Our So-Called Foreign Policy: Yes, America’s Europe Allies Really are Lagging in Decoupling from China

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allies, Biden administration, China, decoupling, Emanuel Macron, European Union, foreign direct investment FDI, France, investment, Our So-Called Foreign Policy, Trade

Since French President Emanuel Macron’s boot-licking recent trip to China, something of a debate has broken out this past week over whether America’s European allies are moving fast enough to reduce their dependence on commerce with the People’s Republic – or as fast as the United States is. Here’s a claim that they are. And here’s one that they aren’t.

How to know for sure – or with some confidence? Maybe by looking at some numbers? So I did. And the two most important 30,000-foot measures of trade and investment show that the Europeans are lagging significantly – in absolute term and relative to the United States. In fact, both measures indicate that investment in and especially trade with China recently has become more important to the European Union (EU), not less.

The gauges I use are two-way trade as a share of the total U.S. and European Union economies, and direct investment in China as a share of their respective goss domestic products (GDP – the standard measure of an economy’s size). As is often the case, I use the numbers as percentages of their economies because they provide the context that the numbers themselves lack. And this practice is all the more important when trying to figure out matters like dependence or vulnerability.

Let’s start with the European Union’s two-way trade with China and use 2019 as the first year – since that’s the last full year before the arrival of the CCP Virus pandemic, which focused so much attention on over-reliance on China (or any single supplier) for products deemed unusually important. As can be seen, combined exports to and imports from the People’s Republic has grown much faster since 2019 than has the EU economy:

2019: 4.01

2020: 4.39

2021: 4.83

2022: 5.75

In fact, during this period, this trade relative to the EU economy expanded much faster than in the years before 2019. For example, in 2012, two-way Sino-EU goods trade already stood at 3.36 percent of the Union’s output.

(Both sets of figures are in euros before factoring in inflation. The 2012 and 2019-21 figures come from the reliable Statistia.com website here and here. The 2022 trade data come from Statistia. The 2022 GDP figure comes from taking the 2021 Statistia number and adding the 3.6 percent pre-inflation EU growth estimate provided by the Union’s statistical service Eurostat.)

Here’s how America’s annual bilateral goods trade with China as a share of the U.S. economy has changed from 2019 to 2022:

2019: 2.60

2020: 2.65

2021: 2.81

2022: 2.71

These percentages are up some during this period, but by much less than those for the EU. And in 2022, the share went down. Also of note: These numbers are lower in absolute terms than the EU’s. For comparison’s sake, the U.S. figure for 2012 was 3.30 percent. So the importance of China trade to the U.S. economy had been fading steadily before 2019, and has stabilized since. But may be declining once again. So the EU certainly looks like a laggard here.

(These U.S. pre-inflation trade and GDP data come from the standard Commerce Department sources.)

Turning to direct investment flows to China, here are the annual EU results as a percent of economic output:

2019: 0.05

2020: 0.04

2021: 0.03

2022: unavailable

Here, EU relations with China look to be decreasing. But one source pegs the 2021-22 increase at 92.5 percent – a near doubling! Since EU economic growth last year wasn’t remotely that strong, it’s possible that the Union’s businesses have just executed a major turnabout.

(The EU GDP data for 2019-21- this time in pre-inflation U.S. dollars – come from the World Bank. The 2022 figure comes from the St. Louis branch of the Federal Reserve.  The investment figures, also in in pre-inflation U.S. dollars  – including the claim of the big 2022 jump – come from the China-Briefing.com website.)

Their U.S. counterparts?

2019: 0.03

2020: 0.04

2021: 0.01

2022: 0.04

No clear trend here – but no evidence of a big recent pop. So let’s call this a draw at best. And overall edge to the United States.

(The 2019-21 investment and all the GDP data come from the Commerce Department.  The 2022 investment figure can be found in this New York Times piece.

Not that I’m completely thrilled with the U.S. performance. Except for the curbs on exports of goods and investments related to advanced semiconductors, the Biden administration seems wed to the notion that the United States can trim its China economic sails in a piecemeal fashion. But this approach suffers at least two major flaws.

First, as I’ve repeatedly argued, the threat from China is systemic. Therefore addressing product by product or industry by industry is likely to keep Washington straining to keep up with China’s progress.

Second, the piecemeal approach seems to assume that “strategic goods” exist in isolation, even though nearly all manufactured products are only the tip of a (yes, iceberg-like) supply chain.

In other words, if you want to boost America’s health security, you need to make sure that the domestic economy can not only turn out facemasks, but the materials from which they’re made, the machinery needed to manufacture them, and the parts and components of this equipment.

Does this mean that there’s no substitute for aiming to shut down economic relations completely, however gradual this effort may be to proceed? Doubtful, because so many of the goods supplied by China, like apparel and toys, are harmless (although their purchase does increase resources ultimately available to the Chinese regime).

But does it mean that much more energy and thought need to be applied to so-called “decoupling” by both the European Union and the United States? Undoubtedly.

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Our So-Called Foreign Policy: Europe’s Worrisome Fence-Sitting on China

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alliances, allies, Biden, Bloomberg.com, China, Emmanuel Macron, Europe, export controls, France, free-riding, Mark Rutte, national security, Netherlands, Our So-Called Foreign Policy, semiconductors, technology

Ever since he belatedly admitted their importance (see here and here), a foundation of President Biden’s strategy for dealing with the wide-ranging challenges posed by China has been bringing America’s long-time treaty allies on board.

As the President made clear in a major speech shortly after his inauguration, China is America’s “most serious competitor” and “America’s alliances are our greatest asset” in countering this threat – and dealing with other global threats and crises.”

Mr. Biden seems to be making progress in mobilizing support from America’s Asian allies, both in terms of pushing them to get serious about their military budgets, and by winning meaningful cooperation for U.S. efforts to stay ahead of China in the means to produce ever more advanced semiconductors – which are central to creating the cutting-edge military systems of today and tomorrow.

