(What’s Left of) Our Economy: A Vital Globalization Lesson from South Korea

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China, Financial Times, industrial policy, Japan, self-sufficiency, South Korea, technology, Trade, {What's Left of) Our Economy

As Americans continue debating the merits of remaining dependent on supplies of key products from China (including state-of-the-art 5G telecommunications technology), a great example of why self-sufficiency can be crucial – along with laying adequate groundwork – has just come from an economy much smaller than the United States’ and capable of standing on its own in many fewer areas: South Korea.

In fairness, never during its remarkable rise from deep impoverishment and war-time devastation has South Korea bought the basic principle underlying the generally open trade (and investment) policies that have shaped the global economy throughout the post-World War II era. That is, its leaders have never been willing to prioritize worldwide efficiency by permitting market forces to determine which of their industries would excel.

Indeed, South Korea has been one of the world’s most hermetically sealed economies and hasn’t even been able to cite legitimate national security concerns for its approach. After all, it’s been staunchly defended by the United States for decades – even enjoying the presence of American military tripwire units aimed at forcing, to the greatest extent possible, Washington to risk nuclear attack on the American homeland in Seoul’s defense.

Recently, however, South Korea encountered an economic threat that it – understandably – concluded posed unacceptable risks to the high tech industries that have created so much of its prosperity. Because of a dispute centering on from compensation for atrocities committed by Japan during its long-time colonial rule over South Korea, Japan in July cut South Korean tech companies off from supplies of three chemicals needed to make numerous key products, including semiconductors and advanced displays (computer and TV screens). Japan also removed South Korea from its list of countries enjoying preferential trade status.

And as the Financial Times reported last week, in response, Seoul has decided not simply to accept that Japan’s curbs would surely reduce the competitiveness of its tech sector, and to leave to the subsequent workings of market forces to determine what types of activity would dominate its economy – and determine its fate. Instead, it’s decided to build up its own capabilities in electronic inputs in order to reduce its vulnerabilities to even broader restrictions that Japan might impose as long as this bilateral trade war lasts – and surely in order to cut its exposure to similar potential threats from elsewhere.

According to the Financial Times, “Seoul plans to invest more than Won 5tn between 2020 and 2022 in research and development, in an attempt to localise about 100 different components and materials in the next five years. South Korea has also said it will provide tax breaks, cut red tape and encourage co-operation between big companies and their small suppliers to accelerate the localisation process.”

Nor is South Korea’s government is unlikely to pay much heed to any whining about short-term cost pain from consumers or companies elsewhere in these high tech supply chains. Its officials “stress the importance of diversification. ‘Cost savings is no longer the best thing for our companies. Risk hedging has become much more important.’”

And Seoul seems completely unimpressed with the warnings from conventional economists, like the one who stated “No country can be fully self-sufficient. Focusing on local substitutes only can bring more negative side effects. They may end up having to buy expensive local parts and materials although they can be easily sourced abroad at cheaper prices.”

For the South Korean government understands that Japan’s cutoffs mean that vital parts and materials may not always, or often enough “be easily sourced abroad at cheaper prices” – or at any prices.

Moreover, although it’s no doubt true, as the article contends, that South Korea is behind Japan technologically, Seoul’s drive for greater self-sufficiency is no pipe dream. For the country has built impressive enough technological wherewithal to endow these policies with a solid foundation. Indeed, there’s considerable evidence that decades of “Korea First” industrialization policies have been keys to the South’s long record of rapid gains in global technological competitiveness.

Not that South Korea has an easy row to hoe, as this piece indicates. But here’s where we come to the lessons for the United States: Despite longstanding and offshoring-friendly trade and globalization policies, it remains the global technology leader and therefore boasts advantages that dwarf South Korea’s – or any other country’s. Even better, it’s developed a tried and true formula for fostering world-class innovation, in high tech industries ranging from pharmaceuticals (think “National Institutes of Health”) to aerospace and software and information technology (think “Pentagon”).

In other words, the United States has more than enough “wallet” to overcome the technology threat posed by China, or any other possible rivals – though the Trump administration’s industrial policy initiatives could stand considerable improvement. But the President’s China trade policies show that, for the first time in decades, the United States has a leader with the will.

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Our So-Called Foreign Policy: Trump’s Record and the Bolton Effect

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Afghanistan, alliances, America First, Asia-Pacific, Barack Obama, China, Europe, extended deterrence, globalism, Iran, Iran deal, Iraq, Israel, Japan, John Bolton, Joint Comprehensive Plan of Action, Kim Jong Un, Middle East, neoconservatives, North Korea, Our So-Called Foreign Policy, Palestinians, Republicans, South Korea, Syria, Trump

With John Bolton now out as President Trump’s national security adviser, it’s a great time to review the Trump foreign policy record so far. My grade? Though disappointing in some important respects, it’s been pretty good. Moreover, Bolton’s departure signals that performance could improve significantly, at least from the kind of America First perspective on which Mr. Trump ran during his 2016 campaign. That’s less because of Bolton’s individual influence than because what his (clearly forced) exist tells us about the President’s relationship with the Republican Party and conservative establishment.

