Our So-Called Foreign Policy: Trumply Deranged Coverage of a Trump Security Policy Win

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alliances, allies, America First, burden sharing, deterrence, Financial Times, globalism, James White, Joe Biden, military spending, North Korea, nuclear weapons, Our So-Called Foreign Policy, South Korea, tripwire, Trump

I know that there’s lots more to say about last week’s outrageous Capitol Hill riot and its political and even broader fallout, but sometimes a news development comes along that’s so underappreciated and at the same time so poorly reported that I just couldn’t resist weighing in right away.

I’m talking about decisions being made in South Korea to become more militarily self-reliant, and the way they were reported in the Financial Times a week ago. The article, by Edward White, had it all as far as my Trump-y, America First-type worldview is concerned: an (apparently unwitting account) of signs of a clearly emerging potential triumph for this approach to U.S. foreign policy; a comparably stinging (and unwitting) rebuke of its globalist counterpart; a complete failure to mention the benefits for the United States (as opposed to the impact elsewhere) coupled with  attempts by globalist supposed experts focusinf singlemindedly on the downsides and ignoring the consequences for Americans; and just plain sloppy journalism.

As known by RealityChek regulars, the news that long-time military ally (or protectorate, depending on your point of view) South Korea is revving up its defense spending is an unalloyed good for Americans. For decades, Seoul’s skimpy military budgets, which remained modest despite the country’s phenomenal economic progress, required the United States to supply the conventional forces needed to defend it against a North Korean attack.

The large American troop contingent stationed right at the Demilitarized Zone, directly in the North Koreans’ invasion path, might have made sense when Washington had no reason to fear any conflict going nuclear, and indeed viewed its possession of these arms as a pillar of its strategy of protecting South Korea by deterring aggression (because North Korea had no nukes of its own that could hit the U.S. homeland in retalition). But since North Korea is at the least so close to possessing this capability, the American units have turned into a tripwire all too likely to expose Americans to these risks, thereby rendering the U.S. nuclear guarantee a prime example of policy masochism. (This post described the changing Korean peninsula and overall Asian security environment, and its implications for U.S. strategy, back in 2014.) 

As also known by RealityChek regulars, President Trump has displayed some awareness of this situation, and, as White has reported, has pressed the South Koreans to get their self-defense act together – though in his often typically incoherent way, focusing almost entirely during his term on securing more South Korean financing of the expenses of deploying the U.S. forces on the peninsula than on planning to withdraw, and thereby eliminate the nuclear risk to America that their presence creates.

But White’s article cites evidence that Seoul has interpreted Mr. Trump’s harangues about rip off-obsessed allies as a clear sign that the United States is no longer a reliable ally, and that South Korea needs to build the manpower and especially weaponry it will need if the United States flies the coop. Especially interesting is the apparent South Korean conviction that these preparations must be made even though alliance fetishizer Joe Biden will become President on January 20.

Clearly, nothing could be better for the United States, and just as clearly, Trumpian impatience – following decades of coddling free-riding by globalist American leaders – deserves most of the credit. Even if Biden has no intention of withdrawing the American troops and bolstering his own country’s security, at least one major argument against such a step would be eliminated if South Korea became self-reliant.

But none of this side of the equation will be found in the article. Instead, South Korea’s stated new strategy is depicted as an regrettably inevitable result of “Mr Trump’s treatment of long-term allies.” And of course, grave risks abound, including the chance that “The build-up could send unintended signals of aggression or weakness, inviting miscalculations or adventurism from countries including North Korea, China and Russia.”

Typically, however, these experts ignore the screamingly obvious: If the U.S. troops leave, any miscalculations or adventurism would be problems for South Korea and its neighbors, not for the United States.

As for the sloppy journalism, that comes in when White tries to show that South Korea has already been an impressive military spender:

“South Korea’s annual defence bill is already high compared with those of many countries of a similar size and wealth. Military spending as a percentage of government expenditure was 12.7 last year, according to Stockholm Peace Research Institute data, ahead of 9.2 per cent in the US and the UK’s 4.5 per cent.”

To which the only serious response is, “Seriously?” Because why should anyone except an apologist care how Seoul’s defense spending compares with similarly sized or wealthy countries, much less with the United States’? After all, almost none of these countries lives in what’s probably the world’s most dangerous neighborhood, with an utterly deranged, nuclear-armed regime right next door for starters? Given South Korea’s (great) wealth, and North Korea’s impoverishment, the only important gauge of the adequacy of Seoul’s military budget is whether it can meet South Korea’s needs. And obviously, there’s a long way to go in this respect.

Moreover, even anyone who puts any stock in the numbers mentioned by White needs to ask themselves why the emphasis is on percentages of government spending? What actually counts is percentage of gross domestic product (GDP, or the entire economy). Because it’s the share of total national resources devoted to defense that genuinely makes clear the priority it enjoys. And with 2.7 percent the figure for highly insecure South Korea, according to the latest available data, and 3.4 percent that for the highly secure US of A, the only accurate way to describe defense as a South Korean priority is “not real high.”

Don’t get me wrong: As a sovereign country, Seoul has every right to skimp on defense spending. It also has every right to try to make another country bear an outsized measure of cost and risk for this decision. But the equally sovereign United States has every right to refuse to keep playing Uncle Sucker, especially when North Korea’s nuclear weapons make the stakes so potentially catastrophic. America’s outgoing President understood this, however imperfectly. Anyone believing that America’s security (especially from nuclear attack) needs to come first for Americans should be hoping that the nation’s incoming President quickly gets on this wavelength.

