EU’s institutions are rearranging the Titanic’s deck chairs during a Godzilla attack with a tsunami on the horizon.
President Donald Trump entertained his first foreign dignitary Friday, January 27: UK Prime Minister Theresa May. The primary outcome of their trip? The two pledged to work towards the formalization of a “quick trade deal.”
This takes us all kinds of interesting places.
First, from a strategic point of view anything that binds the United Kingdom closer to the United States is phenomenal for U.S. power. Britain maintains the world’s third-most powerful navy, and soon will float the only functional supercarriers in the world not in the U.S. fleets. London is the world’s second-largest financial hub, and the chief route out for capital fleeing Continental Europe. London has centuries of bred-in experience manipulating political and economic systems the world over. Add in a wealth of preexisting bilateral political, economic and cultural ties, and if there is one country that is a natural complement to American power projection, it is Britain.
Second, the EU is spotlighting the path to its own end with a bizarre sort of enthusiasm. Technically, the May-Trump summit is illegal; under EU law only the European Commission — the EU’s executive — can engage in trade talks on behalf of its members, and the UK’s exit negotiations haven’t yet begun. Just to be sure that the Europeans know that this isn’t an accidental oversight, May has also announced the commencement of trade talks with Canada, Australia, New Zealand, Turkey and India.
The Commission and EU Parliament are bubbling with fury about how this won’t be allowed to stand, will poison the UK’s pending Brexit talks with the EU, and that Britain will be punished for it. But considering May has indicated that she prefers simply walking away from the EU to any sort of divorce deal that doesn’t serve London’s interest, the EU is absolutely bereft of leverage.
If there was an issue that could prove that the EU had some flexibility, a flat-out Brexit negotiation was it. It will be a negotiation that is predominantly economic in which the EU has lots of leverage and for which the EU has lots of options to choose from. This should be easy.
Guess not.
Such obstinacy pretty much dooms the EU in its grappling with its far larger problems: the EU faces a demographic implosion, a sovereign debt crisis that only increases by the year, anemic-at-best economic growth, a rising banking crisis, an aggressive Russia, an increasingly belligerent Turkey, waves of refugees as Mideast countries crumble, and so on. Rather that start reimagining the Union or getting on with the very real work ahead, the EU’s institutions are doing the equivalent of rearranging the Titanic’s deck chairs during a Godzilla attack with a tsunami on the horizon. Britain is already moving on, yet it looks like Brexit will consume all the EU’s emotional bandwidth for months (years?). Such ossification makes it scarily easy to predict how this will all go: everything that happens in the EU is now an institutional crisis.
Third, after decades of Continental military downsizing, the UK and U.S. are Europe’s security policy. May still went through the motions of pledging her support for NATO, which literally earned no more than a curt nod from the new American president — a man that, since his election, has made no secret of his belief that the alliance is already over. So long as Europe cannot come to terms with Brexit, it is a mighty reach to assume that the UK will continue going to bat with Trump for the sake of the Continent. Expect American drawdowns of its warfighting capabilities in Europe to begin in the not-too-distant future. The only question now is whether this is done in league with evolutions in U.S.-Russian relations or not.
Where does this leave Europe? Trump probably put it best by calling the EU a “vehicle for Germany.” That may sound harsh. After all, the EU is nothing if not a constant multi-lateral tug of war among all the EU’s 28 members. But consider what’s happened in the past year: The Brits are leaving. NATO is all-but-gone. There’s political stall — if not outright breakdown — in Italy, Spain, Austria, Belgium and the Netherlands. Poland and Hungary are wallowing in their moves away from democracy. Like it or not, planned or not, Germany is the center that holds.
And a quick glance through history indicates that a German center to Europe never holds for long.
Trump’s method for non-enforcement of Obamacare has big implications and may tear apart Obama’s legacy in weeks.
I’ve spoken before of the danger of Obama choosing to not enforce laws that he did not agree with, in large part because of the dangerous precedent it set as regards not simply to civil liberties, but to the rule of law itself. What good is Congress, after all, if its constitutionally-granted powers of legislation can simply be bypassed by a recalcitrant or capricious executive? I don’t bring this up to forecast that is what Trump will do, although the thought has certainly crossed my mind (repeatedly) in recent weeks.
Instead, Trump seems to have found an… elegant way around my concern. Rather than following Obama’s precedent of simply ignoring preexisting laws he found distasteful, on his first day Trump instead tinkered with executive flexibility in a starkly different way. In his Day One executive action on Obamacare, Trump directed the IRS that whenever it has any discretion with respect to any aspect of enforcement on Obamacare, that it is to exercise that discretion in favor of individuals and not in favor of the government. (Keep in mind that come Tax Day, it is up to the IRS to impose penalties upon anyone who has failed to purchase health care insurance.)