There’s no doubt that the Trump foreign policy record is seriously lacking in major, game-changing accomplishments. But that’s a globalist, and in my view, wholly misleading standard for judging foreign policy effectiveness. As I’ve written previously, the idea that U.S. foreign policy is most effective when it’s winning wars and creating alliances and ending crises and creating new international regimes and the like makes sense only for those completely unaware – or refusing to recognize – that its high degrees of geopolitical security and economic self-reliance greatly undercut the need for most American international activism. Much more appropriate measures of success include more passive goals like avoiding blunders, building further strength and wealth (mainly through domestic measures), and reducing vulnerabilities. (Interestingly, former President Obama, a left-of-center globalist, saltily endorsed the first objective by emphasizing – privately, to be sure – how his top foreign policy priority was “Don’t do stupid s–t.”)     

And on this score, the President can take credit for keeping campaign promises and enhancing national security. He’s resisted pressure from Bolton and other right-of-center globalists to plunge the country much more deeply militarily into the wars that have long convulsed Afghanistan, Syria, and Iraq, and seems determined to slash the scale of U.S. involvement in the former – after nineteen years.

He’s exposed the folly of Obama’s approach to preventing Iran from acquiring nuclear weapons. Although Tehran has threatening to resume several operations needed to create nuclear explosives material since Mr. Trump pulled the United States out of the previous administration’s multilateral Iran deal, it’s entirely possible that the agreement contained enough loopholes to permit such progress anyway. Moreover, the President’s new sanctions, their devastating impact on Iran’s economy, and the inability of the other signatories of Obama’s multilateral Joint Comprehensive Plan of Action to circumvent them have both debunked the former President’s assumption that the United States lacked the unilateral power to punish Iran severely for its nuclear program and ambitions, and deprived Tehran of valuable resources for causing other forms of trouble throughout the Middle East.

Mr. Trump taught most of the rest of the world another valuable lesson about the Middle East when he not only recognized the contested city of Jerusalem as Israel’s capital, but actually moved the U.S. Embassy there. For decades, American presidential contenders from both parties had promised to endorse what many of Israel’s supporters called its sovereign right to choose its own capital, but ultimately backed down in the face of warnings that opinion throughout the Arab world would be explosively inflamed, that American influence in the Middle East would be destroyed, and U.S. allies in the region and around the world antagonized and even fatally alienated.

But because the President recognized how sadly outdated this conventional wisdom had become (for reasons I first explained here), he defied the Cassandras, and valuably spotlighted how utterly powerless and friendless that Palestinians had become. That they’re no closer to signing a peace agreement with Israel hardly reflects an American diplomatic failure. It simply reveals how delusional they and especially their leaders remain.

Nonetheless, Mr. Trump’s Middle East strategy does deserve criticism on one critical ground: missing an opportunity. That is, even though he’s overcome much Congressional and even judicial opposition and made some progress on strengthening American border security, he’s shown no sign of recognizing the vital America First-type insight holding that the nation’s best hope for preventing terrorist attacks emanating from the Middle East is not “fighting them over there” – that is, ever more engagement with a terminally dysfunctional region bound to spawn new violent extremist groups as fast as they can be crushed militarily. Instead, the best hope continues to be preventing the terrorists from coming “over here” – by redoubling border security.

The Trump record on North Korea is less impressive – but not solely or even partly because even after two summits with North Korean dictator Kim Jong Un, no progress has been made toward eliminating the North’s nuclear weapons or even dismantling the research program that’s created them, or toward objectives such as signing a formal peace treaty to end the Korean War formally that allegedly would pave the way for a nuclear deal. (Incidentally, I’m willing to grant that the peninsula is quieter today in terms of major – meaning long-range – North Korean weapons tests than when the President took office – and that ain’t beanbag.)

Still, the main – and decisive – Trump failure entails refusing to act on his declared instincts (during his presidential campaign) and bolstering American security against nuclear attack from North Korea by withdrawing from the peninsula the tens of thousands of U.S. troops who served as a “tripwire” force. As I’ve explained previously, this globalist strategy aimed at deterring North Korean aggression in the first place by leaving an American president no choice except nuclear weapons use to save American servicemen and women from annihilation by superior North Korean forces.

But although this approach could confidently be counted on to cow the North before Pyongyang developed nuclear weapons of its own capable of striking the United States, and therefore arguably made strategic sense, now that the North has such capabilities or is frighteningly close, such “extended deterrence” is a recipe for exposing major American cities to nuclear devastation. And if that situation isn’t inexcusable enough, the United States is playing such a dominant role in South Korea’s defense largely because the South has failed to field sufficient forces of its own, even though its wealthier and more technologically advanced than the North by orders of magnitude. (Seoul’s military spending is finally rising rapidly, though – surely due at least in part to Trump pressure.) 

Nonetheless, far from taking an America First approach and letting its entirely capable Asian allies defend themselves and incentivizing them plus the Chinese and Russians to deal as they see fit with North Korean nuclear ambitions that are most threatening to these locals, the President seems to be happy to continue allowing the United States to take the diplomatic lead, bear much heavier defense spending burdens than necessary, and incurring wholly needless nuclear risk. Even worse, his strategy toward Russia and America’s European allies suffers the exact same weakness – at best.

Finally (for now), the President has bolstered national security by taken urgently needed steps to fight the Chinese trade and tech predation that has gutted so much of the American economy’s productive sectors that undergird its military power, and that his predecessors either actively encouraged, coddled, or ignored – thereby helping China greatly increase its own strength.