Im-Politic: An Overlooked Reason to Rethink the Four-Year College Model

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adolescence, college, education, Financial Times, higher education, Im-Politic, Oren Cass, students

I feel hesitant to write about what is or isn’t going on on college campuses these days because it’s been quite a while since my own student days; my visits in recent decades have been limited to short trips either to give guest talks or lectures or to drop off and pick up my son when he was an undergrad or to take in an occasional basketball game at George Washington U.; and although I have some friends and acquaintances in academe, we don’t often seem to discuss campus life and how it has or hasn’t changed over time.

So sure – I’ve covered subjects like the dangerous direct and indirect Chinese government presence in American colleges and universities, and about some of the conflicts that have broken out over how to deal with historical figures with racially charged records. (See, e.g., here.)  But I can only recall one instance of even briefly mentioning the crucial matter of how well these institutions are or aren’t educating students and otherwise preparing them to be successful adults and informed citizens.

I’m focused on this matter today, however, because of two recent developments that seem amply to justify the deepest skepticism about the model of undergraduate education that’s become dominant in recent decades. The first entails the much remarked on force with which the CCP Virus has driven so much instruction on-line, and all the questions that this shift have intensified about the constantly surging costs and therefore value of a four-year degree – which of course includes the cost of campus physical plants that provide so many services that have little to do with education.

The second was the appearance last week of a Financial Times column that’s brilliantly alluded to a strong resulting suspicion of mine that keeps growing, and that surely is widely shared, if still rarely voiced explicitly. As author Oren Cass wrote in a piece covering many of higher education’s woes:

“It’s easy enough to disprove the economic claim that attending college promises them success, but much harder to refute the cultural message equating ‘not college material’ with ‘loser’. Worse, we advertise the college experience as an amusement park entitlement — a rite of passage filled with sports and parties, sex and alcohol, activities calendars overseen by cruise-ship directors called ‘campus life co-ordinators’, and, oh, classes that you should try to attend, all paid for by someone else or at some other time. Try convincing a teenager it would really be smarter to forgo that experience for a few years of hard work, an industry credential and some savings in the bank.”

And he further derides colleges today as “four-year summer camps” and “private playgrounds” for the children of the wealthy.

That second swipe unintentionally reminds us that major distinctions need to be made between private and public universities, and that therefore a latter day version of “Animal House” probably isn’t what most undergrads whatever their school are living.

But beyond the exaggeration and oversimplification, Cass points the way to a possibility that deserves full consideration, and it seems best expressed as a question. Let’s leave aside all the controversies raging today about political correctness and safe spaces and snowflakes and academic propagandizing. Let’s also table for now the serious and necessary discussion concerning whether higher education’s emphasis should be more vocational and professional and technical, or more purely academic.

The question remains – and it’s actually a series of questions: If a society wanted to transmit most effectively to its college-age youth the widest range of the knowledge and skills and experiences considered essential for later life both public and private, would it really be placing these late teens and early twenty-somethings in environments that are largely isolated physically? Where the basics of life are literally served up to them on a platter? Where none of the chores and responsibilities of independent adulthood need to be carried out or met? Where all of the adults present are products of the same cloistered set ups? Whose ideal of the community of scholars – however typically honored in the breach – is barely one step removed, at least in the West, from the medieval monastery? And would that society structure this system so as to ensure that so many of these coddled youth would be those whose talent or birth or some combination of these and other advantages tended to push them into lives of outsized power and influence?

Following on: Could such a cloistered situation reasonably be expected to engender anything deserving the term “personal growth,” or reinforce any desirable form of maturation? Isn’t it far likelier that it’s fostered the kind of entitled sensibilities that never fail to harm any human community, and in fact the kind of narcissism and extended adolescence that seems so widespread among my own Baby Boomers – the first generation during which a system once reserved for the upper classes was extended to the broad middle – and succeeding cohorts?

Of course no society in its right mind would knowingly engage in practices so described, or expect anything but counterproductive, and even perverse, results. Just as obvious, this portrait of campus life is too broadbrush and shouldn’t tar the reputations of all those students who work their way diligently through four-year colleges needing to balance the requirements of classroom and jobs, of generations before them faced with the same challenges and strapped with the often inevitable debts, and of students who have donated big chunks of time and continue to volunteer for all manner of worthy community service projects.

Yet can anyone seriously deny that a nation-wide gap dividing town and gown is exactly what’s been created and cultivated in higher education for decades now? Or that its excessive width – indeed the imperative of rethinking the very goal of immersing near-adults in an environment defining itself, however undeservedly, as higher brow than its surroundings – is becoming ever clearer from the abundant evidence that many of even the less completely pampered undergrads leave academe lacking everything from critical thinking skills to the ability to function in the workplace without time-consuming supervision? (See, e.g., here.)

I am far from knowing what model should or will replace it, though I sense that the very breadth of higher education’s failure is a glaring sign that more than one alternative is in the offing. I’d also be surprised if lots of time and trial and error weren’t needed to devise them, and if some version of the current four-year community of scholars model didn’t survive as the best match for some students – as it is now.