The impact of such an approach is potentially wide ranging to say the least.
First, it does an end-run around Obama’s signature achievement. The IRS already possesses wide latitude at enforcing tax law. For example, when the IRS was having a spat with House Republicans in 2015 which resulted in Congress cutting the IRS’ budget, the IRS responded by using its regulatory latitude to simply not answer its phones. With Trump’s new executive order, the IRS will almost certainly not even bother checking if 22-year-olds have indeed purchased their Obamacare-mandated health insurance because the income from the penalties wouldn’t be worth collection. Such “enforcement” in effect kills Obamacare without even resubmitting the issue to Congress. (Of course, it does not replace Obamacare; that’s a far thornier topic for another time.)
Washington, D.C.
Second, the new approach potentially signals a very easily-replicable pattern for regulation writ large. Regulatory agencies often use their executive latitude to pick fights with prominent personalities or companies or institutions as a means to induce compliance across the board from folks who would normally resist (think back to how the prosecution of high-profile personalities like Martha Stewart did wonders for dissuading insider trading). If executive orders force the bureaucracy to begin with a presumption against the government, then many existing regulations cease to hold much weight. This holds triply so for regulations rooted in executive privilege as opposed to Congressional law. I anticipate EPA-related regulations — which haven’t had a lick of Congressional law added to them in six years — to face particularly harsh gutting.
And perhaps most importantly, unlike Obama’s preferred method of non-enforcement of laws he disagreed with, there is zero legal recourse for Trump’s enforcement-lite. You could sue the government should the executive agencies not be enforcing the law or magicking up their own regulations and reinterpretations, but you cannot sue the government for implementing laws within Congressionally allowed ranges.
Agencies will still have to go through the motions of formally repealing Obama-era regs, but considering how few laws Obama got through Congress and how heavily he relied upon re-interpretation and executive-originated regulations, this approach could eliminate Obama’s entire legacy in functional terms in a matter of weeks.
Many — including me — arched an eyebrow at Trump’s earlier assertion that he would reduce the federal government’s regulatory burden by three-quarters within a year. Now my other eyebrow has moved up as well.
I’m happy to announce that The Absent Superpower: The Shale Revolution and a World Without America is finally in print and in stock. Here is a link to the purchase page on Zeihan.com. We will have a digital version ready by February 1st. Additionally, book format issues limit me in terms of graphics capacity to only black & white images but many of the topics I write about are in screaming color, so here is the map room for The Absent Superpower.
Which brings me to my next announcement: the Zeihan on Geopolitics website has had a face lift for the New Year. We’ll be populating it with more material during the next few weeks, particularly as the Know Your World section expands. Feel free to explore.
And if all that wasn’t tease enough, in lieu of a New Year’s newsletter, we’ve instead opted to share the introduction for The Absent Superpower…
INTRODUCTION
The Journey to The Absent Superpower
EVERYTHING IS CHAOS!
At least, that’s what it seems like every time you turn on your TV, radio, computer, or smart phone.
The European Union is falling apart, Syria is in meltdown, cybercrime is an hourly occurrence, the Chinese economy is gyrating wildly, Russia is on the march, the election of Donald Trump has Americans of all political stripes wondering what comes next, and the Kardashians get more press time than Congress. It’s enough to give anyone a panic attack.
Well, not quite anyone. Unlike the average person, all this craziness puts me in my happy place. Where most see the world turning itself upside down and inside out, I see a long-overdue shift in the global order. New trends emerging. New possibilities unfolding. For me, change is good for business.
That’s because my job is a bit…different than the standard. You see, I’m a geopolitical strategist. That’s a fancy way of saying I help organizations understand what challenges and opportunities they will be grappling with across the world in the years to come. As such I’m sort of a professional apprentice, rarely a master of any particular craft but needing to be able to hold my own in conversations about manufacturing and transport and health care and finance and agriculture and metals and electricity and education and defense and such. Preferably without pissing off anyone whose living is based off of manufacturing or transport or health care or finance or agriculture or metals or electricity or education or defense.
In many ways those conversations make me who I am. From the Air Force to the Pickle Packers, every interaction gives me a good hard view of the world, yet each of these interactions originates from a radically different perspective. Combine all those angles and interactions and perspectives and the unique information that comes from them with my private intelligence experience, and I’m granted the privilege of seeing something approximating the full picture — how the world’s myriad pieces interlock — and catch some telling future glimpses to boot. More than anything else, what I sell is context.
That picture and those glimpses and that context formed the bones of my first book, The Accidental Superpower, which was published in November 2014. In Accidental I made the case that the world we knew was at a moment of change: The Americans who had created, nurtured, enabled, maintained and protected the post-WWII global order were losing interest. As they stepped back the world we know was about to fall to pieces.