In this vein, it’s important to underscore that these national security concerns of mine don’t stem from a belief that China must be contained militarily in the Asia-Pacific region, or globally, as many globalists-turned-China economic hawks are maintaining. Of course, as long as the United States remains committed to at least counterbalancing China in this part of the world, it’s nothing less than insane to persist in policies that help Beijing keep building the capabilities that American soldiers, sailors, and airmen may one day need to fight.

I’ll be writing more about this shortly, but my main national security concerns reflect my belief that a world in which China has taken the military and especially technological need may not directly threaten U.S. security. But it will surely be a world in which America will become far less able to defend its interest in keeping the Western Hemisphere free of excessive foreign influence, a la the Monroe Doctrine, and in which American national finances and living standards will erode alarmingly.

The question remains, however, of whether a Bolton-less administration’s foreign policy will tilt significantly further toward America First-ism. President Trump remains mercurial enough to make any such forecasting hazardous. And even if he wasn’t, strategic transitions can be so disruptive, and create such short-term costs and even risks, that they’re bound to take place more unevenly than bloggers and think tankers and other scribblers would like to see.

But I see a case for modest optimism: Just as the end of Trump-Russia scandal-mongering and consequent impeachment threat has greatly reduced the President’s need to court the orthodox Republicans and overall conservative community that remain so influential in and with Congress in particular, and throw them some big bones on domestic policy (e.g., prioritizing cutting taxes and ending Obamacare), it’s greatly reduced his need to cater to the legacy Republicans and conservatives on foreign policy.

Not that Mr. Trump has shown many signs of shifting his domestic priorities yet. But I’m still hoping that he learns the (screamingly obvious) lessons of the Republicans’ 2018 midterms losses (e.g., don’t try to take an entitlement like Obamacare away from Americans until you’re sure you can replace it with something better; don’t endorse racist sexual predators like Alabama Republican Senatorial candidate Roy Moore simply for partisan reasons). It’s still entirely possible that the growing dangers of his remaining globalist policies will start teaching the President similar lessons on the foreign policy front.

Our So-Called Foreign Policy: Why Mattis Isn’t the Last Word on “America First”

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alliances, allies, America First, China, Defense Department, globalism, Japan, Jim Mattis, Marines, Mattis, NATO, North Atlantic treaty Organization, North Korean, Our So-Called Foreign Policy, South Korea, The National Interest, Trump

By all accounts, General George S. Patton was one of America’s greatest battlefield leaders during World War II. And by nearly all of those same accounts, he had no qualifications to advise Presidents on the grand strategies that would serve the country best in world affairs.

I couldn’t help but think of Patton while reading about the contents of former Trump Defense Secretary Jim Mattis’ upcoming book about leadership lessons he’s learned during his own career in a Marine Corps uniform. For one of the main points made in Call Sign Chaos – that President Trump’s foreign policies are dangerously ignoring the vital importance of allies to U.S. security and prosperity – is not only far from obvious. This critique of America First-ism could itself be dangerously wrong.

Here’s the gist of Mattis’ case:

“Nations with allies thrive, and those without them wither. Alone, America cannot protect our people and our economy.

“At this time, we can see storm clouds gathering. A polemicist’s role is not sufficient for a leader. A leader must display strategic acumen that incorporates respect for those nations that have stood with us when trouble loomed.”

“…An oft-spoken admonition in the Marines is this: When you’re going to a gunfight, bring all your friends with guns,” he wrote. “Having fought many times in coalitions, I believe that we need every ally we can bring to the fight.”

And there can be no question that these beliefs form the core of Mattis’ policy worldview. His letter to Mr. Trump declaring his resignation as Pentagon chief shows that this decision was driven largely by his prioritizing of alliances. His stated position is worth quoting at length:

“One core belief I have always held is that our strength as a nation is inextricably linked to the strength of our unique and comprehensive system of alliances and partnerships. While the US remains the indispensable nation in the free world, we cannot protect our interests or serve that role effectively without maintaining strong alliances and showing respect to those allies.

“Like you, I have said from the beginning that the armed forces of the United States should not be the policeman of the world. Instead, we must use all tools of American power to provide for the common defense, including providing effective leadership to our alliances. NATO’s 29 democracies demonstrated that strength in their commitment to fighting alongside us following the 9-11 attack on America. The Defeat-ISIS coalition of 74 nations is further proof.

“Similarly, I believe we must be resolute and unambiguous in our approach to those countries whose strategic interests are increasingly in tension with ours. It is clear that China and Russia, for example, want to shape a world consistent with their authoritarian model — gaining veto authority over other nations’ economic, diplomatic, and security decisions — to promote their own interests at the expense of their neighbors, America and our allies. That is why we must use all the tools of American power to provide for the common defense.”

“My views on treating allies with respect and also being clear-eyed about both malign actors and strategic competitors are strongly held and informed by over four decades of immersion in these issues. We must do everything possible to advance an international order that is most conducive to our security, prosperity and values, and we are strengthened in this effort by the solidarity of our alliances.

“Because you have the right to have a Secretary of Defense whose views are better aligned with yours on these and other subjects, I believe it is right for me to step down from my position.”

In fact, the letter’s reference to advancing an international order most conducive to U.S. interests also makes clear that Mattis is a card-carrying globalist. For the defining feature of this school of thought is that because the United States lacks the ability to defend and promote its essential goals on its own, it has no choice but to nurture and support global systems that will do these jobs for it – even if such policies degrade some of its own power and wealth.