But for most – and even for many of the most academically inclined – higher education seems certain ultimately to much more closely integrate the classroom world and the broader world that graduates will enter. And I’m equally certain that, once this transition is well underway, most will look back and wonder why anyone thought they should have been kept so far apart to begin with.

(What’s Left of) Our Economy: U.S. and Other Foreign Investors Keep Funding the China Threat

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bonds, China, decoupling, delisting, FDI, Financial Times, foreign direct investment, investment, Joe Biden, pension funds, Phase One, portfolio investment, Steven A. Schoenfeld, stock markets, stocks, Trade, trade surplus, Trump, Wall Street, {What's Left of) Our Economy

Here’s one of the most depressing articles I’ve read in a long time, and it deals with a (big) piece of U.S.-China economic relations to which I haven’t paid enough attention so far:  flows of financial investment.

It’s depressing because it shows that, although the Trump administration has (rightly, in my view) begun to decouple America’s economy from China’s, and made impressive progress in trade and foreign direct investment (purchases of “hard assets,” like factories and labs and enterprises and real estate), portfolio investment (purchases of stocks and bonds) into China from around the world is not only continuing – it’s booming. And these capital flows, including resources from Americans, are already much bigger than direct investment flows and are  rapidly approaching even the mammoth scale of trade flows.

According to this Financial Times piece, in total, investors outside China this year have bought about $150 billion worth of Chinese stocks and bonds – including Chinese government bonds. (Not that the debt of Chinese entities practically speaking differs fundamentally from national and local Chinese government debt, since there’s no private sector worthy of the name in China.)

The Financial Times reports that the vast majority of these inflows are bond purchases, meaning that investors outside China are lending to all manner of borrowers inside the People’s Republic. But buys of stocks in the Chinese entities commonly and misleadingly described as “companies” that presumably closely resemble their counterparts in genuine free market systems matter as well, because they, too, make new resources available to the Chinese regime. And after suffering from net outflows earlier this year, when Beijing locked down much of the country’s economy after the CCP Virus broke out, Chinese stocks are enjoying net inflows once again.

Moreover, China is starting to enjoy this foreign capital windfall just as its own ability to generate the savings needed to finance the huge debts that have fueled the latest phase of its ongoing economic expansion has begun weakening. Indeed, the need to replace faltering domestic capital sources with foreign capital is exactly what’s behind Beijing’s recent spate of decisions to reduce the barriers to overseas investing in China’s financial markets.

Foreign purchases of Chinese financial assets are still dwarfed by China’s global trade surplus (i.e., its profits) this year, which stands at just under $500 billion through November. But they’re now twice as great as global direct investment in China (about $115 billion through October, Beijing reports).

Obviously, the Trump administration can’t directly control non-U.S. foreign investment into China. But capital coming from the United States hasn’t exactly been chump change. I haven’t been able to find official data, but Steven A. Schoenfeld of the investment research and advisory firm MV Index Solutions, who has been investigating this issue for several years, has written that, in 2019, “nearly $400 billion of new foreign investment into Chinese equities was driven by changes in allocations within benchmark indexes, with American investors accounting for more than a third of these massive portfolio flows.” In addition, he has estimated that the 30 largest U.S. public workers’ pension plans had invested more than $50 billion in Chinese entities as of the beginning of this year. (Full disclosure: Steven is a long-time close personal friend.)

The Trump administration belatedly has tried to curb American portfolio investment in China, and has both forced a big federal workers’ pension fund to halt a planned great increase its China holdings, and has ordered a ban on all U.S. financial investment in dozens of companies linked to the Chinese military.

But unless more comprehensive curbs are enacted, the decisions by Wall Street research firms to boost China’s presence in the stock indices they construct, and which both government pension and private fund managers generally try to track, will still ensure that these investors’ exposure to China keeps rising. And the lure of expanded opportunities in China’s already huge and potentially huge-er financial services market, and its still healthily growing real economy, will continue fueling American and other foreign investors’ appetite for both Chinese stocks and bonds. Ironically, the President’s Phase One trade deal could help sustain and even increase U.S. investments in China via the commitments China has made to ease barriers to entry for American finance companies.

In fact, Steven Schoenfeld’s research makes clear that overall, despite these Trump administration curbs, total foreign holdings of Chinese stocks and bonds could approach and even exceed the half trillion dollar level in the next two or three years. These sums would equal several percentage points of China’s total economy.

Nor does the foreign financial support for China stop there. Although the Trump administration and Congress have been working to tighten the standards Chinese entities must meet to list on U.S. stock exchanges, their presence in the three biggest such financial markets as of October had allowed them to achieve total market capitalization of $2.2 trillion.

Of course, the Trump years seem to be nearing a close, raising the question of whether apparent President-elect Joe Biden will try to tighten the clamps on U.S. capital flows further and even encourage American allies to do the same, or whether he’ll simply let current trends continue, or open the flood gates further.  Something we do know for sure:  Investors in Chinese markets seem awfully confident that Washington will let them continue with their version of selling Beijing the rope with which it can hang the free world.  Why else would Chinese stock prices be way up since his apparent election? 

Our So-Called Foreign Policy: Why the Public Knows Best

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Alexis de Tocqueville, Barack Obama, Democracy in America, Financial Times, globalism, Joe Biden, Our So-Called Foreign Policy, public opinion, Trump

Since the French aristocrat Alexis de Tocqueville came out in 1835 with his classic Democracy in America, insightful foreign analysts have used their outsiders’ perspective to help Americans themselves learn much about their own country.