But on the Europe front, this allies-focused strategy is hitting some serious roadblocks. Specifically, as Bloomberg.com just reported, although the continent’s major economies – especially the Netherlands, home of ASML, the company that makes the world’s most important semiconductor manufacturing equipment – have gone along to some degree with this American campaign, they’ve also warned that their cooperation will be limited in important ways.

Most disturbingly, particularly given U.S. plans to expand its new, sweeping controls on doing advanced semiconductor business with China, the Netherlands trade minister declared that the country “will not copy the American measures one to one. “We make our own assessment….” His remarks came after Chinese dictator Xi Jinping urged Dutch Prime Minister Mark Rutte to “oppose the politicization of economic and trade issues and maintain the stability of the global industrial chain and supply chain.”

Less disturbingly (because his country isn’t nearly as important a link in the global semiconductor supply chain) but disturbingly nonetheless (because it has always spoken with an outsized voice in European councils), France’s President Emannuel Macron told a group of business leaders, “a lot of people would like to see that there are two orders in this world. This is a huge mistake, even for both the US and China. We need a single global order.”

As a foreign policy realist, I can’t possibly criticize these and other countries for prioritizing what they view as their own national interests. Nor should American leaders. (Criticizing the accuracy of these views? That’s another story.) But Washington should call out avowed allies like the Netherlands and France for what looks like another version of long-time European national security free-riding, and make clear that continuing to play the game of what Bloomberg reporters call “carving out a middle ground when it comes to China” will carry severe consequences.

After all, Macron is right that the United States and China are “two big elephants” in a jungle, and that “If they become very nervous and start a war, it will be a big problem for the rest of the jungle.”

By the same token, however, allies that can’t be counted on when such conflicts start aren’t really allies at all, for their uncertainty makes impossible sound military planning, and could lead to dangerously erroneous miscalculation and other decisions.

In 1931, Florence Reece, the wife of a union organizer, wrote the classic protest song “Which Side Are You On?” to decry the notion of fence-sitting during times of conflict like those in Kentucky’s coal fields during that era. It’s a question that American allies like the Netherlands and France soon need to start answering much more clearly as China’s systemic threat to the United States grows ever more serious.

(What’s Left of) Our Economy: Encouraging Brexit Lessons for the United States

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Brexit, China, decoupling, European Union, Eurozone, Financial Times, France, Germany, IMF, International Monetary Fund, United Kingdom, {What's Left of) Our Economy

Some awfully interesting evidence supporting my view (see, e.g., here) that the United States is uniquely positioned in the world to prosper quite nicely from seeking to maximize its already high degree of economic self-sufficiency has just emerged — and from some awfully unlikely sources.

It’s indirect evidence, to be sure, and concerns the United Kingdom’s (UK) economic perfomance since the Brexit referendum of 2016 that mandated its pull-out from the European Union. But it’s relevant to the United States’ situation because the U.S. economy is far more actually and potentially self-sufficient.

The evidence – from the ardently globalist International Monetary Fund (IMF) and from the just-as-ardently anti-Brexit Financial Times – makes clear that since the UK finally left the EU at the end of January, 2020, it’s gross domestic product (GDP – the standard measure of a national economy’s size), has not only risen about as fast as those of the major members of the EU, but that it’s closed the gap that existed pre-withdrawal. And all the while, the UK has reaped a crucial benefit – much more control over its future.

The IMF evidence came in today’s release of its World Economic Outlook – a twice yearly Fund publication that surveys the state of the globe and includes growth forecasts for major countries, geographic regions, and formal groupings of countries like the eurozone (which overlaps pretty thoroughly with the EU).

According to the Fund, last year, the UK economy expanded by 7.4 percent in inflation-adjusted terms (the most closely monitored gauge of growth). The figure for the countries using the euro as their currency? A mere 5.4 percent. And it’s not like the lagging eurozone performance was dragged down by its long-time economic laggards. Germany’s real 2021 growth was a measly 2.8 percent, and France’s much better seven percent still trailed the UK’s.

In other words, a single country that’s cut itself off from all the alleged benefits of economic integration with a much larger market had out-grown the collective members of that market that presumably were enjoying all the economic advantages of such integration.

Moreover, the IMF’s latest projection for this year crowns the UK as a growth winner, too. Its 2022 price-adjusted GDP is forecast to improve by 3.7 percent, versus 2.8 percent for the euro area. The French after-inflation growth rate is expected to top the UK’s slightly (2.9 percent), but Germany’s will be stuck at a lowly 2.1 percent.

The only solace Brexit-haters can take from the IMF analysis is that the UK supposedly will fall way behind growth-wise next year. Its real GDP performance is pegged at a mere 1.2 percent – slower than that of the euro area (2.3 percent), France (a not-so-impressive 1.4 percent), and Germany (a respectable 2.7 percent, but a performance coming off an unusually low baseline). Yet needless to say, it’s much more reasonable to put more stock in near-term predictions and longer-term predictions.

In addition, even with this possible slowdown, the Financial Times graph below (taken from this article) shows that, despite its glass-half-empty title, if the IMF is right about 2022, the UK will have turned itself from a growth laggard in 2019 compared with France and Germany to a growth equal. And although the 2023 projections are tough to see in this graphic, they show near parity among the three.

Two qualifications to these findings need to be made. First, as I’ve repeatedly noted, all economic data for the last few years has been dramatically affected and surely distorted by the CCP Virus pandemic. Second, although the UK left the EU, it still does business with the bloc and its economic ties with the rest of the world stayed the same organizationally.

At the same time, for years after the referendum vote, businesses in the UK had been dealing with major uncertainties and the inevitable short-term costs of the negotiations over Brexit’s precise withdrawal procedures and terms. And the growth figures make obvious that, on the whole, they and the entire economy have managed to navigate them successfully.

And if the UK has so far emerged successfully from its Brexit-style decoupling from the EU, it’s hard to imagine that the much more economically diverse United States can’t emerge from a much more determined decoupling from China – which will promote vital and intertwined economic and national security interests – at least as well.