I’m not saying that because he’s a globalist, Mattis is wrong and good riddance to him from a policy-making position. Instead, I’m saying that, typically for adherents to this school of thought, Mattis evidently doesn’t know, or refuses to acknowledge, the possibility of an alternative approach, one that relies above all on America’s own considerable strengths and advantages, to security, prosperity, and freedom. I made the case for such an approach last year in this article for The National Interest (which also pointed out that the President’s actions – lamentably – haven’t been nearly as America First-y as his rhetoric).

Equally disturbing, the months since his resignation last December, Mattis seems to have overlooked the continuing emergence of evidence undermining continuing faith in globalism. Just three of the most obvious:

(a) the determination of the major allied economies of Europe and Asia to keep fence-sitting in America’s economic and strategic conflict with China – in large part because so many of them make so much money supplying the PRC’s export-focused factories;

(b) the ongoing failure of most of these allies to pay any reasonable share of the common defense;

(c) the bitter economic conflict that’s broken out between Japan and South Korea, which mocks the idea that the American military can rely on any effective help from them against aggression from North Korea or China; and

(d) the major progress made by North Korea and China in developing the kinds of nuclear forces that have created an unprecedented and needless risk of nuclear attack on the American homeland – needless because the wealthy countries anchoring the U.S. alliance system in East Asia refuse to build adequate defenses for themselves. In other words, tightly linking America’s fate to such deadbeats could wind up incinerating a major American city…or two…or three. 

So welcome to the foreign policy/grand strategy debate, General Mattis. Now how about addressing its most difficult questions seriously rather than simply repeating decades-old globalist mantras?

Our So-Called Foreign Policy: America’s Asian Alliances Have Become More Dangerous Than Ever

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alliances, allies, Asia, China, deterrence, Japan, North Korea, nuclear weapons, Our So-Called Foreign Policy, South Korea, tripwire

With all the uproar generated, at least among globalist foreign policy professionals, by President Trump’s various verbal attacks on America’s alliance arrangements, it’s easy to forget their most important purpose. It’s not to protect allies for their own sakes, much less to “uphold the liberal global order” or to “promote American values”  or to “preserve international stability.” 

Their most important purpose is to increase via the use of the allies’ military forces the odds that if a conflict breaks out in a particular neighborhood deemed crucial to America’s own interests, that the United States will prevail. The other aforementioned objectives can of course line up with this overriding military objective, and they can of course result from its attainment. But the alliances’ fundamental raison d’etre is to help the United States on the battlefield in a region whose freedom from foreign domination is considered crucial to America’s own security and/or prosperity.

Further, this military assistance once the shooting starts matters a lot because such support can go far toward preventing these regional conflicts from triggering the use of nuclear weapons, and thereby preventing possible nuclear attacks on American territory.

All of which is why recent trade tensions between Japan and South Korea – America’s two leading allies in East Asia – should be of such urgent concern. For the feud, which has just prompted South Korea to pull out of a military intelligence sharing agreement it had recently reached with Japan, could not be a clearer sign that none of Washington’s longstanding assumptions about such crucial military support from these two countries remains valid – if they ever were – and that these arrangements are now not only outdated, but dangerously outdated.

For the quarrel’s outbreak and intensification represent the most important evidence to date that both Japan and South Korea care little about providing such support in an effective way – which unavoidably requires them to work together. How can they cooperate, and thereby effectively reinforce U.S. military operations, if they literally won’t even talk to each other about current or emerging battlefield conditions and threats?

And if Japanese and South Korean assistance will remain marginal at best (a conclusion supported by the relatively modest size and capabilities of their own forces, which have long been unable to repulse regional aggression without American assistance, despite the huge size of their economies) then the odds of keeping any regional conflict non-nuclear – and keeping the U.S. homeland safe from North Korean or Chinese nuclear attack – become unacceptably low for the United States.

At one time, the United States could have eased this dilemma satisfactorily by spending still more money on conventional forces for the defense of countries that are alarmingly blasé about defending themselves – however dubious this option is on military grounds alone. (For how promising are efforts to protect countries that are so determined to avoid risks and costs?)

But because of the emergence and improvement of the nuclear forces of North Korea and China, respectively, even that option will no longer squares the circle adequately.  Which means that the alliances (including in the North Atlantic Treaty Organization – NATO – on the other side of the world) have reached the point of becoming net threats to U.S. national security, not net boosters.

Worst of all is American policy on the Korean peninsula.  It remains unchanged  from the days when North Korea arguably could be deterred by threatened U.S. nuclear weapons use from attacking with its own superior conventional forces because it lacked nuclear retaliatory capability.  As a result, it continues to station nearly 30,000 American troops right near the border of the aggressive and volatile North for the express purpose of creating a “trip wire.”  In other words, North Korea might now be able to destroy U.S. cities with its own nuclear bombs, or soon might be able to in response to American nuclear use. But Washington still recklessly seeks to prevent any such attack by the North in the first place by placing these troops in imminent danger and leaving nuclear use the only realistic option of saving them if hostilities ever did break out.  

If a standard globalist President was occupying the Oval Office, it would be understandable that he or she would be responding to the Japan-South Korea feud and its alliance implications by wishing it away. But Donald Trump is an avowed America First President – and has demonstrated many instincts along these lines. Why is he waiting to long to take this latest, massive hint, and leave these increasingly unreliable countries to their own (considerable) devices?

