Our So-Called Foreign Policy: First Thoughts on the Post-Brexit World

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2016 election, Brexit, Catalonia, David Cameron, Donald Trump, EU, European Union, Eurozone, Federal Reserve, France, globalization, Greece, Hillary Clinton, Im-Politic, Immigration, interest rates, Janet Yellen, NATO, North Atlantic treaty Organization, Obama, Scotland, Spain, terrorism, The Netherlands, TPP, Trade, Trans-Atlantic Trade and Investment Partnership, Trans-Pacific Partnership, TTIP, United Kingdom

I sure as heck was surprised by the United Kingdom’s decision yesterday to leave the European Union (EU). Were you? And now that “Brexit” will indeed take place, what’s in store for America and the world? My crystal ball has never worked perfectly, and much of Brexit’s ultimate impact will depend on how London executes the move, and how the EU and financial markets respond. America’s reactions of course will matter as well. Here are some initial reactions. 

>The unexpected Brexit verdict significantly changes the narratives about the global economy’s evolution, about the future of international trade and related economic policies, and about the fate of international political integration.

As recently as 48 hours ago, the safest bet was that British voters would behave similarly to voters elsewhere in Europe who have had the chance to change fundamental political arrangements. In September, 2014, the Scots voted to remain a part of the United Kingdom. Although Greek anti-EU sentiment runs high for reasons that are easily understandable given that country’s prolonged economic crisis, a much-feared (by those who were not hoping for it) “Grexit” vote never took place. Catalonia is still part of Spain, despite a strong separatist movement in the region – and a terrible Spanish economy. And in 2005, the French and Dutch electorates voted down a proposed new EU constitution that would have accelerated political and economic integration – chiefly by streamlining decision-making via greater powers for pan-European institutions. But the issue of departing the Union has not yet come up.

As with Scottish devolution in particular, I thought that instincts for caution would steadily overcome nationalist or ethnic (take your pick) feelings as election day approached, and that the British would ultimately reject a leap in the dark. And of course, my confidence was reinforced by my view that the UK is hardly an economic superpower, and that its prospects outside the EU objectively are iffy.

The British public’s refusal to back down – despite an unmistakable fear-mongering campaign by (now caretaker Prime Minister) David Cameron’s government and even the country’s central bank – signals that Europeans at least may be willing to shift integration into reverse, not simply keep it in place

>In that vein, one of the biggest worries of Brexit opponents entailed the possibilities of contagion – a “Leave” verdict encouraging similar EU opponents throughout the Union. And copycat Brexit votes are clearly back on the table, given widely acknowledged structural defects in the eurozone (a common currency area that includes 19 of the 28 – counting the UK – EU members, and that Britain never joined), Europe’s especially weak recent economic performance, and controversial EU decisions to admit large numbers of Middle East refugees.

Their success would be a genuinely historic, and indeed seismic, development, as Europeans themselves since the end of World War II have generally acknowledged that closer, more regularized economic ties were essential for breaking their centuries-old cycle of major conflict. It’s possible concerns about keeping Europe peaceful are overblown. For all the importance of economic integration, the main pacifier of the continent has been the American commitment to European defense embodied in the North Atlantic Treaty Organization (NATO). Brexit per se does nothing to change the UK’s role in the alliance.

Nevertheless, economic and security issues are never, or even often, completely separate. Therefore, particularly over the longer term, Brexit and other withdrawals from the EU could well turn Europe into a much less stable place than it’s been for the last 70 years. More uncertainty could be added to the European security scene if presumptive Republican presidential nominee Donald Trump, an outspoken critic of America’s NATO policy, won the presidency.

I’ve strongly critical of continued U.S. NATO membership, too – especially of what looks to me like a possibly suicidal nuclear security guarantee. Indeed, the risks created for America by its continued NATO role convinces me that fundamental changes in the alliance’s structure are inevitable anyway, since the U.S. promise to risk its existence on Europe’s behalf has become ever less credible. If Brexit brings the EU’s dissolution, or significant weakening, closer, then Washington will face fateful NATO choices it has long tried to avoid sooner rather than later. And the foreign policy establishment’s demonization of all proposals for proactively dealing with these dilemmas has left the nation completely unprepared for their growth to critical mass.

