Trade Talk, Part I of II: Oh Canada, What the Hell is Going On?

In the late hours of September 30 a small bevy of leaks indicated Canada and the United States agreed to terms that will allow Canada to remain in the newest iteration of both countries’ premier trade relationship: the North American Free Trade Agreement. In the wee hours of October 1, said rumors were confirmed and fleshed out by both governments.

It has been a long road. Ronald Reagan initiated the process, George HW Bush finished the negotiations, Bill Clinton got the deal ratified, and George W Bush bridged the NAFTA relationship to North American security issues. Donald Trump has railed against NAFTA since the very beginning, and three decades later he made the abandonment and/or forcible renegotiation of every trade deal on the books a key piece of his presidential campaign.

The part of the American business community that depends upon international manufactures trade is hugely relieved – Canada and Mexico comprise about one-third of the total American trade portfolio. Simply walking away from NAFTA, as Trump often threatened, would have at a minimum triggered a Texas-centric American recession. Now businesses can look forward to revised rules-of-origin, agricultural access and dispute-resolution systems expressly modified to benefit American entities.

Overall changes to the trade pact are on the minor side: tweaks to dispute resolution mechanisms, increased requirements for local content in automobiles, improved access for digital firms both in the cloud and on the ground, minimum wage levels for some manufactured goods, greater access for U.S. agricultural products, and improved protection for intellectual property – particularly for pharmaceuticals. Overall, it’s a change in less than 5% of the original deal with most of the changes simply being updates to reflect the fact that it isn’t the 1980’s anymore.

Of course, this is not over. Completing the negotiations is a required step of critical importance, but now we get to deal with the fun and games of a trinational political ratification. In the United States, Trump will need to get the new NAFTA through the post-midterms Senate. In Mexico, outgoing President Enrique Peña Nieto will sign the deal on his last day in office, but it will be up to populist greenhorn Andres Manuel Lopez Obradorto get the text ratified and operationalized. Any number of things in either in-flux country and with either moody leader could still go horribly, terribly typical and wreck the whole thing.

But the most interesting developments might well be up in the Great White North.

First, the backstory of how Canada fits in to American-led trade deals.

The core of the American grand strategy during the Cold war was very butter-for-guns. The Americans would create a global Order to indirectly subsidize everyone’s economies, and in exchange the allies would grant the Americans broad control of their security policies so the Americans could fight the Cold War without having to refer everything to committee. That’s the core tenant of the American relationship with everyone from London to Paris to Berlin to Rome to Tokyo to Seoul to Canberra (and even Beijing).

But not for Ottawa.

That’s because the Canadian educational system is sufficiently strong that Canadians can read a map. They know that no matter what the Americans do to defend themselves, there is no version of American security so limp that it does not also require the defense of Canada. Add in a cultural, economic and political understanding of Americans matched by no one else on Earth, and throughout the Cold War and post-Cold War periods Ottawa has always been able to turn an inch into a yard when dealing with Washington. Perhaps the most obvious example of this is Chapter 19 of the NAFTA accords which established tribunals for arbitrating trade disputes between American and Canadian firms. This chapter was negotiated by Reagan – hardly a president noted for the willy-nilly waiving away of American sovereignty or autonomy.

Québec City, Québec, Canada

Ok, with that set up, let’s now dive into the Game-of-Thrones-with-a-Smile-eh world of internal Canadian politics. Folks, stick with me here. Canada is a bit bizarre.

There are three types of democratic political systems. The first is unitary where the capital city is large and in charge: France, the Netherlands, Argentina, Japan, Korea, New Zealand, Sweden. The second is federal. The powers of governance are balanced among local, regional and national authorities: the United States, Germany, Australia, Mexico, India.

The third is confederal: where the provinces have far more power than the national authorities on most issues. Confederal systems are of sort messed up because on most issues the individual provinces hold veto power over most issues. In confederal systems, change comes veeeeeeeeeeeeeeeeeeeery slooooooooooooooowly: Switzerland (which only granted women the vote at the national level in 1991) and Canada (which only signed a comprehensive internal free trade agreement in 2017).