Our So-Called Foreign Policy: The Globalist Blob Wants the U.S. to Keep Looking for Trouble

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alliances, Blob, China, Council on Foreign Relations, East Asia-Pacific, extended deterrence, globalism, Japan, North Korea, nuclear weapons, Our So-Called Foreign Policy, Project-Syndicate.org, Richard N. Haass, South Korea, Taiwan, Trump

I’d like to offer a deal to anyone in America’s bipartisan globalist foreign policy establishment: You come up with defenses of the pre-Trump strategies and approaches you support that aren’t transparently ridiculous, and I’ll start portraying them as something other than sick jokes.

Judging by Richard N. Haass’ latest column for the Project Syndicate website, it’s clear that even if these members of the Blob (a wonderful nickname for this crew of former officials, genuine scholars, think tank creatures, Mainstream Media journalists, and business and finance leaders) cared about what I think, they’d flunk this test.

Haass is an especially important Blob-er because he not only served as a top policymaker under three Republican presidents (and in a more junior position during Jimmy Carter’s administration). He’s the President of the Council on Foreign Relations – the Blob’s oldest and most prominent think tank. (Truth in advertising: He also preceded me by two years at our Long Island, N.Y high school, but we had no personal dealings.)

But we should all hope that the advice he dispensed in government was much better than that he seems to have offered in “Asia’s Scary Movie.” Because his arguably underlying message – that the United States should reinforce its commitment to militarily defending the East Asia-Pacific region even though the region shows signs of fracturing on the economic and security fronts – is nothing less than a recipe for increasing America’s exposures to perils it can’t possibly control.

Especially and dangerously nutty is Haass’ clear belief that the United States should maintain its security relationships with Japan and South Korea even though the two countries are engaged in a literal trade war that’s disrupting interactions between their two gigantic clusters of information technology hardware manufacturing – which are so big that global trade and production in these critical sectors could take a major hit if the feud escalates further.

After all, as noted in that post linked just above, American ties with these two countries are “vital to its aims of balancing China and addressing the threat from North Korea” – both of which threats Haass correctly describes as growing and as worrisome as ever, respectively. In other words, in the event of trouble that may require a military response, the United States is relying on help from Tokyo and Seoul – which, in turn, are going to need to be working together.

But military relations between these two Asian countries have long been threadbare at best. Worse, their latest dispute – amid the backdrop of the rising China challenge and the ongoing peril from North Korea, which endanger both – has broken out because of grievances and grudges dating from Japan’s long and brutal occupation of the entire Korean peninsula in the decades preceding the end of World War II.

Given the history, it’s easy to understand why there’s no love lost between these two peoples. But alliances make sense only when the participants can count on each other for effective assistance if and when the shooting starts. Can anyone seriously believe that Japan and South Korea are going to get their act together suddenly if North Korean forces barrel across the Demilitarized Zone, or if Beijing moves against Taiwan? Or that responsible American defense planning should assume this rosy scenario?

Even worse, if trouble does break out on the Korean peninsula, nearly 30,000 American troops will be right in the middle. As I’ve written repeatedly, their vulnerability to superior North Korean conventional forces means that a U.S. President might need to use nuclear weapons to save them. For many years, North Korea’s inability to hit the American homeland with its own nukes made this threat (known as “extended deterrence”) credible and helped keep the peace. Given the North’s major progress toward precisely this capability, the current U.S. strategy could soon amount to risking the complete destruction of a big American city – or two. That may even be the case now.

In other words, given all these major, worsening Asia problems, the logical U.S. response is not stubbornly staying seated atop a powder keg. It’s to disengage ASAP. But any disengagement is such anathema to Haass and the rest of the Blob that he’s actually portrayed President Trump’s various statements criticizing the wisdom of America’s alliances as major contributors to East Asia’s stability.

Ironically, though, despite the Blob’s complaints, Mr. Trump’s biggest mistake along these lines clearly has been to continue his predecessors’ alliance policies, and even to double down in Eastern Europe – a region that could be as dangerous as East Asia.

That is, Haass and the rest of the Blob should be resting a lot easier. What a tragedy that there’s no reason to say that for the rest of us.

Making News: Two Trade War National Radio Interviews Coming Today…& More!

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Bill Powell, China, G20, G20 Summit, Gordon G. Chang, Group of 20, Japan, Making News, Market Wrap with Moe Ansari, Newsweek, Osaka, The John Batchelor Show, Trade, trade war, Trump, Xi JInPing

I’m pleased to announce that I’m scheduled to appear twice today on national radio to help update the U.S.-China trade conflict.  In addition, I’ll no doubt be previewing the upcoming meeting later this week between President Trump and Chinese dictator Xi Jinping on the sidelines of the summit being held among the heads of the world’s twenty largest economies (the so-called Group of 20, or G20) in Osaka, Japan.

The first will be broadcast at 3 PM EST on the nationally syndicated Market Wrap with Moe Ansari.  Click here to listen live on-line.

The second entails a return to The John Batchelor Show.  Click here to listen on-line at 10 PM EST to the latest in the always lively discussions among John, co-host Gordon G. Chang, and me on the rapidly evolving trade war scene.

As usual, if you can’t listen today (or want to hear the interviews again) I’ll post podcasts of the segments if and when they’re available.