At any time in history such a shift would have had monumental consequences, but the American retrenchment is but one of three massive shifts in the global the order. The second is the rapid greying of the entire global population. Fewer people of working age translates directly into anemic, decaying economies — enervating global trade just as the Americans stop guaranteeing it. Third and finally, the American shale revolution has changed the mechanics — if not yet the mood — of how the Americans interact with the energy sector. Surging petroleum output within the Lower 48 is pushing North America toward outright oil independence; in the past decade the total continental shortfall has narrowed from roughly 10 million barrels of oil per day (mbpd) to about 2mbpd.
In the two years since Accidental published, I’ve had ample opportunity to re-examine every aspect of my work — some of my critics have been (over) eager to assist in such endeavors — and I fear that I may have been off the mark on a couple of points.
First, the American shale sector has matured far faster and more holistically than I could have ever expected.
Despite a price crash in oil markets, despite ongoing opposition to shale among a far from insignificant portion of the population, despite broad scale ignorance about what shale is and what shale is not, shale has already overhauled American energy.
In 2006 total American oil production had dropped to 8.3mbpd while demand was touching 20.7mpbd, forcing the United States to import 12.4mpbd, more than Japan and China and Germany combined. By 2016 U.S. oil output had breached 15mbpd. Factor in the Canadians and Mexicans, and total American imports of non-North American oil had plunged to about 2mbpd — and that in the teeth of an oil price war. And that’s just oil specifically. Take a more comprehensive view and include everything from bunker fuel to propane, and the continent is less than 0.8mbpd from being a net energy exporter.
The end of American dependence upon extra-continental energy sources does more than sever the largest of the remaining ties that bind America’s fate to the wider world, it sets into motion a veritable cavalcade of trends: the re-industrialization of the United States, the accelerated breakdown of the global order, and a series of wide-ranging military conflicts that will shape the next two decades.
This book’s opening section contains the long and the short of this Shale New World, the greatest evolution of the American industrial space since at least 1970. For the financiers and accountants and policy wonks out there, this was written with your geeky brains specifically in mind.
Second, the isolationist trickle I detected in American politics has deepened and expanded into a raging river. Of the two dozen men and women who entered the 2016 presidential race, only one — Ohio Governor John Kasich — advocated for a continuation of America’s role in maintaining the global security and trade order that the Americans installed and have maintained since 1945. The most anti-trade candidate on the right won his party’s nomination, while the most anti-trade candidate on the left finished a close second in the Democratic primaries to the Clinton political machine. Last night (now President) Donald Trump and Hillary Clinton met in New York to debate economic policy. What struck me as self-gratifying and horrifying in equal measure was that their core disagreement on trade issues wasn’t whether trade was good or bad for the United States, but how much to pare it back and which reasons for paring cut it the most with the electorate. (The pair of them obviously disagreed — colorfully, vehemently and often — on other issues.)
The world has had seven decades to become inured to a world in which the Americans do the heavy lifting to maintain a system that economically benefits all. The world has had three decades to become inured to a world in which the Americans do not expect anything of substance in return. As the Americans back away, very few players have any inkling of how to operate in a world where markets are not open, transport is not safe, and energy cannot be secured easily.
The stage is set for a global tailspin of epic proportions. Just as the global economy tips into deflation, just as global energy is becoming dangerous, just as global demographics catastrophically reduce global consumption, just as the world really needs the Americans to be engaged, the United States will be…absent. We stand on the very edge of the Disorder.
The Disorder’s defining characteristic is, well, its lack of order. Remove the comfortable, smothering American presence in the world and the rest of humanity has to look out for its own interests. As many of those interests clash, expect devolutions that are deeply-felt and disastrous in equal measure. Part II breaks down the breakdown. I’m equally proud and terrified to report that some of the darker shades in Accidental are happening sooner rather than later. For generals — armchair or otherwise — who prefer jumping directly into the fight, Part II is what you’re after.
In the final section we will circle back at take a good hard look at the United States. Energy independent, economically robust, physically secure, and — above all — strategically unfettered, the United States will be taking a break from the world writ large for the most part.
Yet “for the most part” is a far cry from a full divorce from all things international. The Yanks will still find bits of the world worth their time, effort, money and ammunition. Section III explores the American Play: where the Americans will still be found, why they will be there, how they’ll act, and what they’ll be up to.
It may be small comfort, but the acceleration of the shale revolution as well as the American political shift towards populism has illuminated a great deal, sharpening my view of the future. The various glimpses that made up Accidental have somewhat merged, lingering to the point that they now constitute a bit of a roadmap.
That roadmap is the core of this book.
Peter Zeihan September 27, 2016 Somewhere over Kentucky