>Economically, Brexit carries disruptive potential, too. Just look at the financial and currency markets today. But epochal political events inevitably create short-term costs; any other expectations are completely unrealistic. Especially inane have been claims on social media (e.g., by The New Yorker‘s Philip Gourevitch) over the last twelve hours that the initial turbulence touched off by Brexit proves it a failure.

Sure to be complicated greatly, however, are efforts to conclude a major trade agreement between the United States and the EU. This Trans-Atlantic Trade and Investment Partnership (TTIP) has been a long slog anyway. But since such negotiations always entail achieving a delicate balance of interests, and since the UK is a significant part of the overall EU economy, any important compromises that have been struck in the talks would seem to be threatened.  

President Obama has already concluded with eleven other countries a Pacific rim-centered trade agreement called the Trans-Pacific Partnership (TPP), but it’s doubtful that Brexit will do much to dispel Congressional skepticism that has prevented Mr. Obama from formally submitting it for approval.

Keep in mind, though, that trade – including with Europe – is still a pretty minor part of the U.S. economy. The channel through which the biggest Brexit impact is likeliest to be transmitted to America is monetary policy – the province of the Federal Reserve. At the Fed’s June 15 meeting, Chair Janet Yellen made clear that the possibility of Brexit, and especially its impact on financial markets, was one factor behind the central bank’s decision to keep interest rates on hold. Until business-as-usual in the world economy resumes, don’t expect any rate hikes – good news if you believe that the U.S. desperately needs super-easy credit to sustain its current feeble recovery, and bad if you believe that prolonged near-zero rates have prevented the post-financial crisis adjustments needed to restore real health to the economy.

>In fact, such existing skepticism around these trade issues, as well as around immigration policy, makes me doubt that Brexit will have a notable effect on American politics and policy. Sure, the same kinds of economic anxieties that have fueled Trump’s campaign helped lead to victory for “Leave.” But his followers won’t be able to cast more votes for him as a result of the British decision.

Supporters of his presumptive rival, Democrat Hillary Clinton, are surely horrified by the resistance to unlimited immigration and massive refugee admissions signaled by Brexit, so they wouldn’t seem headed for the Trump camp. And it’s difficult to imagine many independent voters marking their ballots in November based on the British vote. Indeed, this poll tells us that Brexit isn’t even on the screens of most U.S. voters. Rightly or wrongly, that choice will be overwhelmingly Made in America.

One possible exception – but one that’s largely independent of Brexit: A wave of overseas terror attacks could easily heighten American anxieties about their own security, whether an Orlando or San Bernardino repeat occurs or not. Ditto for some major military success by ISIS or a similar group abroad, or an unrelated international crisis. More terrorism-related developments could favor Trump. Something like a showdown with Russia over Eastern Europe or China over the South or East China Seas could break in Clinton’s direction (due to judgment and experience considerations). In the process, these contingencies could also remind us how quickly Americans might forget all about Brexit.

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Our So-Called Foreign Policy: Former Military Bigwigs’ Militarily Dubious Case for New Trade Deals

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alliances, China, Cold War, deterrence, energy, export-led growth, free trade agreements, geopolitics, Germany, Japan, Korea, Middle East, NATO, oil, Our So-Called Foreign Policy, Russia, Soviet Union, technology transfer, TPP, Trade, Trans-Atlantic Trade and Investment Partnership, Trans-Pacific Partnership, tripwires, TTIP, Vladimir Putin

Despite my great respect for America’s uniformed military and for the civilians who try to manage the nation’s huge defense establishment, many of them have just reminded us that they have long suffered from a big, fat blind spot when it comes to U.S. foreign policy and its relationship to trade and economic policy.