Finally, it was great to be quoted several times in this excellent long look back at U.S.-China economic relations by Newsweek‘s Bill Powell in this week’s edition of the magazine.

And keep checking in with RealityChek for news of upcoming media appearances and other developments!

Our So-Called Foreign Policy: Trump’s Acting Like Uncle Sucker on Alliance Burden-Sharing

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alliances, allies, America First, Blob, Bloomberg.com, burden sharing, Europe, globalism, Japan, NATO, North Atlantic treaty Organization, Our So-Called Foreign Policy, South Korea, Trump

While much of the world is on pins and needles wondering whether President Trump will reach a big trade deal with China and how it will impact the U.S. economy and global commerce, Mr. Trump’s negotiating reputation has also been on the line on another major international front – America’s relations with its top security allies. And the latest reported developments add to the evidence that he’s going to fail miserably.

According to a March 8 Bloomberg.com article, the Trump administration is planning to insist that countries hosting American troops pay the full cost of these deployments, along with an extra 50 percent of that full cost for what’s described as the “privilege” of enjoying American protection.

Predictably, the allies, along with Washington, D.C.’s bipartisan globalist foreign policy establishment are sputtering with outrage – accusing the President of viewing these security relationships as lowly “transactional” relationships focused on enhancing purely American interests rather than as vital pillars of a global liberal, democratic order that since the end of World War II has benefited the United States more indirectly by promoting worldwide peace, prosperity, and democracy. In a journal article last year, I described at length why this quintessentially globalist approach to foreign policy and national security has long been creating many more big problems than it solves for a country as fundamentally secure and prosperous as the United States.

As a result, I strongly sympathize with any efforts to overhaul America’s alliances, however many specific criticisms I may have with the President’s tactics. But the most immediate problem with the Trump strategy is that the President keeps shooting himself in the foot. Specifically, he has repeatedly undercut U.S. leverage by proclaiming that he, too, views these arrangements as crucial for America to maintain.

For example, just two months ago, Mr. Trump insisted that “We’re gonna be with NATO [the North Atlantic Treaty Organization, which binds the United States militarily to Europe] 100 percent ….” Last July, he declared “…I believe in NATO. I think NATO is a very important — probably the greatest ever done.” And the previous year, he explicitly endorsed the alliance’s Article V, which legally commits the United States to come to the defense of any member under outside attack.

Regarding the American alliance with South Korea, Mr. Trump told that country’s National Assembly in November, 2017 that U.S. commitment to that country’s defense represented a line “between peace and war, between decency and depravity, between law and tyranny, between hope and total despair. It is a line that has been drawn many times, in many places, throughout history. To hold that line is a choice free nations have always had to make. We have learned together the high cost of weakness and the high stakes of its defense.” 

And that June he vowed at a Washington, D.C. press conference with South Korean President Moon Jae-in, “the United States will defend itself, always will defend itself, always, and we will always defend our allies.”

Meanwhile, shortly after his inauguration, Mr. Trump and Japanese Prime Minister Shinzo Abe issued a statement affirming that “The unshakable U.S.-Japan Alliance is the cornerstone of peace, prosperity, and freedom in the Asia-Pacific region. The U.S. commitment to defend Japan through the full range of U.S. military capabilities, both nuclear and conventional, is unwavering.”

It’s true that the President has spoken repeatedly, both as a candidate for the White House and as a chief executive, of his desire to withdraw American troops from these countries at some unspecified point. (This archive contains an indispensable, useful comprehensive collection.) But it’s also true that Mr. Trump has endorsed the defining globalist precept that U.S. “security and prosperity [have] depended” on “pushing back” versus threats to the allies.

During his successful White House run, candidate Trump faulted Democratic candidate Hillary Clinton – a Secretary of State under President Obama – for dooming any prospects for reforming American alliances by continually touting their paramount virtues. One of these critiques (cited in the aforementioned archive) is worth quoting at length:

“Now, Hillary Clinton said: ‘I will never leave Japan. I will never leave Japan. Will never leave any of our–‘ Well now, once you say that, guess what happens? What happens? You can’t negotiate. In a deal, you always have to be prepared to walk. Hillary Clinton has said, ‘We will never, ever walk.’ That’s a wonderful phrase, but unfortunately, if I were on Saudi Arabia’s side, Germany, Japan, South Korea and others, I would say, ‘Oh, they’re never leaving, so what do we have to pay them for?’ You always have to be prepared to walk. It doesn’t mean I want to walk. And I would prefer not to walk. You have to be prepared and our country cannot afford to do what we’re doing.”

In other words, Mr. Trump was making one of his characteristic charges that his opponent – and the establishment foreign policy “Blob” to which she’s belonged — had turned the United States into an “Uncle Sucker” who’d forgotten that Washington’s top priority is looking after the American people, not foreign populations. If he doesn’t get his alliance diplomacy act together soon, this self-described master deal-maker will start deserving the same label.

