(What’s Left of) Our Economy: Now What in the U.S.-China Trade War?

Tags

agriculture, allies, China, decoupling, Democrats, election 2020, forced technology transfer, Hong Kong, Huawei, impeachment, intellectual property theft, National Basketball Association, Phase One, Steven Mnuchin, subsidies, supply chains, Taiwan, tariffs, Trade, trade talks, Uighurs, verification, {What's Left of) Our Economy

This is the second working day since the United States and China reached what the Trump administration is calling a “Phase One” trade deal with Beijing last Friday, and the questions surrounding the agreement still far outweigh what’s known. That alone should tell you that towering obstacles continue blocking any confident assessment of where the President’s so-called trade war stands, much less where the conflict is likely to go. Even so, here are some observations I hope are useful.  (Teaser:  One major point concerns tonight’s Democratic presidential candidates debate.)

First, the absence of any written statements or documents from the U.S. side describing or even summarizing what’s actually in the agreement justifies big doubts that anything deserving the term “deal” has been reached at all. Further reinforcing legitimate skepticism is China’s long record of broken promises on trade.

Second, especially strong skepticism is warranted about U.S. claims that any meaningful progress has been made on the so-called structural issues focused on from the very beginning by the Trump administration. For it as I’ve long argued, China’s government is so vast and secretive, and leaves such scanty written records of key decisions, that it will simply be impossible for the United States to monitor and enforce even the most promising Chinese commitments on intellectual property theft, technology extortion, discriminatory Chinese government procurement, and Beijing subsidies that shaft U.S.-owned and other foreign businesses vis-a-vis their Chinese rivals.

Third, even if China currently means to keep its alleged promises to binge buy American agricultural products, any number of external events could upset the apple cart. They include the Hong Kong picture becoming uglier (its becoming prettier can’t be totally ruled out, but seems highly unlikely); new Chinese crackdowns on other protests that may emerge (especially among the Uighur Muslim population) or revelations of new Chinese atrocities against the Uighurs or other minorities or other protesters; more attempted Chinese bullying of high-profile U.S. businesses like the National Basketball Association; a major flare-up of tensions over Taiwan or China’s aggressive moves in the South China Sea; a step forward in the Huawei case that increases the chances that the CFO daughter of the founder of this Chinese telecommunications giant will be extradited to the United States from Canada for sanctions-busting; and Chinese moves that persuade Washington that Beijing has no intention of keeping its perceived agriculture or other promises.

Moreover, the longer China takes to ramp up its buys from American farmers, the greater the potential for these kinds of shocks to bring this “Phase One” agreement crashing down.

Fourth, the less impressive the “mini-deal” keeps looking, the more convincing my view that its apparent modesty reflects President Trump’s belief that his domestic political position has weakened significantly – both because of the new impeachment threat and signs of an economic slowdown.

It’s true that Treasury Secretary Steven Mnuchin has suggested that if the deal hasn’t been finalized by December 15, the Trump administration will go ahead with a previously vowed 15 percent increase on $156 billion worth of levies on Chinese imports. But that’s anything but a concrete threat. In addition, it’s important to note this report suggesting (the specifics are really sloppily described) that China wants the sequencing to work in the opposite way:  First, tariffs get rolled back (or frozen in place?), then the agriculture buys begin. 

Moreover, no one in the administration has said anything about reversing its Phase One-related decision to suspend a big tariff increase (to up to a formidable 30 percent on some products) previously announced to begin on October 15. So even though U.S. duties on some $360 billion worth of Chinese goods would still remain in place if China blows Mr. Trump off, there’s a real chance that Beijing won’t incur any further punishment – doubtless because the President believes that tariffs above and beyond current levels and coverage could panic investors again and further soften economic growth.

Some kind of blow-up in Hong Kong or elsewhere could yet change Mr. Trump’s calculations. But the more important point so far is that events, not the President, are now in charge of the trade talks track of his China policy.

