion or groundless accusation.”
Currency manipulation was among the biggest U.S. complaints against Beijing until a few years ago. Under Mr. Trump, the discussion has broadened into a critique of the entire way China runs its economy.
In place of Japan’s Tron, once-obscure bureaucratic plans in China are now at the center of global trade conflicts, particularly “Made in China 2025,” a policy adopted in 2015 calling on Chinese manufacturers to boost domestic production of critical high-tech components. China is considering changes to the policy under U.S. pressure, people familiar with the matter said this week. “I’m amazed at how this became such a big deal,” says Mr. Yu, the economist. “I don’t think any government can be so clever to know the new technologies.”
The parallels with Japan weaken when it comes to military tensions. While some in the 1980s feared that Japan could remilitarize and become a strategic rival to the U.S., China already plays that role, challenging the U.S. Navy by building up fortified outposts in disputed areas of the South China Sea. With a population more than 10 times Japan’s and a nuclear arsenal, China is far better-positioned to take on the U.S. globally than Japan was.
Yet amid the talk of superpower conflict, people may miss the risk of China going in the other direction, says Takahide Kiuchi, a former Bank of Japan policy board member now at the Nomura Research Institute in Tokyo. “The Chinese financial system is the biggest threat to global stability,” Mr. Kiuchi says. “The U.S.-China trade problem is occurring at exactly the wrong time.”
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China’s economy isn’t the same as Japan’s in the 1980s—for one thing, the average Chinese is much poorer today than the average Japanese was then—but some structural flaws are similar. Beijing’s regulators still have an inadequate grasp of risks in the financial system, especially the trillions of dollars in deposit-like investment products. Real-estate prices in China’s biggest cities have risen far beyond the average person’s budget, recalling the 100-year loans people used in the late 1980s to buy tiny Tokyo apartments. And China’s working-age population has begun shrinking because of a low birthrate—resembling the demographic time bomb that underlies Japan’s long stagnation.
As the trade conflict with the U.S. wears on, economists such as Mr. Kiuchi say that Chinese leaders are already backing away from overhauls such as exposing state-owned companies to more market competition. And they may turn to short-term stimulus such as public works, the kind of move that Japan tried after the Plaza Accord and later regretted.
If China’s economy hits the brakes, the U.S. would have plenty of reason to breathe a sigh of relief. Beijing might have to dial back its military buildup, and middle-class frustration could jump-start the political liberalization that President Xi has halted.
The risk is the instability that could ripple out into the world. It isn’t just the Iowa soybeans or made-in-South Carolina BMWs that China buys. Global commerce is intertwined far more than it was three decades ago. If China buys fewer Japanese robots or German gas turbines, those countries may take a hit that spreads to the U.S. The mere fear of a recession in a country like China, which accounts for one-sixth of the global economy, can hit markets and create a self-fulfilling prophecy.
If the U.S. is perceived as rooting for Beijing’s downfall, it could be self-fulfilling in another way by turning a country that has some common interests with the U.S.—a frenemy, one might say—into an outright enemy. Mr. Trump himself seems aware of the risks. At a news conference on Nov. 7, he started one answer with what sounded like characteristic crowing about a policy success. “China has come down tremendously. Tremendously,” he said. “China would have superseded us in two years as an economic power; now, they’re not even close.”
But then he caught himself. “I don’t want them to go down,” he said. “We’re going to see what we can do.”
Chinese Media Warns of Japan's Plaza Accord Lessons
https://www.bloomberg.com/news/articles/2018-08-17/chinese-media-warns-of-japan-s-painful-lessons-from-plaza-accord
As China and the U.S. prepare to resume trade talks, a Chinese state-run media outlet has reminded its readers of Japan’s economic plight after it agreed to U.S. demands in 1985.
That year, under pressure from the U.S., Japan signed the Plaza Accord, agreeing to strengthen its currency against the U.S. dollar. Rapid and steep yen appreciation and Japan’s domestic policy mistakes eventually brought about the nation’s "lost decade," according to an article published Friday by China’s official Xinhua News Agency.
The article, which didn’t mention the Chinese currency, came as China and the U.S. prepare for the first major negotiations in more than two months in an effort to head off all-out trade war. President Donald Trump has prodded China to offer more at the bargaining table.