That’s strange even before you mate it to the Canadian ethnic divide.

Way back when, both Canada and the United States used to be British colonial possessions. But other European powers held North American colonies as well, and in 1754 British-French tensions boiled up into a decade long conflict we know as the French and Indian War. In that conflict the French were roundly defeated by a combined force of British Redcoats, Canadian colonists, the Iroquois Confederation and Yankee Doodles led by one George Washington.

The terms of the post-war settlement handed control over several French possessions – what we know today as Quebec – to the British. Because the British decided they didn’t want to kill the French who were already there or fight a war of occupation, they granted the French colonials broad economic, cultural and linguistic autonomy: the Quebecois were born. About a century later when the British started incrementally granting their Canadian colonies independence, Quebec was tossed in with the Anglo provinces – British-granted autonomy and all.

Bam! Canada is a bi-lingual, bi-national confederation.

One of many outcomes of this is the Quebecois have the ability to veto all kinds of things at the national level. It also means that what seem to be irrelevant, even petty, topics at the provincial level tend to shape Canada’s national and even international policies. Policies like trade. For example, Quebec maintains one of the most inefficient, coddled, expensive, low-quality dairy industries in the world – and Quebec’s ability to shape national policy has enabled it to shape trade policy with the United States to protect Quebecois dairy.

The new NAFTA text takes direct aim at that industry, hardwiring in a tripling of U.S. dairy access to the Canadian market as well as changing protein standards for dairy products, a technical tweak highly likely to increase American access even further. Quebecois farmers are, unshockingly, apoplectic and are threatening political consequences.

It isn’t an empty threat.

Canada’s Liberal Party thinks of itself as the “natural” ruling party of Canada. It is in some serious trouble. Let’s start with its leader.

Prime Minister Justin Trudeau still may be a cool-sock-wearing liberal heartthrob on the global stage, but the shine has most certainly come off back at home. No one ever thought Trudeau was very bright. A cadre of liberal technocrats maneuvered him into power largely to ride the name recognition. I don’t mean this as a condemnation. The technocrats are doing a better job than their equivalents in most other Western countries, and if in a confederal system all you need a prime minister for is to kiss some babies, flash some smiles and cut some ribbons, the younger Trudeau is a fine choice. But his lack of foresight, political skills and leadership has costs, and technocratic cabinets aren’t that great in times of extreme change.

Consider a person for whom I hold immense respect: Chrystia Freeland. She took over Canada’s foreign ministry ten days before Donald Trump became the U.S. president. She inherited the old Canadian foreign policy rulebook that detailed how to best exploit Canada’s position as a free-rider in the American-led global Order. She quickly discovered Donald Trump was not only serious about ending the Order and re-negotiating NAFTA, but that the American president thinks of Canada as a normal country that warrants no exceptions whatsoever on economic and security policy.

Freeland has spent most of the past two years trying to protect the old arrangements, to no avail. Because Canada is confederal, her hands were tied. She couldn’t offer concessions. And because Trudeau is a (fantastically well-coiffed) bobble-head, there was no leadership from the top as to how to deal with such radically changed circumstances. When Trump initialed a bilateral deal back in September with Mexico to proceed with NAFTA2 withoutCanada, Freeland realized she had to take drastic action for the good of the country. The result? Last week Freeland dropped her hardline stance, caved a bit, and got the best deal she thought she could.

So now we have several things moving at the same time.

First, the Liberal party is getting gutted politically. Earlier this year the Liberals were ejected from power in Ontario, Canada’s most populous province. On October 2 the Liberals of Quebec – the second-largest province – weren’t simply defeated, but gutted by Coalition Avenir Québec (Coalition for the Future of Quebec), a center-right party so new as to be wet behind the ears. In May 2019 Trudeau’s semi-ideological allies in Alberta, Canada’s richest province, are likely to be eradicated by a conservative/separatist alliance. It would be challenging for a strong leader to turn these sorts of defeats around for national elections in 2020. Justin Trudeau is not such a leader.