Seventeen former Secretaries of Defense and leading generals on Thursday released a letter expressing their “strongest possible support” for President Obama’s proposed Pacific Rim trade deal and its trans-Atlantic counterpart. According to the signers, who included Colin Powell (a former Secretary of State to boot), and former Pentagon chiefs Leon Panetta, Chuck Hagel, Robert Gates, and Donald Rumsfeld, as well as former U.S. Iraq commander and CIA chief David Petraeus, “There are tremendous strategic benefits to [the two deals] and there would be harmful strategic consequences if we fail to secure these agreements. In both Asia-Pacific and the Atlantic, our allies and partners would question our commitments, doubt our resolve, and inevitably look to other partners. America’s prestige, influence, and leadership are on the line.” Needless to say, the letter claims that the economic benefits of these pacts would be “substantial,” too.

But its predictions of strategic disaster flowing from rejecting the Trans-Pacific Partnership (TPP) and Trans-Atlantic Trade and Investment Partnership (TTIP) stem from fundamental misunderstandings of how and why America’s main alliances are structured and work. More specifically, these former leaders either don’t or refuse to recognize that U.S. allies need the United States much more than the reverse, and similarly, they have lined up with America because their own self-interest desperately requires it.

After all, whatever benefits Americans get from these arrangements, the United States is located thousands of miles away from any rivals that could seriously threaten it, and retains more-than-ample power to deter attacks on the homeland from any minimally rational adversary. (Alliances have no apparent potential to strengthen U.S. security against non-rational enemies armed with weapons of mass destruction.) The allies, however, are all located very close to countries that can cause them major grief, and Washington’s assistance is especially prized not only because it is abundant, but because it comes from a power too far away to dominate them in any meaningful sense.

It’s true that, during the Cold War, major fears were expressed about Western Europe “Finlandizing” itself and agreeing to some form of informal Soviet hegemony. And one concrete problem could have ensued – Moscow could have interfered with U.S. efforts to supply Middle East military ventures through European bases. But if no such scenario unfolded during those decades, why would it emerge given the much weaker state of contemporary Russia? Even weirder, given the enormous American potential recently revealed for substantial energy independence, and given Europe’s continued reliance on the Middle East, control of the continent would put the onus on Vladimir Putin to defend the free flow of oil from that dysfunctional region, and generally police it. More power to him.

For their part, America’s Asian allies have significant reasons to kowtow to China – mainly because so many of them are connected with the PRC economically through the vast multinational manufacturing production complex the region has become. At the same time, commerce (properly understood) also prevents East Asia from simply casting its lot with the Chinese and excluding the United States in any (further) meaningful way. For America is by far the single biggest national customer for the products turned out by their export-heavy economies. China is way too poor, way too protectionist, and way too export-led itself to serve as a substitute.

The former military leaders are on firmer ground in suggesting that America’s allies have reason to doubt U.S. defense commitments. But that has nothing to do with the fate of trade deals. Instead, it reflects chronic doubts about whether the United States would risk its own security on their behalf, especially against nuclear-armed adversaries. Washington’s traditional response has been stationing U.S. forces (and during the Cold War, their families) directly in harm’s way, to increase the odds that attacks on the allies would claim U.S. victims. Thus American leaders would be left with no real choice but to respond in kind, the allies would recognize this, and adversaries would be further deterred.

Since the Cold War’s end, these American “tripwires” have been thinned out, but they’re still deployed in Korea, Japan, and Germany. The big new commitment questions raised in Europe have concerned the conspicuously complete lack of permanently stationed tripwires in the newer NATO members that were once part of the Soviet bloc but that still may be in Putin’s sites. In the Far East, the credibility of the American deterrent, as I’ve written, is being undermined by the ongoing development of Chinese and North Korean nuclear forces capable of striking American territory and largely invulnerable to retaliation or preemption. Neither trade deal being pursued by the president has the slightest chance of easing these doubts.

There is one way that the TPP could bolster the American stake in East Asia’s security status quo – if the deal had any real promise of reducing the region’s main predatory trade practices and turning U.S. commerce with it from a net loser to a net winner, or something close. But since these Asian practices (and barriers) are generally informal, and carried out by bureaucracies that are expert at keeping secrets from foreigners, they’ve been difficult enough for Americans even to identify and document, much less combat effectively.