Our So-Called Foreign Policy: Biden’s Foreign Policy Pillar is Looking Hollow at Best

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alliances, allies, Beijing Olympics, Biden, China, Emmanuel Macron, European Union, France, Fumio Kishida, Germany, Japan, multilateralism, NATO, Nordstream 2, North Atlantic treaty Organization, Olympic boycott, Our So-Called Foreign Policy, Putin, Russia, sanctions, Southeast Asia, Taiwan, Ukraine, United Kingdom, Winter Olympics

What’s worse than “terrible”? It’s an important question because if that’s a term that accurately describes President Biden’s last week or so in office, then something even stronger is clearly needed for the setbacks suffered recently by multilateralism – the foundation of his foreign policy. And most troublingly, the idea that U.S. foreign policy success requires the cooperation of major allies has been failing most conspicuously when it comes to dealing with America’s two biggest global rivals – Russia and China.

Let’s deal with Russia first, but not because I view it as the biggest threat to the United States – or even much of a threat at all. In fact, I’ve long and repeatedly written that the fate of Ukraine has no importance for America’s national security, and that Washington should accept some form of the kind of spheres of influence-type deal in Eastern Europe that Russian leader Vladimir Putin has proposed.

But the Ukraine crisis is making the most headlines right now, the subject dominated his long press conference last Wednesday, and Mr. Biden is nowhere near taking my advice. Indeed, that presser added powerfully to the evidence that the United States and its allies are deeply divided over how to respond to actual and possible Russian moves against Ukraine.

As the President made clear, “[I]t’s very important that we keep everyone in NATO on the same page.  And that’s what I’m spending a lot of time doing.  And there are differences.  There are differences in NATO as to what countries are willing to do depending on what happens — the degree to which they’re able to go.”

Indeed, that very day, France’s President Emmanuel Macron proposed that the European Union seek separate from U.S. efforts a new security agreement with Russia. Macron did state that “It is good that Europeans and the United States coordinate” but added “it is necessary that Europeans conduct their own dialogue, We must put together a joint proposal, a joint vision, a new security and stability order for Europe.”

Since Europe is a lot closer to Russia and Ukraine that the United States, and will be much more dramatically affected by events in that region, this French position seems entirely legitimate to me. At the same time, it’s tough to believe that Macron would place such importance on a Europe-only effort if he was completely happy with what he knows of American diplomacy so far.

Germany’s views seem even farther from Washington’s. Its new government has not only refused to join some other European countries (notably, the United Kingdom) in supplying defensive weapons to Ukraine. It’s blocked at least one NATO country – Estonia – from sending its own Made in Germany arms to bolster Kiev’s military.

Moreover, trade-dependent Germany, whose trade with Russia in energy and other goods is substantial, doesn’t even seem very keen on deterring or punishing Moscow for invading Ukraine with the kinds of sanctions that are widely viewed as the strongest – cutting Russia off from the global network used by almost all the world’s financial institutions to send money across borders for all the reasons that money is sent across borders. At least Berlin is sounding more open to halting final approval of the Nordstream 2 natural gas pipeline if Ukraine is invaded.    

Asian countries seem more prepared to resist aggression from China, especially the military kind (as opposed to Beijing’s economic efforts at intimidation). Since this post last September reporting on steps they’ve taken to transition from U.S. protectorates to countries more closely resembling genuine allies, some have made even more encouraging moves.

For example, Indonesia reportedly “is preparing itself militarily” to deal with Chinese moves against islands located in its territorial waters and major straits through which much of its (and the world’s commercial shipping) travels. The Philippines – another Southeast Asian country embroiled in maritimes disputes with China, has just bought cruise missiles from India, and reportedly some of its neighbors are interested in these devices, too.

At the same time, despite a virtual summit between President Biden and Japanese Prime Minister Fumio Kishida, Japan’s policy on using its forces to help any U.S. attempt to defend Taiwan from a Chinese attack remains ambivalent at best. South Korea looks more hesistant still.

Nor is Japan backing the United States to the hilt on sanctioning Russia economically following a Ukraine attack, or even close. After the Biden-Kishida session, an anonymous U.S. official said (in a briefing posted on the White House website) that although the Japanese leader “made it clear his country would be ‘fully behind’” Washington on the issue, his response concerning economic responses Tokyo would support was “We did not get into the specifics about possible steps that would be taken in the event that we see these [potential Russian] actions transpire.”

The refusal of so many U.S. allies and others to join the Biden administration’s diplomatic boycott versus the upcoming Winter Olympics in Beijing also casts major doubts on the President’s emphasis on multilateralism. Can any countries declining even to keep their officials alone out of China for the games (as opposed to their athletes) be counted on to push back more concretely and powerfully against future provocations from China?

Athletes and sports fans know well the expression “Change a losing game.”  For all you others, it means that if a strategy or approach is failing, switch to an alternative.  But for the future of American foreign policy, the most important part of it remains unspoken, and the one that the President needs most urgently to heed:  “Change it before you’ve lost.”   

 

(What’s Left of) Our Economy: A Feeble Case Against U.S. Populism

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bubble decade, CCP Virus, coronavirus, COVID 19, Donald Trump, France, GDP, Germany, global financial crisis, gross domestic product, per capita GDP, Populism, real GDP, Wuhan virus, {What's Left of) Our Economy

Since I’m still glad that Americans elected a President with strong populist leanings in 2016 (however flawed he was in all the temperament and character ways on full display after his reelection loss), I was especially interested in a new academic study on how well populist leaders have run their nation’s economies when they’ve had the chance.

And since I’m particularly keen on properly assessing former President Trump’s record in this regard (it’s the selfish American in me), I was especially disappointed that this research on “The cost of populism” said nothing useful at all about the subject because it lumped the experiences of populist leaders in widely divergeant economies and across many equally divergeant periods of time into one category. Therefore, I thought I’d provide some perspective.

The authors, a trio of German economists, are pretty emphatic in their conclusion:

“When populists come to power, they can do lasting economic and political damage. Countries governed by populists witness a substantial decline in real GDP per capita, on average. Protectionist trade policies, unsustainable debt dynamics, and the erosion of democratic institutions stand out as commonalities of populists in power.”