The Financial Times‘ new editorial about the Never Trump-y globalist approach to foreign policy sure to be taken by a Biden administration continues this tradition – however unwittingly. In the British newspaper’s enthusiasm for a return to a pre-Trump U.S. international strategy, it valuably reminds Americans of how far that globalism has taken these American foreign policy traditionalists from the objectives that should always make up the nation’s overriding priority in world affairs.

The editorial contains the usual mindless paeans to content-free “multilateralism, free trade and an active American role around the world. That is, it regurgitates the idea that America’s best bet for maximal security and prosperity lies in pushing practices and positions that in the end are nothing more than means (in other words, tools, or tactics) that may or may not be useful in the kinds of circumstances that ultimately require countries to conduct foreign policies in the first place – those where a valued objective needs to be achieved.

But what really stands out about the article is its inadvertant acknowledgement that the agenda of the globalist President-elect and his establishmentarian team is not only highly unpopular with the public, but rightly so.

It’s become standard operating procedure for foreign policy professionals and self-appointed thought leaders to bemoan Everyday Americans’ reluctance to recognize the importance of globalism’s devotion to (quoting from the editorial) “restoring US leadership,” playing “global policeman,” and the like, and here the Financial Times writers don’t disappoint.

Much more unusual is their acknowledgement that there exists a “perceived disconnect between the Washington view of US interests and middle America’s more immediate concerns for its physical and economic security.”

A longtime hallmark of globalism has been to equate the two – and insist, in fact, that preserving that physical and economic security simply isn’t possible without globalism’s characteristic energetic international engagement in every dimension imaginable.

To be sure, the editorial’s use of the word “perceived” signals its belief that any such disconnect exists only in the minds of the uninformed or the shortsighted. But its use of the phrase “more immediate” inadvertantly indicates that the disconnect has a basis in reality. For although this wording doesn’t flatly deny the linkage, it carries the suggestion that the nation’s physical and economic security can be achieved to a significant, and even for the time being, an adequate extent without assuming all of globalism’s labors.

Globalists can still (and no doubt will) maintain that, even if true, this minimalist version of success can’t last indefinitely without completing more ambitious tasks – specifically, eliminating the very sources of threats to that American physical and economic security. To which critics of globalism can and should reply that this challenge is so formidable, and therefore costly and risky, that its pursuit risks turning the utopian into an enemy of the good.

Further, given how cloudy the personal crystal balls of even the most brilliant globalists undoubtedly are, and therefore how unpredictable many future challenges and opportunities will inevitably be, a more modest strategy of coping, reacting, muddling through, and avoiding “stupid stuff” (an unusually sound bit of non-globalist advice from globalist former President Barack Obama) logically makes the most sense – and doubly so for a country like the United States that’s already blessed with the kinds of strengths and advantages that can enable a low-risk, low-reward foreign policy to deliver results that are eminently acceptable, especially compared with many of the alternatives.

A final theoretical reason to pursue globalist foreign policies might be called the spiritual case – condemning the low-risk, low-reward alternative as utterly uninspiring. This supposedly lackluster nature matters crucially because, as explained in last Monday’s post, so many globalists seek foreign policy careers and push for their characteristic proposals not to help achieve ostensibly mundane aims like ensuring narrow-bore security and prosperity for their country, but out of loftier hopes to prove America’s historical worth by curing various global ills and slaying various global dragons. As a sympathetic author I quoted wrote of the globalist Biden team, they’re “eager to leave their mark on American foreign policy—and the world.”

But as even the Financial Times editorial writers point out, seeking global goals for there is absolutely no domestic political mandate could be a formula for “sparking a counter-reaction” strong enough to return “Trumpism to the White House in four years time.” All Americans have major stakes in hoping that a new administration learns this lesson sooner rather than later.

Im-Politic: The Governance Gap Still Undercutting Populism

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Christopher Caldwell, Financial Times, Im-Politic, Populism, Trump

Barely time for a quickie today, but it’s important to note that the political writer Christopher Caldwell has just thrown down to TrumpWorld and conservative populist nationalists (call us what you will) in general a challenge that still urgently needs to be met:  nurturing a class of skilled, knowledgeable policy professionals large enough to staff a conservative populist nationalist president adequately. 

Caldwell recognizes that success won’t come easily.  As he explains cogently in a new Financial Times piece, 

“For a populist, it’s hard to find good help these days. But it remains vital. The problem is not just institutional, it is temperamental. An effective populist adviser turns out to be a rare personality type: someone who loves bureaucracy enough to master its details, but hates it enough to join in pulling it apart.”

Indeed, this observation echoes one I made in 2018, when I wrote that the disruptive outsider Mr. Trump won the presidency, but continually lacked the benefit of “an advisory corps large and savvy enough to at least partly tame the federal bureaucracy.” 

But however difficult, Caldwell is clearly correct that the shortage of competent policy help led to a series of “terrible” Trump hires who either couldn’t perform their jobs satisfactorily, or turned out to be establishment Republicans and conservatives who decided to undermine his agenda from the beginning. (See, e.g., here), with often crippling consequences for his presidency, and the nationalist populist cause more broadly.