Our So-Called Foreign Policy: America’s Foreign Policy Blob Challenged from Within

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alliances, allies, America First, Asia, Blob, burden sharing, Chas W. Freeman, East Asia, East Asia-Pacific, establishment, globalism, Japan, North Korea, nuclear deterrence, Our So-Called Foreign Policy, South Korea, Trade, Trump

Chas [that’s not a typo] W. Freeman isn’t exactly a household name. He’s even far from the most prominent member of the U.S. foreign policy “Blob” – the bipartisan establishment of current government bureaucrats, former officials, think tank-ers, academics, and journalists whose members for decades have both constantly changed exchanged jobs as their particular political patrons have rotated in and out of elected office, and helped keep the nation’s approach to international affairs on a strongly activist, interventionist (i.e., globalist) course for decades.

That is, they’ve succeeded in this mission until Donald Trump’s election as president, and even he hasn’t managed to throw off their grip completely. (See this 2018 article of mine for an explanation of how globalism and the “America First” approach touted by Mr. Trump differ, and examples of how his foreign policy decisions have reflected both strategies so far.)

But Freeman is a card-carrying member of the Blob – as one look at his bio should make clear. And that’s what makes this recent speech of his so interesting and important.

The address, delivered to a world affairs conference in Florida, has attracted the most attention (especially on Twitter) for its critique of President Trump’s China policy. And that makes perfect sense given the Freeman literally was present at the creation of the Nixon-era outreach to the People’s Republic that ended decades of Cold War hostility and set the framework for bilateral relations from the early 1970s until the Trump Era began.

But in my view, the China portions are eminently forgettable – amounting to a standard (but less oft-stated these days) Blob-y claim that the PRC is being scapegoated for chronic failures of U.S. domestic economic and social policy.

What really stands out is this passage – which clashes violently with the Blob’s defining worship of America’s security alliances and dovetails intriguingly, albeit only partially, with my own views of how America’s economic and security strategy toward China and the rest of East Asia should evolve.

According to Freeman (and he’s worth quoting in full):

“President Trump has raised the very pertinent question: Should states with the formidable capabilities longstanding American “allies” now have still be partial wards of the U.S. taxpayer? In terms of our own security, are they assets or liabilities? Another way of putting this is to ask: Do our Cold War allies and their neighbors now face credible threats that they cannot handle by themselves? Do these threats also menace vital U.S. interests? And do they therefore justify U.S. military presences and security guarantees that put American lives at risk? These are questions that discomfit our military-industrial complex and invite severe ankle-biting by what some have called ‘the Blob’ – the partisans of the warfare state now entrenched in Washington. They are serious questions that deserve serious debate. We Americans are not considering them.

“Instead, we have finessed debate by designating both Russia and China as adversaries that must be countered at every turn. This has many political and economic advantages. It is a cure for enemy deprivation syndrome – that queasy feeling our military-industrial complex gets when our enemies disorient us by irresponsibly defaulting on their contest with us and disappearing, as the Soviet Union did three decades ago. China and Russia are also technologically formidable foes that can justify American R&D and procurement of the expensive, high-tech weapons systems. Sadly, low intensity conflict with scruffy ‘terrorist’ guerrillas can’t quite do this.”

If you ignore what I view as the not-very-informative shots against the “warfare state,” you can see that Freeman comes close to exposing some of the main weaknesses and even internal contradictions of both main factions in the national China policy debate, and (unintentionally, but unmistakably) provides some support for the America First set of priorities I’ve proposed.

Specifically, supporters of pre-Trump China trade policies generally have insisted that China and the rest of East Asia are crucial to America’s economic future because of their huge and fast-growing markets and overall dynamism. But although they staunchly back maintaining the U.S. alliances in the East Asia-Pacific region that has long aimed to secure the political independence of its non-communist countries and thereby keep their economies open to American exports and investment, they keep ignoring three major problems created by this approach.

>First, the trade and broader China economic policies they’ve stood for have greatly enriched and strengthened the country posing the greatest threat to East Asian security. (See, e.g., this column.) 

>Second, because of the growth and increasing sophistication of Chinese and North Korean nuclear forces, America’s alliances in the region have brought the U.S. homeland under unprecedented threat of nuclear attack from both of these rivals.

>Third, despite the alliances, countries like Japan and South Korea have remained highly protectionist economies whose trade predation has damaged America’s overall economy and particularly its manufacturing base. In fact, there’s every reason to believe that U.S. security objectives have enabled this allied trade predation, by preventing Washington from retaliating effectively for fear of antagonizing Tokyo and Seoul.

The Trump policy mix strikes me as being much more internally consistent. In large measure because of fears of growing Chinese military might, it’s trying to use both trade and investment policy to curb Beijing’s use of intellectual property theft and technology extortion in particular to gain regional parity with U.S. forces and thus make America’s alliance commitments much more dangerous and costly to fulfill. The administration also deserves credit for recognizing the purely economic damage Asian trade predation has caused America.

But for all the president’s complaints about defense burden-sharing, he, too, appears determined to keep the alliances intact. Hence his recent insistence that South Korea pay more of the costs of the U.S. troop deployments on its soil despite his repeated claims about the alliance’s necessity. Just as important, although the Trump Asia policies have sought more balanced trade flows with regional allies, these very efforts make clear how unsatisfactory these economic relationships have been. As a result, they sandbag the case that the United States must run major military risks to preserve them.

Freeman’s speech suggests support for a different set of priorities. In one sense, they’re logical: If, as he suggests, its security alliances in East Asia are no longer good deals for the United States, then it’s indeed not such a big deal from a security perspective if America’s economic policies toward China are helping Beijing increase its military power – and boost the odds that it will someday control the region to America’s economic detriment.