And they highlight their finding that, after taking into account the circumstances faced by populist leaders once they’ve gained power or office (which presumably were pretty bad – otherwise, as the authors recognize, why would the populists have succeeded in the first place?), right after a populist victory, such economies as a group fared increasingly worse in terms of their growth rates compared with economies headed by more establishmentarian leaders. To their credit, the authors also try to adjust for whether the countries examined faced financial crises just before their populist political experiments began.

The question remains, though, whether a study encompassing and deriving averages or medians from a group of countries containing many chronically impoverished lands, as well as the high-income United States, can tell us about the latter, whose single populist leader during the period studied served for just a single brief term. Interpreting this American experience is further complicated by three important, concrete factors the authors apparently haven’t considered.

First, the pre-Trump growth rates of the United States were artificially inflated by interlocking bubbles in housing and consumer spending. And because the growth stemmed largely from these massive bubbles, by definition it should never have reached the levels achieved. So viewing that bubble-period growth as an achievement of establishment leaders isn’t exactly kosher methodology. Even more important: The financial crisis that (inevitably) followed these establishment-created bubbles nearly crashed the entire world economy. So maybe this debacle deserves at least a little extra weighting?

Second, U.S. growth during the populist Trump years compared well with that of the second term of the establishment-y Obama administration, especially before the CCP Virus struck and much economic activity was either voluntarily depressed or actually outlawed. For example, during the first three years of Donald Trump’s presidency, gross domestic product (GDP) after inflation (the most widely followed measure), increased by 7.68 percent. During the first three years of the second Obama term, it rose by 7.63 percent. And don’t forget: American economic expansions usually don’t speed up the longer they last.

Even if you include the results of pandemic-stricken 2020, real GDP improved by 3.90 percent under Trump – a rate much lower than the four-year Obama total of 9.47 percent, but hardly disastrous. Moreover, since this growth has already begun accelerating once again, the claim that Trump’s policies did lasting damage looks doubtful.

The price-adjusted GDP per capita statistics (i.e., how much growth the economy generates per individual American), tell a similar story. During the full second Obama term, this number improved by 6.25 percent as opposed to the four-year Trump advance of just 2.46 percent.

But the pre-CCP Virus comparison shows a 5.58 percent climb under Trump versus 4.81 percent during the first three years of Obama’s second term. And here again, the levels have snapped back quickly so far after plummeting during the worst pandemic and lockdown months. Therefore, the populist Trump administration likely left the pre-Trump trends intact at the very worst.

Third, if you want to go international, the Trump economic record holds up well compared to those of establishment leaders in Germany and France. During the CCP Virus year 2020, France’s economy shrank in real terms by 5.01 percent, and Germany’s by 3.88 percent. The U.S. contraction? Just 2.46 percent.

No reasonable person would conclude that these comparisons prove once and for all that American populism has been vastly superior in economic policy terms. And it’s entirely possible that the U.S. record has no or few lessons to teach other countries. But for Americans, nothing in this paper indicates that they’ve paid any “cost of populism,” and a deeper dive uncovers evidence that they’ve actually benefited.

(What’s Left of) Our Economy: Trade War(s) Update

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Argentina, Bloomberg.com, Brazil, business investment, China, CNBC, consumption, currency manipulation, debt, Democrats, digital services tax, election 2020, EU, European Union, export controls, Financial Crisis, France, Huawei, internet, investors, manufacturing, production, steel, steel tariffs, tariffs, Trade, Trade Deficits, trade enforcement, trade war, Trump, Wall Street, Wilbur Ross, Xi JInPing, {What's Left of) Our Economy

The most important takeaway from this post about the current status of U.S. trade policy, especially toward China, is that it may have already been overtaken by events since I began putting these thoughts together yesterday.

What follows is a lightly edited version of talking points I put together for staffers at CNBC in preparation for their interview with me yesterday. I thought this exercise would be useful because these appearances are always so brief (even though this one, unusually, featured me solo), and because sometimes they take unexpected detours from the main subject. .

Before presenting them, however, let’s keep in mind this new Bloomberg piece, which came on the heels of remarks yesterday by President Trump signaling that a trade deal with China may need to await next year’s U.S. Presidential election, and plunged the world’s investors into deep gloom. This morning, however, the news agency reported that considerable progress has been made despite “harsh” rhetoric lately from both countries. It seems pretty thinly sourced to me, and the supposed course of the trade talks seems to change almost daily, but stock indices are up considerably all the same.

Moreover, even leaving that proviso aside, what I wrote to the CNBC folks yesterday seems likely to hold up pretty well. And here it is:

1. The President’s latest comments on the China trade deal – which he says might take till after the presidential election to complete – seriously undermines the claim that he considers a deal crucial to his reelection chances because it’s likely to appease Wall Street and thereby prop up the economy. Of course, given Mr. Trump’s mercurial nature, and negotiating style, this latest statement could also simply amount to him playing “bad cop” for the moment.

2. His relative pessimism about a quick “Phase One” deal also seems to reinforce a suggestion implicitly made yesterday by Commerce Secretary Wilbur Ross when he listed verification and enforcement concerns as among the obstacles to signing the so-called Phase One deal. I have always argued that such concerns are likely to prevent the conclusion of any kind of trade deal acceptable to US interests. That’s both because of China’s poor record of keeping its commitments, and because the Chinese government is too secretive and too big to monitor effectively even the most promising Chinese pledges to change policies on intellectual property theft, illegal subsidies, discriminatory government procurement, and other so-called structural issues.

3. Recent reports of the United States considering tightening (or expanding) restrictions on tech exports to Chinese entities like Huawei also support my longstanding point that the US and Chinese economies will continue to decouple whatever the fate of the current or other trade talks.

4. In my opinion, the President is absolutely right to play hard-to-get on China trade, because Chinese dictator Xi Jinping is under so much pressure due to his own weakening economy, and because of the still-explosive Hong Kong situation.