In defense of the President, and to a lesser extent of the populists who have long possessed the resources to create this kind of shadow government, Mr. Trump’s staffing woes stemmed in an immediate sense from the surprise nature of his 2016 victory.  He and his followers had been wandering in the political wilderness for so long that the prospect of actually running the country understandably seemed remote.  And having never planned in detail for a governance opportunity, all were caught off-balance.

Going forward, this excuse won’t cut it.  As Caldwell argues, a prime lesson of the aparent verdict of 2020 is that a populist President without large numbers of qualified hired hands will be a fatally underperforming President.  So starting immediately to fill the gap, as opposed to squandering “four more years,” is imperative

Our So-Called Foreign Policy: The Globalists Still Don’t Get It

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America First, Financial Times, Gideon Rachman, global leadership, globalism, international cooperation, international institutions, Joe Biden, multilateralism, Our So-Called Foreign Policy, The National Interest, Trump

It was tempting for me to react to Gideon Rachman’s column in yesterday’s Financial Times by noting, “At least he got it half right.” But this essay on Joe Biden’s determination to put U.S. foreign policy back on a globalist course isn’t even noteworthy by that modest standard.

For Rachman’s observation that a Biden administration is likely to find its goal of American global leadership much more difficult than expected to restore, and his conclusion that therefore the United States will have no choice to advance and protect its interests but to work via international institutions it can’t dominate and hope for the best, has been standard globalist fare for decades – as I’ve explained most recently and comprehensively here.

The crucial globalist mistake Rachman repeats entails what President Trump and his too-ragged pursuit of an America First strategy grasped in its essentials – that although the United States is far from strong (or wealthy, or wise) enough to achieve the central globalist goal of ensuring American security and prosperity by creating a fundamentally benign international environment, it is plenty strong and wealthy enough to achieve its essential interests through its own devices. The key is preserving and enhancing enough of that strength and wealth to maximize the odds of surviving and prospering in a world certain to remain dangerous or at least unstable.

To phrase this conclusion in globalist terms: The United States doesn’t need “global leadership” in the first place. It simply needs the capacity to take care of however it defines its own business.

An added virtue of this America First-y approach – success requires a lot less wisdom than globalism. That’s because (a) this strategy seeks to control what the nation can plausibly hope to control (its own affairs) instead of what it can’t plausibly hope to control (the affairs of everyone else); and (b) the United States’ favored (largely isolated) geographic position, its natural wealth, and its still formidable industrial and technoogical prowess endow it with a strong basis for withstanding and even thriving amid global turmoil that most other countries can only envy.

As I’ve also noted (in that National Interest article linked above) and elsewhere, the America First approach is needed even when working through those international institutions seems to be the nation’s best bet for coping with problems or maximizing opportunities. For as globalists (including Rachman in part) invariably miss is that the decision to foster “international cooperation” could even hope to be an automatic guarantee of favorable or even acceptable outcomes only if an objectively optimal solution for all concerned is already available and identifiable either by one or a group of the national governments involved, or by commonly accepted experts. Write me if you see any of these developments coming any time soon – even on a (rhetorically) widely agreed on worldwide “existential threat” like global warming.

In other words, for the foreseeable future, international institutions will be arenas of politics, not festivals of one-worldism, and international cooperation will have content. And if American leaders’ persuasive skills don’t suffice, for the best possible odds of mastering these politics and securing outcomes reflecting their country’s own distinctive interests and priorities, they’ll need to recognize that the former exist to begin with, and bring to bear the power (in all of its dimensions) needed to prevail satisfactorily. To cite a concept even globalists sometimes use, Washington will need to build and maintain and negotiate from “situations of strength.” But they’ll need to realize that these advantages are just as important in dealing with long-time allies and relatively benign neutrals as with adversaries like China and Russia.

The half of this cluster of issues Rachman gets right also includes his understanding that the American people will probably like the return to globalist-style multilateralism and cooperation even less than a Biden administration. But this insight isn’t exceptional, either, as his ultimate explanation for this resentment seems to be a neanderthal attachment to sovereignty by an electorate long viewed by globalists as too ignorant and unrealistic to acknowledge their superior wisdom.

And since, as Rachman correctly points out, Biden’s globalism is not only staunch, but pretty clueless itself, the nation will need considerable luck if his term in office avoids the debacles that so many of his pre-Trump predecessors created.

Our So-Called Foreign Policy: Already, a Biden Misstep

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alliances, allies, Asia, Asia-Pacific, China, Demitri Sevastopulo, East China Sea, Financial Times, globalism, Japan, Joe Biden, Northeast Asia, Our So-Called Foreign Policy, Senkaku Islands, South Korea, Taiwan, Takeshima Islands, Yoshihide Suga

Now wait a second! For decades we’ve been hearing that possible President-elect Joe Biden is a foreign policy genius! Or at least that during his (47?) years in public life, he’s gained encyclopedic knowledge of the world and especially its flashpoints. (See, e.g, here.)

And just last night came the news that the former Vice President may have needlessly thrown the Northeast Asia security scene into major confusion over whether his administration will or won’t defend the Senkaku Islands.

Never heard of the Senkaku Islands? I’m tempted to forgive you. After all, they’re little than a bunch of uninhabited islets and rocks in the East China Sea. Although the surrounding fishing grounds seem to be fertile and there may or may not be undersea energy resources nearby, in and of themselves, their economic importance at present appears marginal.