Fifth, at the same time, none of the above means that the United States is devoid of leverage versus China and in particular the kind of clout that can keep advancing its economic as well as closely related technology and national security interests, and this is where a second, arguably more important, track of the Trump China policies needs to be remembered. As I’ve written, the President has sought not only to end the threat of China’s economic predation by forcing Chinese policy changes through tariff pressure. Although he rarely speaks of it, he’s also been trying to repel Chinese threats to U.S. security and prosperity through a series of unilateral measures aimed at decoupling the United States from China economically.

By crimping trade, investment, and technology flows, these decoupling steps are reducing America’s vulnerability to China by significantly reducing the access to the U.S. market so crucial to the success of China’s advanced industries; by shrinking the footprint of China’s state-controlled economy in America’s largely free market system; and by cutting off a Chinese tech sector that could be become highly dangerous from critical supplies of U.S. components.

Decoupling has also been advanced by those tariffs so far imposed on $360 billion worth of Chinese products (amounting to nearly 86 percent of all goods imports from China last year). They haven’t done much to achieve their stated aim of improving China’s behavior, but they have decreased China’s importance to the U.S. economy by prompting an exodus of global manufacturing supply chains out of the People’s Republic.

Further, the Trump decoupling campaign has also helped awaken many foreign governments to the China tech and broader economic threat – though because so many other countries (including major American treaty allies), were profiting so handsomely from the pre-Trump globalization status quo, progress on this front has been uneven and disappointing. (See here for why Germany, for example is so conflicted.) 

Sixth and finally, one major set of actors in this drama, though, hasn’t been very woke on China issues:  most of the Democratic presidential candidates. Sure, many have supported a policy of “doing something” on China (though rarely involving tariffs – or any other concrete measures). But so far, none seems to view China’s multi-dimensional challenge to America as a major concern – and all the top-tier contenders and most others now support impeaching the President. 

Consequently, they could greatly strengthen not only Mr. Trump’s position, but the American position, with firm declarations in tonight’s debate that China will stay squarely in Washington’s cross-hairs if they win the White House, and that therefore there’s no point in stonewalling in hopes of easier post-2020 U.S. policies. Not that any confidence looks well founded that any of them will.        

Our So-Called Foreign Policy: IAEA Business-as-Usual Approach to Iran Deal Isn’t Good Enough

Tags

allies, Congress, Democrats, IAEA, inspection, Iran, Iran deal, monitoring, Obama, Our So-Called Foreign Policy, Parchin, The New York Times, verification

Whether or not Congressional Democrats ensure American acceptance of President Obama’s Iran nuclear deal, it’s becoming ever clearer that the nation and its leaders need to know exactly how dependent the agreement’s enforcement will be on self-reporting by Iran.

The issue has been raised of course by the leak of documents from the International Atomic Energy Agency (IAEA) appearing to show that this international watchdog will be relying on Iran itself to monitor a key side deal to the agreement.

Defenders of the deal seemingly have persuaded many at least some important journalists that the disclosures are no big deal. According to a New York Times article, all that’s at stake is

“a longstanding effort by the I.A.E.A. to complete a report on past Iranian efforts to develop a nuclear weapon [at a military site called Parchin], an important part of the international effort to pressure Iran. [This report] has little to do with verification of the nuclear accord between Iran and the United States, Britain, Germany, France, Russia and China. That verification regime is laid out in the actual nuclear accord and does not rely on Iran’s self-monitoring.”

But there are at least two big problems with this position. First, the text shows that aside from its assessment of Parchin and other questions related to the current status of Iran’s weapons-related efforts, the IAEA will be playing a central role in the deal proper. Principally, on the one hand, the agreement’s preamble stipulates that

“A Joint Commission consisting of the E3/EU+3 [diplo-speak for the United States, Britain, France, Russia, China, and Germany] and Iran will be established to monitor the implementation of this [agreement] and will carry out the functions provided for in this [agreement]. This Joint Commission will address issues arising from the implementation of this JCPOA and will operate in accordance with the provisions as detailed in the relevant annex.”

Yet the deal also states that

“The IAEA will be requested to monitor and verify the voluntary nuclear-related measures as detailed in this [agreement]. The IAEA will be requested to provide major updates to the Board of Governors, and as provided for in this [agreement], to the UN Security Council.”