5. I’ll be especially interested to learn of the Democratic presidential candidates’ reactions to Mr. Trump’s latest China statement, as well as the announcement of the reimposed steel tariffs on Argentina and Brazil, and the threatened tariffs on French “digital services” [internet] taxes. With the exception of Massachusetts Senator Elizabeth Warren and Vermont Senator Bernie Sanders, the candidates’ China policies seem to boil down to “Yes, we need to get tough with China, but tariffs are the worst possible response.” None of them has adequately described an alternative approach. The reactions of Democratic Congress leaders Nancy Pelosi in the House and Charles Schumer will be worth noting, too. The latter has been strongly supportive of the Trump approach in general.

6. The new steel tariffs, as widely noted, are especially interesting because they were justified for currency devaluation reasons, with no mention made of the alleged national security threats originally cited as the rationale. Nonetheless, I don’t believe that they represent a significant change in the Trump approach to metals trade, because the administration has always emphasized the need for the duties to be global in scope – to prevent China from transshipping its overcapacity to the US through third countries, and to prevent third countries to relieve the pressures felt by their steel sectors from Chinese product by ramping up their own exports to the US. Obviously, all else equal, countries with weakening currencies (for whatever reason) will realize big advantages in steel trade, as the prices of their output will fall way below those of competitors’ steel industries.

7. Regarding the tariffs threatened in retaliation for France’s digital services tax, they’re consistent with Trump’s longstanding contention that the US-European Union (EU) trade relationship has been lopsidedly in favor of the Europeans for too long, and that tariff pressure is needed to restore some sustainable balance. In this vein, I don’t take seriously the French claim that the tax isn’t targeting U.S. companies specifically. After all, those firms are the dominant players in the field. Second, senior EU officials have started talking openly about strengthening Europe’s “technological sovereignty” – making sure that the continent eliminates its dependence on non-European entities in the sector (including China’s as well as America’s). The digital tax would certainly further the aim of building up European champions – and if need be, at the expense of US-owned companies.

By the way, this position of mine in no way reflects a view that more taxation and more regulation of these companies isn’t warranted. But it’s my belief that these issues should be handled by the American political system.

Also of note: Trump’s suggestion this morning that the French tax isn’t a big deal, and that negotiations look like a promising way to resolve the disagreement.

Finally, here are two more points I wound up making. First, I expressed agreement that the President’s tariff-centric trade policies have created significant uncertainties in the economy’s trade-heavy manufacturing sector in particular – stalling some of the planned business investment that’s essential for healthy growth. But I also noted that much of this uncertainty surely stems from the on-again-off-again nature of the tariffs’ actual and threatened imposition.

As a result, I argued, uncertainty could be significantly reduced if Mr. Trump made much clearer that, whatever the trade talks’ fate, the days of Washington trying to maximize unfettered bilateral trade and investment are over, and a new era marked by much more caution and many more restrictions (including tighter export controls and investment restrictions, as well as tariffs), is at hand.

Second, at the very end, I contended that President Trump deserves great credit for focusing public attention on the country’s massive trade deficits in general. For notwithstanding the standard economists’ view that they don’t matter, reducing them is essential if Americans want their economy’s growth to become healthy, and more sustainable. For as the last financial crisis should have taught the nation, when consumption exceeds production by too great a margin, debts and consequent economic bubbles get inflated – and tend to burst disastrously.

Our So-Called Foreign Policy: Time to Test U.S. “Allies” on China

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allies, America First, Asia-Pacific, Barack Obama, China, Emmanuel Macron, EU, European Union, France, globalism, Our So-Called Foreign Policy, RCEP, Regional Comprehensive Economic Partnership, TPP, Trade, Trans-Pacific Parternship, Trump

President Trump’s globalist critics in the foreign policy Blob (the Washington, D.C.-centered complex of former diplomats and military officers, genuine academics, think tank hacks, and their Mainstream Media mouthpieces) think they’ve uncovered major new proof that the administration’s America First-type foreign policies and trade policies are failing catastrophically. Actually, the developments they’ve seized upon make clearer than ever the dangerous folly of their own outdated strategies, and the urgent need for a Trump-ian course change.

What’s gotten the globalists excited: Reports that America’s allies the world over are turning their backs on Washington and either moving into China’s orbit or cultivating better relations with the People’s Republic.

In the Asia-Pacific region, fifteen countries, including American treaty allies Australia, Japan, and South Korea, have decided to join the Regional Comprehensive Economic Partnership (RCEP) – a Chinese spearheaded trade agreement that doesn’t include the United States. Although Washington is apparently free to join, RCEP’s progress is seen as a big defeat for the United States, and for Mr. Trump in particular, because for years Beijing has been pushing it as an alternative to the Asia-Pacific-focused Trans-Pacific Partnership (TPP) deal signed by former President Barack Obama but nixed by President Trump on his first full weekday in office.

TPP was touted as a counter to RCEP that was vastly preferable for the United States because its protections of the environment and labor rights, and its curbs on state-owned enterprises, created standards that China could not hope to meet any time soon. Therefore, the agreement allegedly represented both a means of containing Chinese power and a powerful inducement to the kinds of Chinese reform long sought by Washington (and at least nominally sought by the President).

In other words, it supposedly was a globalist masterstroke that was foolishly trashed by Mr. Trump. And he’s now getting his richly deserve comeuppance via the Chinese-developed RCEP, which, it’s said, doesn’t address the above issues nearly as effectively as TPP, but which has nonetheless attracted many other signatories also spurned by the Trump rejection.

As known by RealityChek regulars, the anti-China case for TPP was bogus from the start, along with its claims to promoting the kinds of reforms throughout the Asia-Pacific region that would benefits American exporters. For the agreement contained a wide open backdoor for numerous products with high levels of Chinese content, which would have enabled Beijing to realize many of TPP’s benefits without incurring any of its obligations. Nearly as bad, for all their lofty ambitions, those obligations would have been impossible for Washington to monitor and enforce adequately, as most signatory governments’ bureaucracies, along with their national industrial bases, were too large (and in the case of the governments, secretive) to track.

Moreover, these glaring TPP weaknesses raise questions that hardly strengthen confidence in globalist views both of the agreement and, just as important of U.S. Allies. Specifically, TPP’s China back door and verification shortcomings weren’t exactly secrets. And they surely reveal that the Australias, Japans, and South Koreas of the world were never very interested in containing China or pressuring it to reform in the first place. The decision of these countries to go along with an RCEP that doesn’t even try seriously to achieve these goals casts even deeper doubt on their reliability for any future American efforts to work multilaterally to cope with China.