Their strategic importance, in terms of controlling sealanes close to the economic goliath of Northeast Asia could be greater. But if so, we begin approaching why the Senkakus should be closer to your radar screen. For the islands are claimed by no fewer than three countries: Japan (which currently “administers” them, China, and Taiwan. The first is a formal U.S. treaty allly, the second has become arguably America’s chief strategic rival both in the Asia-Pacific region and globally, and the third an historical part of China that Beijing seems increasingly determined to regain – and by force if necessary.

Moreover, since the Obama administration clarified the matter in 2014, it’s been U.S. policy to regard the Senkakus as Japanese territory that, under the terms of the two countries’ security arrangement, the United States is bound to help Tokyo defend against attack. And in principle, this includes nuclear weapons use – a major concern since the likeliest attacker these days, China, has lots of nukes of its own capable of reaching the U.S. homeland.

Or is this still U.S. policy? As widely reported yesterday, Biden issued a statement reaffirming the 2014 commitment (made of course when he was Vice President). At least that’s what new Japanese Prime Minister Yoshihide Suga claims Biden told him in a phone call. But as alertly caught by the Financial Times‘ Demitri Sevastopulo,

“In a summary of the call provided to the media, the Biden transition team said the president-elect had ‘underscored his deep commitment to the defence of Japan and US commitments under Article V’ [of the security agreement] but did not refer specifically to the Senkaku. A transition team spokesperson declined to comment beyond the content of the summary.”

Isn’t this exactly the kind of confusion an experienced foreign policy hand should know how to avoid? And in particular, one who’s made “renewing” and “restoring” these arrangements after four years of a supposedly destructive Trump approach a hallmark of his global strategy?

Nor does the confusion stop there, for the Senkakus aren’t the only disputed islands in Northeast Asia. Don’t forget the Takeshima Islands. Or should they be called by their Korean name – Dokdo? Because they’re claimed by both North and South Korea, as well as Japan. Since South Korea is a U.S. security ally on a par with Japan, do they qualify for American-aided protection, too? If the North Koreans attempt a grab, that would seem like an easy call. (Of course, never forgetting that the North Koreans may well possess nuclear weapons that can hit the continental United States, too – or soon will.)

But what if South Korea attacks them and Japan invokes its U.S. treaty obligations? Wouldn’t Tokyo have every reason to believe that the Senkaku formula applies to the Takeshima/Dokdos, too? And what about the reverse situation – a South Korean attack? Would a Biden administration spokesperson be content to leave those countries in the dark about America’s real policy, too?

These scenarios may seem far-fetched. But only a little while ago, so did a pandemic that would kill hundreds of thousands of Americans and millions around the world, and cripple the U.S. and global economies. I don’t recall the September 11 terrorist attacks being widely predicted, either.

Precisely because, for a globalist alliance worshipper like Biden, there are no easy answers to the Senkakus and Takeshima issues (and please don’t take my use of the Japanese names as an endorsement of Tokyo’s claims), the best maxims to follow are “Do no harm” and the closely related “Keep them out of the news.” Worrisomely, they’re two maxims that the ostensible master strategist who might become America’s next President seems to have completely forgotten.

(What’s Left of Our Economy: The Case for Decoupling from China Just Got Even Stronger

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China, consumption, consumption-led growth, decoupling, domestic demand, double-circulation, export-led growth, exports, Financial Times, Michael Pettis, rebalancing, Reuters, semiconductors, tariffs, The Race to the Bottom, Trade, Trump, {What's Left of) Our Economy

Double-circulation is all the rage nowadays in China – or at least among its leaders. No, it’s not anything related to treating the CCP Virus and the blood system. It’s the idea that the People’s Republic needs to shift its economic model away from heavy reliance on growing by exporting to dependence on growing by supplying its own commercial entities and especially consumers.

Double-circulation also could well be seized on by supporters of the pre-Trump U.S. trade policy status quo for easing off on the high tariffs on literally hundreds of billions of dollars worth of Chinese goods aimed at American markets. After all, if China needs to export less, logically anyway, it will also need to resort less to predatory tactics like intellectual property theft, massive subsidies, and technology extortion to juice these exports – whether they come from Chinese-owned entities or from foreign owned companies selling from China in foreign markets like America’s.

A China more focused on domestic demand might even give a break to foreigners trying to reach Chinese consumers, by giving Chinese households and commercial entities greater choices. But even though this point doesn’t follow as closely, the domestic consumption focus of double circulation could produce more opportunities for foreign producers and service providers anyway simply by putting more money in Chinese consumers’ pockets. If so, double circulation could make the Trump administration’s apparent aim to decouple the United States from China whoppingly self-defeating for American businesses and their workers. 

I haven’t bought the double circulation thesis – and its policy implications in particular – ever since I wrote my book on globalization and the U.S. economy, The Race to the Bottom, back in 2000. So I’m especially pleased to report that my case has just been reenforced by a genuinely excellent authority on the Chinese economy, and by the Chinese regime itself. Even better – these reenforcements also strongly support the apparent Trump administration objective of decoupling America’s economy from China’s.  

Just to be clear: At no time during the last twenty years have I doubted that, on the trajectory it was on, China would become much wealthier, and that the purchasing power of Chinese consumers would rise considerably. Moreover, there was no reason to believe that even the protectionists ruling in Beijing would want to shut imports out of the Chinese economy completely.