"The currency and international trade are not only global economic issues, but also domestic political issues," the story said, after recounting the U.S. exporters’ lobbying efforts in the early 1980s. "Although it cannot solve fundamental issues of trade imbalance, the U.S. government always, again and again, looks for scapegoats."
Many economists blame the Plaza Accord -- which was also signed by France, West Germany and the United Kingdom -- and subsequent Bank of Japan rate cuts for worsening Japan’s asset-price bubble and the aftermath, a deflationary period.
The authors of the Chinese article said the currency intervention narrowed the U.S. trade deficit, but that it didn’t last long. Meanwhile, the Japanese companies relocated production abroad and expedited innovation, boosting their global competitiveness, they wrote.
"It’s worth learning from the lessons of the Japanese government, which inappropriately handled the changing situation, leading to serious consequences for the domestic economy. And from the Japanese companies which actively made adjustments to face the challenges," they said.
Listen to what gold is telling you
https://blog.smartmoneytrackerpremium.com/2018/12/listen-to-what-gold-is-telling-you.html
Listen to what gold is saying. It’s not deflation that we have to worry about. We’re about to enter a multi year period of rising inflation. Seriously did you think years of QE weren’t going to have consequences at some point?
For a long time I’ve maintained several key macro views.
Gold started a new bull market in late 2015.
The dollar started a secular bear market in early 2017.
Stocks have not topped yet. We still have higher highs ahead.
First off let’s look at the stock market.
Did we not learn anything from the last two bear markets? Central banks don’t just stand on the sidelines and watch quietly as everything comes crashing down. They fight back. That means tops in our modern markets form as megaphone patterns. The last top in 2007 was a megaphone pattern as Bernanke slashed rates and printed money in the attempt to prevent the real estate market and economy from unraveling. Ultimately it failed and resulted in an inflationary storm that just intensified the recession.
The same pattern is beginning again in 2018. The megaphone top has begun. Now we just need to test the lower zone of the pattern and panic central banks back into reflation mode.
This should start with the Fed balking on the December rate hike. And they will balk if the market breaks the October low next week. This will be the beginning of the end for the dollar. The only thing holding this pig up has been the expectation of continued rate hikes. Remove that and the dollar will be toast. (and if we get a final trade deal with China the megaphone pattern could morph into a melt up).
Next let’s look at the CRB.
Currently commodities are moving down into a 3 year cycle low. At first glance that would seem to be deflationary. But what most people fail to take into account is what happens after the 3 YCL is struck. Markets reverse and start moving back up. A 3 YCL gets everyone on the wrong side of the market. Looking in the wrong direction so to speak. It pulls the rubber band far to the downside, but what most people fail to anticipate is what happens when the rubber band snaps back. In our current setup the last 3 year cycle has been a long basing pattern. Long basing patterns like this generate powerful rallies. Commodities are setting the stage and building the fuel for a major thrust out of this multi-year base.
And this brings us to gold … which is trying to warn anyone who is listening what is coming.
First off notice that gold did not make a lower low in September when the dollar broke out to new highs. That was the bell ringing that something had changed. Also notice that gold is starting to accelerate higher over the last several days even though the dollar is only down marginally. Gold is anticipating the reflation.
As of the close this week gold has broken through two major resistance zones.
There is some minor resistance in the 1260-1280 region, but the next major resistance is at 1300-1310.
Next let’s look at the miners.
You can see the breakdown from the long consolidation zone. Then the false breakdown below the post election low allowing smart money to enter at the exact bottom just like the bear trap before the baby bull.
Miners are preparing to re enter the consolidation zone. Once they do it shouldn’t take long for them to test the top of the zone.
I posted this chart several months ago. Notice the volatility coil that formed on the monthly charts. The initial push out of a coil tends to be violent… but it also is more often than not a false move that is soon reversed producing a much more powerful and durable move in the opposite direction. It shouldn’t be long before GDX re enters the coil consolidation. I’m betting it will be before the end of the year. It’s even possible GDX might test the upper consolidation zone around $25 by year end or early January.
Listen to what gold is trying to tell you.
It’s saying the rate hiking cycle is coming to an end.
It’s saying central banks are going to reflate.
It’s saying the dollar is going to roll over into a bear market.
It’s saying inflation is coming.
This entry was posted in Uncategorized on December 8, 2018.
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