And as for the inevitable counter-argument that the Trump TPP pullout gave these Asia-Pacific countries little choice but to accept a second-best deal more advantageous to Beijing, it doesn’t withstand scrutiny. After all, all these countries had years to work with the George W. Bush and Obama administrations to develop regional trade arrangements that could realistically hope to achieve their intertwined China and reform objectives. They all (along with those globalist Presidents) completely blew the opportunity.

On the other side of the world, the Associated Press has just reported on a similar shift by the European Union, that huge economic bloc that also contains many countries allied with the United States through the North Atlantic Treaty Organization. In an article titled “Europeans look to China as global partner, shun Trump’s US,” correspondent Sylvie Corbet wrote that “When France’s president wants to carry European concerns to the world stage to find solutions for climate change, trade tensions or Iran’s nuclear ambitions, he no longer calls Washington. He flies to Beijing.”

She added that on his recent visit to Beijing, Emmanuel Macron “portrayed himself as an envoy for the whole European Union, conveying the message that the bloc has largely given up on Trump, who doesn’t hide his disdain for multilateralism.”

In the process, though, the author made a powerful, if completely unwitting, case for American unilateralism. For according to Corbet, Macron and Chinese dictator Xi Jinping “issued a ‘Beijing call’…for increased global cooperation in fighting climate change and better protecting biodiversity. Both countries have deplored the U.S. withdrawal” from the Paris climate change accord.

Macron apparently stood by as Xi “said the two leaders were sending ‘a strong signal to the world about steadfastly upholding multilateralism and free trade, as well as working together to build open economies.’”

And for good measure, the French president touted China’s record of helping to reduce tensions in the Persian Gulf, and potential contributions to using diplomacy to persuade Iran to return to full compliance with the nuclear proliferation deal rejected by Mr. Trump. In addition, he touted China’s ability to help “develop stable and cooperative trade rules at the international level.”

To which the only serious reply from the American standpoint is, “If Macron and anyone else in Europe really believe this nonsense, and assume that they’re better off aligning with China than with the United States, then America is better off without them.” And this holds not only for trade but for security issues like Iran.

It’s been unconvincing enough for globalists to insist that the United States has no choice but to maintain alliances with countries famous for being defense deadbeats and free-riders, and fence-sitters in the campaign to create a truly open world economy (as opposed to one that winks at all instances of protectionism except America’s). But it’s positively goofy for globalists to claim that these countries would be strong and active supporters of security or economic goals compatible with U.S. and traditional free world interests if only President Trump showed more patience with them.

Of course, it’s possible – and perhaps likely – that these Asian and European moves are ultimately bluffs aimed at curbing Mr. Trump’s perceived worst excesses. But it’s at least as possible that these countries hope to create pressure on the President to accept their longstanding, “Heads we win, tail you lose,” strategy vis-a-vis the United States.

All of which reminds me of episodes when I was little, and blurted out remarks like, “I’m going to run away.” My parents often replied, “Is that a promise or a threat?” That sounds to me like a necessary and indeed long overdue U.S. response to its worrisomely feckless allies.

Im-Politic: The Real Veterans Day Hypocrites

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Armistice Day, Constitution, Emmanuel Macron, France, illegal aliens, Im-Politic, nationalism, patriotism, racism, Riverdale Park, sexism, Trump, Veterans Day, voting rights, white nationalists, World War I

Mentioning U.S. military cemeteries in France and my town of Riverdale Park, Maryland in the same sentence, or even the same piece of writing – that’s got to be a first. But due to the overlap of Veterans Day today with the hundredth anniversary of the armistice that ended World War I hostilities, both shed some light on the confused, often downright incoherent, and just as often hypocritical nature of America’s heated, intertwined political and philosophical battles over identity, nationalism, and related issues.

The military cemetery angle is clear enough, due to President Trump’s controversial decision to forego attending yesterday’s Armistice Day ceremony at the Aisne-Marne American Cemetery and Memorial outside of Paris. Mr. Trump’s administration attributed the decision to bad weather and the logistical complications it created. I’m no expert on these matters (chances are, neither are you) and for all I know, rain and the herculean task of moving American presidents in foreign countries may have genuinely rendered his initially announced schedule unrealistic. I also suspect that a major role was played by the simple exhaustion of a 72-year old man following a whirlwind last few weeks of criss-crossing America for speeches at campaign rallies aimed at electing Republican candidates in this month’s midterm elections.

Nonetheless, even though this event wasn’t the only, or even the main event on the Trump schedule, or even the only scheduled cemetery visit, I believe that the President should have sucked it up and attended. (Just FYI, he did wind up going to a second such ceremony today.) As a result, I have some sympathy for the critics’ charges that Mr. Trump’s decision undercut his high profile claims of championing patriotic values.

But I don’t have total sympathy, and here’s why: because these presidential opponents generally have a pretty dodgy, and thus often double-standard-infused, record on patriotic values themselves. Why else, for example, would they be so apoplectic about the President’s self-description as a “nationalist.” Many have not only equated this viewpoint with something they call “white nationalism” (a concept whose fatal internal contradictions are, revealingly, ignored only by them and by the fringe neo-Nazi types who have adopted it). They’ve also attacked it for clashing with the idea of diversity, as opposed to “inclusion,” and for asserting (in the words of France’s President, Emmanuel Macron), “our interests first, who cares about the others?”

At best, however, that’s a bizarre critique for at least two reasons. First, the United States exists in a world of other political units that are known as “nation-states,” and inevitably, their “national interests” (another term that’s not the least bit controversial) won’t always coincide. These interests aren’t always in conflict, either, and when they’re not, inclusion – in the form of fostering international cooperation in order to advance shared goals or repel share challenges – is a fine idea. But when these interests don’t coincide, and can’t be reconciled via diplomacy, inclusion can easily become a formula for delusion, and for harming U.S. interests. And Macron to the contrary, at that point, any national leader deserving his country’s trust would put their “interests first” and not care terribly “about the others.”