But I also had no doubt that, however much more the Chinese would consume in absolute terms, the economy’s export dependence would continue for the foreseeable future simply because Chinese incomes were starting from such meager levels. Therefore, the policy challenges created by the growing integration of the Chinese economy into the U.S. and larger global economies would continue as well – and actually intensify.

The reason? The combination of China’s rock-bottom purchasing power in absolute terms, its ambitious and understandable economic development goals, and its determination to advance them by hook or by crook, would keep confronting America and the world with a country that would long need to produce far more than it could consume in order to keep making economic progress.

For it would take decades at best before China’s population could absorb by itself the output needed to fuel Chinese economic development – or even close. The domestic market simply would remain too small. And since that excess output needed to be bought by someone, it needed to be sold overseas. In fact, Beijing would need to constrain the growth of domestic consumption, since in order to keep churning out the goods needed to power more production, most of the economy’s capital needed to be channeled to producers, not consumers.

And just this past week appeared two items strongly indicating that this analysis has always been and remains on target, and highly relevant to the decoupling debate 

The Chinese economy authority I’m talking about is Michael Pettis – who actually teaches at a Chinese university! In an August 25 Financial Times essay, Pettis made the following key points:

>”Double circulation” is nothing more than a fancy new term for “rebalancing” – and has been an officially proclaimed goal in China “since at least 2007.”

>Almost no progress has been made toward rebalancing: “The consumption share of Chinese GDP remains extraordinarily low, just two percentage points higher in 2019 than it was in 2007. Meanwhile, and not coincidentally, during this period China’s debt-to-GDP ratio doubled.”

>And that progress is largely to blame for China racking up so much debt. After all (and here, I’m reading between Pettis’ lines), since the global financial crisis broke out starting 2007-08, slower U.S. and global growth have tightly limited China’s export opportunities. But since even the country’s iron-fisted dictators couldn’t afford politically to antagonize the population by slowing living standards advances, Beijing needed to borrow on an immense scale, and spend most of this credit on an infrastructure binge that included too many unproductive white elephant projects.

>China’s debts are so big that they’re becoming unsustainable. The best way out – while keeping the population’s income progress reasonably intact – is to reignite exports. But – and here’s where Pettis (who details the problem in a new book) echoes my own analysis in an absolutely striking way – such efforts face a fatal contradiction:

“China’s export competitiveness…depends on ensuring that workers are allocated, whether by wages or the social safety net, a very low share of what they produce. China’s export strength, in other words, depends, at least in part, on the low share workers retain of what they produce.”

At the same time, “China can only rely on domestic consumption to drive a much greater share of growth if workers begin to receive a much higher share of what they produce, so the very process of rebalancing must undermine China’s export competitiveness.”

So putting the issue in the terms I’ve been using, and zeroing in on the policy implications – including hopes for the China market – however much Chinese incomes and purchasing power grow in absolute terms, continued Chinese economic progress still depends on its exports growing considerably faster. As a result, whatever U.S. and other foreign producers as a whole gain in selling goods made in their home countries to Chinese customers, they’re bound to lose more in their domestic markets to Chinese-made products. Of course, any number of individual firms will come out ahead. But their domestic economies consistently will come out behind.

Consequently (and these are my ideas, not Pettis’), whatever short-term disruptions, inefficiencies and therefore weakening of growth and employment take place in the course of pursuing decoupling, this strategy is essential for boosting output and employment in the United States over the longer-term, and for making sure that its own economic progress is sustainable – not to mention the decisive strategic benefits of reducing dependence on China in key industries.

The Chinese government confirmation of these China concerns and ideas of mine appeared in a Wednesday Reuters article on the country’s imports of semiconductors from around the world. The fact that they’re so huge (on a pace to top $300 billion this year for the third straight year, despite the Chinese economy’s partly CCP Virus-induced slowdown) is awfully interesting. So is their rapid growth – up from the $200 billion neighborhood in 2013.

But here’s what’s much more interesting, at least for the U.S. debate on China policy: the statement by the vice-chairman of the China Semiconductor Industry Association that “of the chips that China imported, about half would be exported eventually as they are incorporated into other products.”

It’s interesting and crucially important because it undercuts the claim that U.S.-China decoupling could backfire most of all on the companies relied on by America for so much of its technological competitiveness – the semiconductor companies.

The claim is based on the widespread view that these companies earn much, and in some cases most, of their global revenues in China. (See here for specific numbers.) And that’s indeed what they state in their financial reports.

But as the Chinese semiconductor vice-chairman just made clear, these figures are true only in the narrowest, technical sense. Specifically, when firms like Qualcomm or Intel sell a chip to an electronics company that manufactures or assembles in China, the transaction is recorded as a sale in China whose revenue comes from China.

But since half of the chips used in China go into products for export, it’s clear that in many cases, the end user – the ultimate source of the revenue – isn’t in China at all. It’s elsewhere, including prominently the United States.

Put differently, China isn’t simply, or even mainly, a customer itself for foreign-made, including U.S.-made, semiconductors. It’s largely an assembly location and export platform. It’s true that its electronics industry production base overall is now the world’s largest, that much of its output now consists of information technology products as well as consumer electronics, and that reproducing it elsewhere will take major, protracted effort. But the base itself – including China’s own semiconductor industry – could not have been built without the investments of foreign multinational companies. (See, e.g., here and here.) And if the multinationals can create such an immense complex in China, they can create one elsewhere, too, especially presented with the right policy carrots and sticks.