Finally, it’s vital to point out that, for all the alarms sounded by these former military leaders about using TPP specifically to offset China’s rise and economic influence over its neighbors, not one of them has ever registered a single complaint about the wealth and technology (including defense-related knowhow) that American policy has showered on China for literally decades. This apparent ignorance of the first maxim of strategy – don’t enrich and empower your enemy – shows that these former defense officials and senior generals and admirals may not deserve to be taken seriously even on many national security questions, let alone on trade issues.

Im-Politic: Republicans Happy to Trust Obama When He Pushes Offshoring

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Boehner, campaign finance, Darrell Issa, fast track, Im-Politic, Immigration, Iran, Jeb Bush, Obama, Paul Ryan, TPA, Trade, Trade Promotion Authority, Trans-Pacific Partnership, Transatlantic Trade and Investment Partnership, TTIP

That’s some stunningly contradictory message leading Republicans have been sending lately regarding President Obama’s negotiating skills. On the one hand, they portray him as a bumbling naif on issues like normalizing ties with Cuba and eliminating the Iran nuclear weapons threat. And on the other hand, they’re happy to grant him sweeping Trade Promotion Authority (TPA) to negotiate history’s biggest trade agreements.

This incoherence was most recently displayed by likely presidential candidate Jeb Bush. The former Florida governor told the Chicago Council on Global Affairs that the Obama Cuba diplomacy that began to reestablish diplomatic and economic relations amounted to “bad negotiations.”

According to Bush, “[W]e got nothing in return. We traded a guy who was held hostage, Alan Gross, an aid worker for no reason. He was allowed in the country, he was held hostage and he was languishing in prison, and, in fact, his wife believed that if he stayed much longer, he was going to die, for spies that were convicted in our American judicial system.

“That was not an equal trade. We opened up additional mounts of travel, so many of you may have gone as — like, I say in quotes, education trips. And now that those have been expanded the president has that authority to do so. And nothing in return.”

Yet in the same speech, Bush endorsed the president’s request for a near-blank check from Congress to negotiate the Trans-Pacific Partnership (TPP), the Transatlantic Trade and Investment Partnership (TTIP) and any other agreements he – and possible Democratic successors – might pursue over the next five years.

The disconnect arguably is wider on Iran. House Speaker John Boehner is so worried that President Obama will ultimately cave in and accept an agreement that will enable Iran to develop nuclear weapons that he’s bent Washington protocol and created a firestorm by inviting Israeli Prime Minister Binyamin Netanyahu to address Congress to warn against such appeasement. Moreover, speaking about Mr. Obama’s executive action on immigration, Boehner has declared, “There’s widespread doubt about whether this administration can be trusted to enforce our law.” Yet Boehner’s only criticism of the president’s trade policies is that Mr. Obama hasn’t worked hard enough to win Democrats’ support.

Regarding Iran, Wisconsin’s Paul Ryan emphatically agrees with Boehner. The Ways and Means Chair has insisted that “The president’s policies with Iran have bipartisan concern. A huge bipartisan majority in both the House and the Senate are very worried about the handling of these negotiations.” But he’s tried to justify his enthusiasm for “fast tracking” Mr. Obama’s trade deals through Congress by insisting that “I am not saying to enhance our leverage we have to enhance the administration’s power—far from it. What I’m saying is this bill would enhance Congress’s power. TPA empowers Congress.” What Ryan has not explained is why he thinks the president is more likely to follow the law on trade than he’s been on immigration.

But at least Ryan doesn’t descend into the outright schizophrenia displayed by Rep. Darrell Issa. The California Republican, a fierce Obama critic, told the Washington Post, “This president has earned our distrust, but having said that, I still support TPA. I still want to have the trade team be able to go forward and make good offers.”

One explanation for these seeming inconsistencies may be these Republicans’ belief that bad trade deals are much less likely to damage important U.S. interests than are bad national security deals – though that will be a tricky argument to make during an economic recovery with which few Americans are happy. Or maybe most Republican leaders think that, although President Obama’s terrible instincts on economics become excellent once matters go international? That’s a contention that looks too clever by half.

Instead, these clashing Republican positions seem best explained by the role of Big Money in politics. America’s offshoring lobby has told these lawmakers to jump. And their only uncertainty is “How high?”