More specifically, the text makes clear the those “voluntary measures” are anything but peripheral:

“Iran will allow the IAEA to monitor the implementation of the voluntary measures for their respective durations, as well as to implement transparency measures, as set out in this [agreement] and its Annexes. These measures include: a long-term IAEA presence in Iran; IAEA monitoring of uranium ore concentrate produced by Iran from all uranium ore concentrate plants for 25 years; containment and surveillance of centrifuge rotors and bellows for 20 years; use of IAEA approved and certified modern technologies including on-line enrichment measurement and electronic seals; and a reliable mechanism to ensure speedy resolution of IAEA access concerns for 15 years….”

That is, “voluntary measures” is a synonym for all of the commitments Iran has agreed to carry out, observe, and respect – the core of the deal.

Further, the lifting of UN, European Union, and U.S. sanctions on Iran will all depend, variously, on “IAEA-verified implementation” of Iran’s compliance with the deal’s provisions and, in later years, and on the IAEA’s arrival – if the agency determines that this objective has been achieved before deadline dates are reached – at “the Broader Conclusion that all nuclear material in Iran remains in peaceful activities…” 

The other decisively important issue raised by the Iran agreement gets to the second big problem with the “no big deal” argument. As the Times account (only obliquely) suggests, the question of how much past nuclear weapons-related progress Iran actually matters decisively. The closer Tehran got to achieving weapons production capability, the closer it will be to that goal, all else equal, if the deal doesn’t prove as effective even as its supporters’ relatively modest promises indicate. Just as important, the closer Iran got, the closer it will be to weapons status as the agreement’s various provisions begin to sunset.

Therefore, any U.S. government engaged in planning for the worst – that is, any genuinely responsible U.S. government – will want the clearest, most comprehensive picture of where Iran’s weapons-related campaign stands right now. Both the Obama administration and the IAEA insist that they are legally barred from disclosing exactly how the agency will handle Parchin.

But they make another procedural argument that is even less comforting – that the kinds of reported IAEA arrangements that have raised such a ruckus are standard for the agency. The problem is, Iran’s history of defying international demands regarding its nuclear programs, and of evidence that it has cheated on actual commitments, means that it’s far from a standard country. And in fact, the implications extend to the IAEA’s more central non-Parchin role, too since the deal’s preamble declares that “All relevant [confidentiality-focused] rules and regulations of the IAEA with regard to the protection of information will be fully observed by all parties involved.”

Despite all these questions, and the lack so far of satisfactory answers, I’m still in favor of ratifying the Iran deal – because for the reasons set forth here, I still consider even a bad deal better than none. But if the Obama administration isn’t much more forthcoming – at least to members of Congress – about the actual verification procedures that the IAEA will use, that gap between a bad-deal world and a no-deal could start looking awfully marginal.

Our So-Called Foreign Policy: The Iran Deal, the Dollar, and Economic Power

Tags

allies, Congress, dollar, Iran, Iran deal, John Kerry, Obama, Our So-Called Foreign Policy, reserve currency, sanctions, verification

I keep writing that the less President Obama and his top aides say about their deal to prevent Iran’s acquisition of nuclear weapons, the better its chances of Congressional approval, and doggone it, they keep proving me right. In the latest instance, recent remarks by Mr. Obama and Secretary of State John Kerry about Congress’ decision and the fate of the U.S. dollar cast doubt on both their Iran policy as such, and about their claim to have any coherent foreign policy at all.

According to the president and his top diplomat, the dollar’s global position could be endangered if, after rejecting the agreement, American lawmakers try to force the rest of the world to abide by U.S. sanctions. They seem to be right in a key sense. As they have made abundantly clear, U.S. allies, rivals, and neutrals alike have viewed resuming business with Iran as a much higher priority than concluding a nuclear agreement without gaping loopholes. Both Messrs Obama and Kerry have both all but stated that ending multilateral curbs on trading with and investing in the energy-rich country always mattered most even to the West Europeans, and the Iran deal’s lenient sanctions-lifting conditions and verification weaknesses certainly bear them out. In fact, as I’ve written, the impossibility of mustering more international support for stronger terms – which is hardly Mr. Obama’s fault alone – is why I believe that this deeply flawed deal is better than none at all.