Second, Mr. Trump’s actual use of the word had nothing to do with jingoism or chauvinism, much less racism. Indeed, it had everything to do with promoting an entirely reasonable U.S. foreign policy goal. Here’s his description of the term: “All I want for our country is to be treated well, to be treated with respect. For many years other countries that are allies of ours, so-called allies, they have not treated our country fairly, so in that sense I am absolutely a nationalist and I’m proud of it.”

And here’s where Riverdale Park, Maryland comes in. This morning, the town held its annual Veterans Day observance. It took place at a pretty little patch created near the town center, complete with a memorial and a big American flag. Ever since I moved to the town in 2003, I’ve attended this ceremony nearly every year, along with the Memorial Day ceremony (when I was in town, which has usually been the case), and was proud to do so. This year, that streak came to an end.

I’m boycotting, and will continue to boycott, because earlier this year, as I’ve described, the town decided to permit illegal aliens to vote in local elections (along with 16-year olds). It’s a free country, and the decision is Constitutional, but it mainly rankled because, as I also wrote, during the debate, supporters of the idea made plain as day that they not only had no regard for the idea of citizenship, and of the community of values it has represented throughout our country’s history. They stated repeatedly their convictions that that community, along with the Constitution that organized its government and enshrined into law the liberties Americans enjoy, are nothing more than racist and sexist constructs concocted by a claque of dead white males determined to perpetuate their dominance and that of their descendants. Moreover, the town’s endorsement of non-citizen voting unquestionably represented endorsement of that perspective.

And these are folks – and the municipality – claiming to honor those currently serving in the military, and those who have lost their lives defending this political system? Sorry, but I found that proposition stomach-turning, along with the idea of taking part in this sham.

Further, these convictions are hardly confined to Riverdale Park. Polls – not a perfect measure of opinion, I know, but the best we have – show consistently that patriotic feelings are declining sharply among the American public as a whole, and among Democrats, liberals, and the young in particular – the last three categories are coming to dominate Riverdale Park’s population. (See, e.g., here and here. And according to the Gallup survey, the latter two trends predated Mr. Trump’s election as president.)

I have no evidence that most or even many of those with low patriotism levels have chortled at the President’s decision to skip the military cemetery ceremonies. But I’ll bet the number is more than a few. Ditto for a high correlation between the Trump cemetery critics and staunch opponents of his immigration policies – due to the President’s insistence that the United States as a sovereign nation, and even more important, one precious enough to be worth defending, has an absolute right to control its borders and decide who and how many are granted admission.  

There’s no obligation for any American to feel patriotic, and there’s certainly no obligation to like President Trump. Is it too much to ask, however, that Veterans Day, and associated professions of love of country, be made exempt from political football-dom?

Our So-Called Foreign Policy: Fair-Weather U.S. Allies?

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alliances, allies, China, East China Sea, Eastern Europe, France, Germany, globalism, internationalism, Japan, NATO, North Atlantic TYreaty Organization, North Korea, nuclear deterrence, nuclear weapons, Our So-Called Foreign Policy, Pew Research Center, Russia, South Korea, Soviet Union, United Kingdom

Establishment analysts and commentators have looked at the results of the Pew Research Center’s recent survey on overseas attitudes towards U.S. foreign policy under President Trump and decided that their most important findings are that his America First approach is costing America valuable influence on the global stage.

Even if you don’t find those conclusions transparently self-serving – since the vast majority of these analysts and commentators are staunch supporters of a more traditional globalist or internationalist approach – consider this alternative interpretation: The Pew survey strongly suggests that the globalist strategy, which has been in place for decades, has failed miserably in a crucial respect. Even though its core principles have required that the United States accept enormous cost and risks (including nuclear) on behalf of allies all over the world, the Pew researchers have found that even under President Obama – a pretty run-of-the-mill globalist – the populations of these same allies had little appreciation for these American burdens.

For me, the most glaring example is South Korea. As RealityChek readers know, for years I’ve been noting that the rapid recent progress of North Korea’s nuclear weapons program means that the United States’ longstanding commitment to use nuclear weapons if necessary to defend the South from a northern invasion or simply to deter such an attack is now qualitatively more dangerous than in the past. For if North Korea has not already developed the means to launch a nuclear strike that could take out an American city – or two or three – it’s not far from achieving that goal.

The North’s progress was glaringly obvious in 2013, when Pew last asked South Koreans if they believed that “In making international policy decisions, the U.S. takes into account the interest of countries like ours a great deal/fair amount.” Yet that year, only 36 percent of South Koreans answered “Yes.” This year, only 24 percent of South Koreans gave that answer.

Japan is also protected by an American nuclear umbrella – at least in principle. As with the case of South Korea, it hosts large American military forces whose presence aims to bolster the credibility of that promise. And North Korea has actually fired missiles over Japanese territory – meaning that the threat it poses to Japan and to those U.S. forces is anything but merely theoretical. (If only because the American forces in Japan that defend the islands are supposed to help their comrades-in-arms if war breaks out on the Korean peninsula.) Japan is also alarmed by Chinese encroachments in the East China Sea.

But in 2013, only 38 percent of Japanese agreed that American foreign policy takes their interests into account even a fair amount. This year, that number is down to 28 percent.

The security situation in Europe is not nearly as fraught. But Russia has certainly taken actions that arguably threaten the security of new members of the North Atlantic Treaty Organization (NATO) that used to be part of either the old Soviet Union or the Soviet bloc. And as NATO allies, these countries are also entitled to nuclear protection from the United States even though their fates had never before been considered vital American interests and even though Russia retains nuclear forces more than large enough to devastate the United States many times over.

Yet although the new NATO members either border Germany (like Poland) or are located pretty close by, and even though Germans presumably would not want to see Russia reestablish dominance, even in 2013, only 50 percent of Germans believed that Washington takes their interests significantly into account in its foreign policy. The 2018 figure? With Russia at least as menacing? Nineteen percent. And the Germans are anything but outliers, as Pew found roughly the same trend in France and in the United Kingdom (although the share of their populations detecting any meaningful American regard for their interests in 2013 was a good deal lower than in Germany – just 35 percent and 40 percent, respectively).