Those Stubborn Facts: Trade Deals MIA in Obama State of the Union Follow-Ups

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fast track, Obama, State of the Union, Those Stubborn Facts, TPA, TPP. Trans-Pacific Partnership, Trade, Trade Promotion Authority, TTIP

# of words on trade, TPP, fast track in Obama State of the Union: 191

# of words on trade, TPP, fast track in Obama State of the Union follow-ups in Idaho, Kansas, and on radio: 0

(Sources: “Remarks by the President on Middle-Class Economics – Boise, ID,” Office of the Press Secretary, The White House, Speeches & Remarks, Briefing Room, October 21, 2015, http://www.wh”remaritehouse.gov/the-press-office/2015/01/21/remarks-president-middle-class-economics-boise-id; “Remarks by the President on Middle-Class Economics, University of Kansas – Lawrence , KS,” January 22, 2015, ibid., http://www.whitehouse.gov/the-press-office/2015/01/22/remarks-president-middle-class-economics-university-kansas-lawrence-ks; and “Weekly Address: Middle-Class Economics,” January 24, 2015, ibid., http://www.whitehouse.gov/the-press-office/2015/01/24/weekly-address-middle-class-economics)

(What’s Left of) Our Economy: A Hail Mary for the TPP Trade Deal?

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fast track, Michael Froman, Obama, TPP, Trade, TTIP, U.S. Trade Representative, {What's Left of) Our Economy

I’m trying to decide which is the more interesting question: why Foreign Affairs, organ of the foreign policy establishment, decided to publish U.S. Trade Representative Michael Froman’s brief for the new trade deals President Obama supports, or why Froman decided to write and market the article in the first place.

Little could be clearer by now than the president’s growing detachment from either the Trans-Pacific Partnership (TPP) or the Transatlantic Trade and Investment Partnership (TTIP) or the fast track legislation that’s crucial to its passage by Congress – unless it’s the opposition to the Pacific and Europe-focused agreements that’s emerged in many of the other prospective signatories.

And although Froman’s piece ostensibly focused on “The Strategic Logic of Trade” – raising the prospect that, once again, Washington is about to throw American workers and domestic producers under the bus in order to make nice with free-riding allies – he quickly retreated back to the (currently) standard argument that new trade deals “first and foremost” have to stand on their economic merits.

Still, it’s pretty revealing that, although Froman did proceed to try linking the strategic case for these agreements to U.S. interests in some of the world’s leading crises, he wound up showing how flimsy the connections really are.

Take Froman’s claim that “Over time, the habits of cooperation shaped through trade can reduce misperceptions, build trust, and increase cooperation between states on other issues — creating ‘an atmosphere congenial to the preservation of peace,’ as U.S. President Harry Truman put it in 1947….”

Do the “recent developments in Asia and Europe” mentioned by Froman in the very next paragraph even come close to bearing this out? East Asia, for example, is the world’s champion trading region, and the offshoring of U.S., European, and Japanese corporate supply chains means that trade within its bounds has exploded along with its trade with other regions. Yet despite the superabundance of trade, misperceptions among China, Vietnam, Korea, Japan, and others seem to be on the rise. Mounting geopolitical tensions have even spilled over into economic relations – notably between Japan and China, and between Vietnam and China.

It’s true that open conflict has so far been avoided, and a fear of rocking an economic boat that’s so far been prosperity-enhancing has undeniably played a major role. But it’s even likelier that the military presence of the United States and the alliance system it undergirds has been the truly decisive peacekeeper so far.

Stranger still is the article’s argument that “finalizing the Transatlantic Trade and Investment Partnership (T-TIP) would send an unmistakable signal to the world about the strength of the U.S.-European bond — a timely reminder, as the crisis in Ukraine has triggered deep unease across the continent.”

I can’t speak with much confidence about how “the world” would interpret the TTIP strategically. I do feel confident in stating that the force threatening Europe’s “ease” – Russia’s Vladimir Putin – is paying much more attention to how the United States and its allies respond to his ever bolder provocations near NATO airspace, and whether they’ll impose stronger sanctions on the Russian economy, than to whether Washington and Brussels can expand their aleady enormous and generally successful trading and investment arrangements.