Yet Freeman’s apparent priorities fail on the purely economic front, as they seem to propose doing nothing whatever to combat the Chinese policies that have harmed America’s economy.

And that’s why the America First recipe I’ve proposed makes the most sense:

>First, disengaging from an increasingly hostile and economically dangerous China (largely because no trade deal can be adequately verified).

>Second, recognizing that trade with the entire East Asian region has been a loser for the United States and certainly not worth the growing military risks to the American homeland – and thereby concluding that the U.S.’ still-overwhelming economic leverage is likeliest to secure whatever improvements in trade and commercial relations are needed.

>Third, wherever possible, using this economic leverage to shift jobs offshored to Asia but not likely to return to the United States (because they’re too labor-intensive and therefore “low tech”) to Mexico and Central America. The resulting new economic opportunities could go far toward solving the Western Hemisphere’s immigration problems.

Unfortunately, because the Trump administration has its Asia priorities so confused, optimism regarding major changes is tough to justify. But Freeman’s willingness to challenge from within the Blob’s fetishization of U.S. alliances, however flawed, is a ray of hope. And who was it who said that a journey of a thousand miles begins with a single step?

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.

(What’s Left of) Our Economy: The IMF (Unwittingly) Explains Why Trade Deficits Really Do Matter

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China, current account, current account surplus, current deficit, Germany, Global Imbalances, globalization, IMF, International Monetary Fund, Japan, tariffs, The Netherlands, Trade, Trade Deficits, Trump, {What's Left of) Our Economy

One of my greatest professional disappointments has been my failure to help make many converts to the idea that one of the biggest – and possibly the biggest – reason that trade deficits matter a lot (contrary to the insistence of most economists) is that they can lead to global financial crises like the one that struck in 2007 and 2008. The idea is that these deficits lay at the heart of the broader economic imbalances run up during the previous decade – which flooded borrowing- and spending-happy economies (especially America’s) with oceans of cheap credit, and inevitably produced the reckless use of such credit and the inevitable – and terrifying – bursting of the resulting bubbles.

You see? It’s a thesis that’s tough to summarize briefly – even though it’s widely accepted by some of the world’s leading economists, who nonetheless remain reluctant to acknowledge any connection to trade flows.

So I’m gratified that the International Monetary Fund has just lent additional support to this thesis, but I’m under no illusions that the determinedly oblivious conventional wisdom is going to budge – especially since the Fund goes out of its way absolve lopsided trade flows of any blame.

According to the Fund’s new External Sector Report (click here for a link to the PDF), these imbalances (measured in their broadest form, the current account) stayed at about the same share of the world economy last year as they did in 2016 (some 3.25 percent). Yet in the IMF’s view, between 40 and 50 percent of these imbalances were “excessive (that is, not explained by countries’ fundamentals and desirable polices).”

Why should anyone care? Because, as the Fund explains, “Large and sustained excess external imbalances in the world’s key economies—amid policy actions detrimental to external balances—pose risks to global stability.” Specifically, “Over the medium term, sustained deficits, leading to widening debtor positions in key economies, could constrain global growth and possibly result in sharp and disruptive currency and asset price adjustments.”

That last reference to “sharp and disruptive currency and asset price adjustments” is a fancy, and deliberately understated, way of saying “financial crisis.”

The danger is underscored by Figure 1 from the Report (on page five) – which shows how the world’s current account situation has changed over time. Optimists might take comfort from the fact that the overall global imbalance today (showed by the thick, solid line), is considerably smaller as a share of global output than it was at the peak of the last decade’s bubble. Also of interest: China’s current account surplus has shrunk in relative terms, while those of Japan, Germany, and the Netherlands have remained about the same. (For evidence that the better Chinese numbers are largely smoke and mirrors, see this analysis from the Council on Foreign Relations – not exactly a hotbed of protectionist thought.)

But here’s what the pessimists would note – and what should worry everyone: Although the total worldwide current account imbalances is down, so is global growth. During the peak bubble years, it was about 4.30 percent annually after inflation. During the current recovery, it’s been much lower, and last year, it was 3.15 percent. Worse, a new slowdown may well be in the cards.

That is, the world economy seems to be facing all the dangers of a new financial crisis without having received many of the (dubious) benefits of a preceding bubble.

The IMF has a solution: The persistent surplus countries should spend more (which will presumably pull in more imports from the deficit countries) and the deficit countries should take “actions to strengthen public and private sector balance sheets” (that is, in large measure, spend less).

And it sends a warning: “[P]rotectionist policies should be avoided as they are likely to have significant deleterious effects on domestic and global growth, while limited impact on external imbalances.”

These are pretty standard prescriptions. The trouble is, as usual, neither the surplus nor the deficit countries are showing any interest in following them. Moreover, the IMF’s views on the relationship between trade flows on the one hand, and national borrowing and spending and savings rates on the other, seems to repeat the canard that net savings levels determine trade flows. Nowhere do its economists acknowledge that the fundamental mathematical relationship is that of an identity – which says nothing about causation at all. As a result, they also ignore all the ways in which trade flows can determine savings rates.

It’s anything but realistic to expect the Fund to endorse President Trump’s tariffs or any of the rest of his trade policies. But it also seems to remain anything but realistic to expect the Fund to identify any plausible alternative ways to prevent today’s global imbalances from turning into Financial Crisis 2.0.