And by the way, the vice-chairman of the China Semiconductor Industry Association isn’t anything like an official from a typical industry association in a place like the United States. He’s a Chinese government official. So there you have it from the dragon’s mouth.

Neither the Pettis article nor the China semiconductor official’s remarks means that the United States should rush headlong into decoupling. But they do indicate that, particularly over the long-term, this dis-integration exercise will be an economic – as well as a national security – winner for Americans.

Those Stubborn Facts: China’s Losing the Trade Wars Globally, Too

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China, exports, Financial Times, globalization, supply chain, Those Stubborn Facts, Trade, trade wars

China’s share of total world goods exports, 2018: 25 percent

China’s share of total world goods exports, 2019: 22 percent

(Source: “China’s share of global exports falls in supply chains rethink,” by Kathrin Hille, Financial Times, August 17, 2020, https://www.ft.com/content/bfef2854-f8f3-4ce6-a00f-3b11123b01e8)

Im-Politic: When It’s Open Borders for U.S. Stimulus Funds

Tags

CCP Virus, Central America, coronavirus, COVID 19, El Salvador, Financial Times, Guatemala, Honduras, illegal aliens, Im-Politic, immigrants, Immigration, Mexico, Nicaragua, Open Borders, remittances, stimulus, The Washington Post, Wuhan virus, {What's Left of) Our Economy

Ever since the CCP Virus began devastating the U.S. economy, I’ve been calling for the U.S. government to “go big” on stimulus. That means I’ve been especially frustrated with the large number of Congressional Republicans who seem determined to keep down the amount of unemployment and other aid to be provided by the new round of proposed relief legislation that’s still being debated – even after the last supplemental jobless benefits have run out.

Here’s a development, though, that justifies some skepticism about shoveling money out the door as fast as possible: As reported in both The Washington Post and the Financial Times, it’s clear that a pretty sizable share of the income support funds being sent to immigrants in the United States have been forwarded on to their home countries, especially Mexico and the Central American states of El Salvador, Guatemala, Nicaragua, and Honduras. And it’s surely the same story for whatever Paycheck Protection Program monies have been sent to businesses owned by newcomers from these countries. 

In addition, these articles add to the evidence undercutting the common claim (debunked already in RealityChek posts like this one) that even illegal residents greatly benefit the U.S. economy on net because these border crossers wind up spending so much on domestic goods and services, thereby boosting America’s growth and overall employment, and contributing to the national tax base.

Compared with the total size of the U.S. economy and all the stimulus funding provided to date, the sums sent overseas (called remittances) are piddling. Mexico, for example, received $36 billion worth of these payments last year, and are running 10.6 percent higher this year so far. And this source tells us that nearly all came from the United States. Yet the federal government has provided literally trillions of dollars worth of virus-related aid to individuals and businesses.

At the same time, compared with the U.S. population (currently some 330 million), the share born in these countries and living in the United States both legally and illegally remains pretty modest itself – about 14.8 million in 2016 (the latest data available). That’s less than five percent. Further, illegals from Mexico and the Central American countries represented an estimated 46 percent of the total foreign born population in the United States as of 2017, and they’re not eligible for federal relief.  This means that it’s a relatively small number of Americans sending those tens of billions of dollars overseas, and a significant amount of resources transferred abroad per immigrant. (The number of actual senders is even smaller if you just count workers and business owners, and not their non-working family members.) 

Still, at a time of great privation in the United States, why are any government resources going right out the door (other than spending on imports – which of course takes place among these immigrants, too)? Clearly there are currently many millions of Americans for whom collectively about $35 billion would make a real difference nowadays.

By the way, remittances aren’t sent home only by immigrants in the United States from Mexico and Central America. Immigrants from everywhere transfer these funds (including to China, reported to be second biggest recipient country).  But Mexico is Number One by far and the Central American countries rank high as well.  ` 

The remittances information in the Post and Financial Times articles is also difficult at best to square in particular with the claim that illegal aliens are major engines of U.S. growth and prosperity. It’s already well-established that most work in low-wage jobs – so their spending power is pretty modest to start with. Now, both the Post and Financial Times articles report that it’s common for them to send abroad hundreds and even thousands of dollars each month.

These funds are overwhelmingly going to help hard-pressed family members in sending countries, which clearly stems from admirable values. Nevertheless, this is all money that does little, if anything, to enrich the U.S. economy, or create more employment for Americans. Unless you think that families in Mexico or Central America that depending heavily on funds from the United States are spending like gangbusters on imports of U.S.-made goods and services?

Because I’m a “go big” stimulus supporter, I’m in a lousy position logically speaking to insist that legislation going forward contain lots of strings to prevent waste and even fraud.  Those can’t be neglected, but they can’t be top priorities for anyone like me who believes that this is still a full-blown economic emergency. But I’m also wondering how hard it would be for Washington at least to tax funds like remittances that simply leave the country. 

What I’m even less optimistic about, though:  that even when confronted with this new information about remittances from illegals, the bipartisan Open Borders Lobby will stop making transparently absurd claims that that ever more of these newcomers are essential for ensuring continued American well-being, or rebuilding it.