A Republican party generally favoring these trade deals looks likely to win the Senate in tomorrow’s midterm elections, and boost Mr. Obama’s chances of winning Congressional approval if they’re ever finalized. Perhaps this prospect convinced either Froman or Foreign Affairs or both that a seemingly weighty journal article could provide lawmakers with valuable political cover.

But with the White House admitting that not even a summit with Asian leaders later this month seems capable of creating new TPP momentum, the odds of the new treaties, and the crucial fast track legislation, coming before Congress before mid-2015 look slim. And the further into next year a Congressional trade debate is postponed, the closer these unpopular initiatives approach the next presidential cycle – that all-too-brief quadrennial stretch when even the most dedicated trade cheerleader has to take public opinion seriously.

(What’s Left of) Our Economy: The Case for Obama’s Trade Agenda Crumbles Ever Faster

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euro, Eurozone, growth, Japan, Jobs, Obama, TPP, Trade, trade agreements, Trade Deficits, TTIP, yen, {What's Left of) Our Economy

In one very real sense, it’s a crying shame that President Obama’s trade agenda is so completely stalled both at the negotiating table and in Congress. Of course, it’s true historically that trade policy critics have always tried playing for time, believing that the longer international trade negotiations took and the longer Congressional votes were delayed, the better the chances of derailing deals for good. The latter view, further, has been strongly supported by a record showing that when Presidents and Congressional leaders decide the time is ripe for a trade vote, it’s because they’ve (rightly) grown confident of victory.

But if the president’s proposed Trans-Pacific Partnership (TPP) and Trans-Atlantic Trade and Investment Partnership (TTIP) agreements were completed and submitted by now, along with a request for fast track negotiating authority, they’d all face an information environment in which the case for such deals is looking weaker than ever.

Just look at what’s happening on the international currency front. Japan is the biggest economy by far included in the TPP (China is out for the time being), and the value of the yen has declined so much lately versus the U.S. dollar that the exchange rate is at a 6-year low. Since Japan is one of the world’s most protectionist economies wherever its currency stands, arguments for TPP’s U.S. export-boosting potential will be difficult to make with a straight face.

The euro, the currency of most of America’s prospective partners in the trans-Atlantic trade deal, is doing better than the yen lately – but not by much. Earlier this month, it hit a one-year low versus the dollar, is a bit stronger this week, but could be heading lower soon with the European Central Bank committed to ever looser monetary policies to stave off recession in the Eurozone.

Meanwhile, another pounding has just been taken by the idea that America urgently needs to secure new trade deals to speed up its sluggish recovery because the vast majority of the world’s consumers live outside its borders. I’ve already reported on World Bank and International Labor Organization data showing that the vast majority of these consumers earn far too little to become robust net importers of U.S. goods and services any time soon.

But as made clear in new, equally authoritative research summarized by The Economist, consumption power in 15 developing countries designated as emerging markets will take much longer to even begin approaching U.S. levels than once believed. According to the magazine, additional World Bank findings strongly indicate that the progress made by these developing countries in closing the income gap has now shifted into reverse. Third world growth rates recently have slowed so that the expected catch-up date with the United States has been moved back from the roughly 30 years that appeared justified before the global financial crisis broke out in 2008 to roughly 50 years. And if China is excluded, the catch-up date now looks to be 115 years off.

In fact, however, the implications of this delayed catch-up are even worse for the U.S. economy than The Economist seems to realize. For the slowdown in emerging market economic growth and the income lag it indicates means that if these countries are to reverse their fortunes again, their economies will need to become even more export-oriented than they already are. And since there’s no reason to think that Japan and the Eurozone will become more open to anyone else’s products and services with their economies stagnant as they were in better times, emerging market exporters will need to target the United States more intensively than ever. For the United States, that would mean even higher trade deficits, slower growth and hiring, and more national debt.

The U.S. interests favoring more trade deals are so powerful and wealthy that, no matter what the facts say, it’s surely still a mistake for critics to start saying “Bring ‘em on.” But unless global economic trends change quickly, their prospects will depend more on lobbying clout, as opposed to the merits, than ever.