Not that U.S. leaders have been crystal clear on what kind of pressure would both (a) fail to move other major powers whose support would be crucial to damage Iran enough to achieve a stronger deal and (b) backfire disastrously. It’s even hard to figure out how they define “backfire disastrously.” For example, in an August 5 speech, the president said:

“If, as has…been suggested, we tried to maintain unilateral sanctions, beefen them up, we would be standing alone. We cannot dictate the foreign, economic and energy policies of every major power in the world.

“In order to even try to do that, we would have to sanction, for example, some of the world’s largest banks. We’d have to cut off countries like China from the American financial system. And since they happen to be major purchasers of or our debt, such actions could trigger severe disruptions in our own economy and, by the way, raise questions internationally about the dollar’s role as the world’s reserve currency.”

But in an interview yesterday, Kerry also suggested that simple Congressional rejection of the deal would be enough to threaten such U.S. interests: “[T]he notion that we can just sort of diss the deal, unilaterally walk away because Congress wants to, will have a profound negative impact on people’s sense of American leadership and reliability.”

More important, though, are the implications of either contention for America’s broader approach to the world, and to the issue of whether the nation’s current leaders are capable of achieving overseas goals crucial to the nation’s well-being. For both Mr. Obama and his Secretary of State are saying that the dollar-based economic clout that Congress would allegedly threaten by rejecting the Iran deal isn’t close to sufficient to ensure that the deal is genuinely satisfactory. They could be right. But if they are, then how important is this clout in the first place? And if this economic and financial power actually matters so little, does that leave America solely with the military option internationally when persuasion fails?

An obvious retort is that the power flowing from the dollar’s international role – and America’s economic strength more generally – doesn’t have to work every time in order to retain value. It’s also reasonable to argue that even if this kind of clout can’t deliver decisive results in a given situation, it can make important contributions. Then there’s the reality that power is often most effective when it’s use is only implicitly threatened.

Yet the importance attached by the administration to keeping Iran nuclear weapons-free, and the very limited potential of the Vienna agreement to ensure success (especially over any significant time period), undermines all those positions. Here’s the president himself describing the stakes in that August 5 speech:

“Among U.S. policymakers, there’s never been disagreement on the danger posed by an Iranian nuclear bomb. Democrats and Republicans alike have recognized that it would spark an arms race in the world’s most unstable region, and turn every crisis into a potential nuclear showdown. It would embolden terrorist groups, like Hezbollah, and pose an unacceptable risk to Israel, which Iranian leaders have repeatedly threatened to destroy. More broadly, it could unravel the global commitment to non-proliferation that the world has done so much to defend.”

And as Mr. Obama reminded his audience, he’s refused to rule out military options to prevent proliferation in Iran if other means fail.

All of which leaves us with two other possible explanations for the Obama analysis of economic power as well as for its potential to strengthen the Iran deal: Either his administration simply doesn’t want to use it, or it doesn’t know how. Like I said, the less we hear from the administration on this subject, the better the deal’s chances in Congress.

Our So-Called Foreign Policy: A Worrisome Obama Interview on Iran

Tags

allies, arms control, China, Cold War, INF treaty, inspections, Iran, Iran deal, New York Times, nuclear proliferation, nuclear weapons, Obama, Our So-Called Foreign Policy, Richard Nixon, Robert Gates, Ronald Reagan, sanctions, Soviet Union, Thomas Friedman, verification

On Day Two of what we might call the Iran Nuclear Deal Era, I find myself wondering whether the more President Obama speaks out on the agreement, the weaker public support will get. Based on his new interview with New York Times columnist Thomas Friedman, this at least certainly should be the case.

To be clear, I continue to believe there could be a respectable case for Congress approving the agreement. It depends largely on technical questions about whether the monitoring and verification provisions really are crafted well enough to at least postpone Iran’s acquisition of a nuclear weapon. I have strong doubts for political reasons, as I’ve explained, but hesitate at this point to decide definitively. These are matters that should be illuminated by serious evaluation process by lawmakers. Yet the Friedman interview casts further doubt on Mr. Obama’s strategic and political judgment, which House and Senate members need to consider as well.