A common retort by globalists and by allies is that allied populations have no reason to be especially grateful to the United States because these alliances serve crucial American interests, too. But what they forget is that populations (especially from countries whose governments have been champion security free-riders) that don’t believe the United States cares much about them aren’t likely to be populations likely to support the American military when push comes to shove in their regions – as opposed to calling for some version of accommodating the aggressors.

Not that I’m criticizing allied populations. At least in their initial stages, any conflicts will take place almost exclusively on their territories. And P.S. – these kinds of strains were troubling alliance relations for decades before Trump. But the by the same token, the Pew results underscore two truths about U.S. alliances that should be disturbing globalists more than ever.

First, the nuclear risks they still appear to be entirely satisfied with are being run for stakes (the security of relatively small, unimportant countries, as opposed to Japan and the entirety of Western Europe) that are less rationally justifiable than ever. And second, when the United States needs to lead the resistance to aggression, it may have fewer followers than ever.

Our So-Called Foreign Policy: Trump’s Real NATO Mistake

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allies, Article Five, Baltics, Barack Obama, Charles de Gaulle, Cold War, Europe, France, Germany, NATO, NATO expansion, North Atlantic treaty Organization, nuclear deterrence, nuclear weapons, Our So-Called Foreign Policy, Poland, Russia, Soviet Union, tripwire, Trump, United Kingdom

President Trump’s tireless critics are at it again, accusing him of calling into question America’s “sacred” and allegedly legally binding obligation to come to the military defense of any of its European allies in the North Atlantic Treaty Organization (NATO) if they come under armed attack.

As charged by the author linked above (from the reflexively establishmentarian Brookings Institution), the president’s refusal to endorse this obligation explicitly in his speech today at alliance headquarters in Brussels, Belgium, will “raise grave doubts about the credibility of the American security guarantee and provide Russia with an incentive to probe vulnerable Baltic states.” Sounds awful – and unprecedented – right? Actually, not even close.  But as you’ll see, Mr. Trump could be on his way to creating another big – and completely unnecessary – problem.

In the first place, in concrete terms, Article Five legally obligates the United States to do absolutely nothing specifically if one of its NATO allies comes under assault. The clause simply requires treaty signatories to “assist the Party or Parties so attacked by taking forthwith, individually and in concert with the other Parties, such action as it deems necessary, including the use of armed force, to restore and maintain the security of the North Atlantic area.”

And this flexibility-preserving wording is no accident, or product of jargon-addicted diplomats or international lawyers. It resulted from the U.S. Congress’ insistence that the American government and the people to which it owes its first loyalties to retain the legally recognized right to decide when to go to war. And keep in mind: Congress was determined to reserve the right to stay out of a conflict in Europe as the Cold War was reaching its height.

Just as important: The European allies recognized this right – and its implications – as well, especially after the Soviet Union’s development of major nuclear forces greatly increased the risk to the American homeland of nuclear attack if it plunged into war on the allies’ behalf. We know this for sure because the continuing ambiguity ultimately persuaded both the British and French to create their own nuclear forces. As former French President Charles de Gaulle warned, the United States could not reasonably be expected to endanger the existence of New York or Detroit to save Hamburg or Lyons.

Tragically, American leaders were so strongly opposed to its allies taking back control over their own fates that they strove almost fanatically to convince the Europeans that the United States could indeed be trusted. And Washington put its money where its mouth was, stationing hundreds of thousands of American soldiers, sailors, and air force personnel and their families on or around the European continent. The idea was to create a “trip wire” aimed at denying any U.S. President a real choice of rushing to Europe’s defense with whatever threats or means were necessary. For standing by in the face of aggression would mean a slaughter or American troops and possibly innocents by vastly superior Soviet military forces.

Even during this era of high East-West tensions, however, American leaders never completely lost sight of the desirability of shifting as much of the burden of nuclear risk as possible onto the Europeans – while maintaining as much control as possible over nuclear weapons use. The transatlantic feud over intermediate-range nuclear forces – which threatened to confine the nuclear damage of any East-West war to Europe, leaving the American and Soviet homelands unscathed – was only one prominent example. And even this U.S. aim was fatally muddied, or at best thoroughly confused, by the continuing enormous military presence in Germany, directly in the likeliest path of the Soviet conventional juggernaut.

After the Cold War ended, the tripwire was steadily dismantled, but American presidents continued to treat Article Five as an ironclad promise to defend NATO members militarily – as demonstrated by the 2013 Obama statement in the Atlantic article linked above. Moreover, once Russian military and paramilitary activity began to increase in Moscow’s “near abroad,” Washington began, hesitatingly, to be sure, to respond to the demands of the newest NATO members in Russia’s sights for U.S. tripwire forces of their own.

Hence the charges that President Trump’s latest statement could dangerously destabilize NATO’s eastern flank. But there’s far more to the situation. In the first place, there’s much evidence linking Russia’s new revanchism to NATO’s expansion eastward right up to Russia’s borders. Second, if Article Five were rigidly applied to new NATO members such as the Baltic states or former Soviet bloc countries like Poland, the United States would be running the risk of nuclear attack on behalf of countries that (a) are completely un-defendable with conventional military forces alone, because they’re right next door to Russia; and (b) consequently, have never been considered vital or even significant interests of the United States.

Troublingly, however, despite the latest Trump statement (or lack thereof), which arguably could inject the Eastern European countries with a needed dose of realism concerning their real options in dealing with Moscow, the president has so far continued the policy of incrementally responding to these countries’ requests for tripwires.

In other words, his big mistake isn’t casting doubt on America’s commitment to these and other European countries. For if the United States might have balked risking New York or Detroit for Hamburg or Lyons, it’s certainly not going to jeopardize an American city or two to save Warsaw or Vilnius. Instead, Mr. Trump apparently is trying to fence-straddle here, which could well create the worst of both worlds on both sides of the Atlantic.