Arguably the loopiest claim Mr. Obama made in the interview came in response to Friedman’s question, “Why should the Iranians be afraid” of “serious U.S. military retaliation if [they cheat]?” In fact, the question itself was kind of loopy, since the most immediate question raised by the prospect of Iranian violations is whether sanctions really are certain to be “snapped back” on. Even so, I was startled to read Mr. Obama answer, “Because we could knock out their military in speed and dispatch if we chose to, and I think they have seen my willingness to take military action where I thought it was important for U.S. interests.”

Leave aside any doubts over the president’s trigger finger. Does he really believe that the United States, either alone or even together with allies, could reduce Iran to a military pygmy? If so, then why doesn’t he have similar confidence about destroying Iran’s nuclear complex? What’s known of it is located in many fewer locations than Tehran’s military deployments, and without any meaningful Iranian defenses, America would face a much easier challenge monitoring and, if need be, acting against any other facilities. Moreover, these undeclared sites would pose much less of a proliferation danger in the absence of the declared sites.

Just as important: Could this possibly be the Plan B I called for yesterday? At least for now, I sure hope not, especially given warnings against this course of action from a wide range of military experts in the United States, Israel, and abroad, including Mr. Obama’s own former Defense Secretary Robert Gates.

Mr. Obama’s discussion of sanctions, moreover, seems to bear out my concerns that international support for keeping Iran non-nuclear has always been paper-thin, and that as a result, talk of automatic or even highly likely snap back is nonsense. On the one hand, the president told Friedman that the current sanctions have “crippled the Iranian economy and ultimately brought them to the table.” He attributed their effectiveness to widespread global agreement that “it would be a great danger to the region, to our allies, to the world, if Iran possessed a nuclear weapon.”

On the other hand, however, Mr. Obama emphatically insisted that “in the absence of a deal, our ability to sustain these sanctions was not in the cards,” mainly because so many other countries had paid so much greater an economic price that America. He continued:

“if they saw us walking away from what technical experts believe is a legitimate mechanism to ensure that Iran does not have a nuclear weapon — if they saw that our diplomatic efforts were not sincere, or were trying to encompass not just the nuclear program, but every policy disagreement that we might have with Iran, then frankly, those sanctions would start falling apart very rapidly.”

But as I emphasized yesterday, countries that evidently have made their economic pain so clear to Mr. Obama can’t possibly view a nuclear weapons-free Iran as their top priority, and can’t be relied on to implement threats of snap back – unless an Iranian violation is genuinely obvious and egregious. In fact, the further into the deal’s time frame we proceed, the less reliable the allies will become – since they’ll have ever more Iran-related business to lose.

Finally, for now, it’s disturbing to see Mr. Obama compare his Iran breakthrough with (using Friedman’s words) “the same strategic logic that Presidents Richard Nixon and Ronald Reagan used to approach the Soviet Union and China.” But as I noted yesterday, America’s China policy looks ever more like an historic failure. Beijing has become increasingly powerful and belligerent, and the leadership’s hold on power has remained strong because the trade profits and technology it’s secured (largely) from the United States have enabled it to foster prosperity as well as build up its military.

If anything, the Reagan-Soviet analogy is further off base. The former president signed a treaty on intermediate range nuclear weapons (INF) with Mikhail Gorbachev, and agreed to resume talks with Moscow on longer range, strategic arms. But before the INF deal was signed, he deployed American missiles in Europe to offset previous Soviet installations, and more broadly launched a huge military (including nuclear) buildup that played a big role in persuading Soviet leaders that the vastly superior U.S. economy could race theirs into the ground. The president also worked overtime to keep curbs on western dealings with the Soviet economy – often over heated allied objections. And in an interesting coda, the Obama administration recently has accused Russia of violating the INF accord.

It’s still of course possible that Mr. Obama has produced an Iran deal that protects American national security better than any realistic alternative. But if he has, the Friedman interview strongly suggests that the adage “Nonsense in, nonsense out” (to put it politely) will never be the same.