Second, Trudeau faces a more personal challenge. He is Quebecois ethnically, but he was raised in Ottawa. English is his first language. His French is comme ci comme ça. The Quebecois like having one of “their own” in charge, but only if he can deliver. The new NAFTA’s dairy rule combined with the fresh winds in provincial rulership have just denied him what gravitas he held in his “home” province.

Third, the Americans will not let up. Trump’s negotiating team – lead by one very wiley Robert Lighthizer – refused to lift America’s aluminum and steel tariffs in the rubric of the NAFTA re-negotiation. And they won’t until such time as the Canadians ratify the new treaty text.

Fourth, don’t forget Foreign Minister Freeland. Her personality is the work of the same character artisans which brought us Hillary Clinton and John Bolton. Professional, direct, competent, a bit schemy, and if you cross her she will cut you. But she’s still Canadian so most people think of her as mostly nice most of the time.

Freeland has just been forced by circumstance to take a strong leadership role and execute some seriously decisive actions – something her boss is broadly incapable of. If she wasn’t already thinking that perhaps her party needs a new leader and her country a new prime minister, she probably is now. And since she clawed her way from opposition backbencher to foreign minister in less than fifteen months, I’m going to go out on a limb and guess she has an idea of who might be right for the job.

Turkey’s Growing Pains

American relations with Turkey got very interesting last week.

An ongoing disagreement over the status of an American pastor, Andrew Craig Brunson, who thought it a good idea to proselytize in a country who officially, firmly, repeatedly warned him such actions were both unwelcome and unwise, has built up into a full-throated international incident. Turkish President Recep Tayyip Erdogan’s base is Islamist social conservatives while Donald Trump’s core coalition includes Christian social conservatives. The Turks arrested Brunson, the Trump administration wants Brunson released, the Turks said no, and here we are.

Turkey’s currency, the lira, has been struggling for years in no small part due to the political pressure Erdogan and his supporters have placed on the central bank to keep interest rates artificially low. Rising inflation peaked over the weekend when the lira fell to record lows, with Erdogan still voicing support for interest rates to remain as low as possible. (High interest rates are typically anathema to construction firms, and much of Erdogan’s political machinery has been financed in the past by large Turkish firms who have benefitted from the infrastructure and construction boom since his time in office.) Fuel was added to the fire of monetary weakness from a once unthinkable source: the United States.

On August 10 U.S. President Donald Trump announced a doubling of the United States’ tariffs on imports of Turkish steel and aluminum, expressly linking the new tariff levels to the Brunson dispute. This is hardly the first time the Americans have used economic sanctions to get their way. Sanctions against strategic rivals such as the Soviet Union or North Korea are a time-honored tradition, as are sanctions in preparation for military action such as in the months leading up to the pair of invasions of Iraq. Similarly, tariffs are a common tool in economic arguments and trade disputes.

But to my recollection, this is the first time the Americans have ever used such tools in a political dispute against an ally.

A few things come from this:

First, the American-Turkish alliance is over.

I’m not talking NATO here – NATO is already dead. I’m talking bilateral arrangements. The United States and Turkey have had a long and largely productive military relationship since the 1950s, with Turkish military bases proving central to American foreign policy goals as regards the Eastern Mediterranean, Israel, Lebanon, Syria, Iraq, Iran, the former Yugoslavia, the Black Sea, and the Caucasus.

The partnership has been built on a pair of unshakable facts.

  • Turkey’s long history and relatively diversified, robust economy makes it the only power touching the Middle East that is capable, stable, reliable and whose assistance doesn’t generate more problems than it solves.
  • Turkey’s location between Europe and Asia, between the former Soviet space and the Mediterranean, makes it the central clearinghouse for any out-of-region power that seeks to project power into all four zones.

During the first Gulf War, the Turks allowed the US to use Incirlik airbase to attack Iraqi positions in exchange for financial aid. After Erdogan rose to power in 2003 and denied the Americans’ use of Incirlik due to concerns over Kurdish empowerment, the US military had to find longer, costlier workarounds to achieve their goals. Turkey lost out on the economic aid, but demonstrated its leverage.

Without the alliance, any American policy in any of the four zones now must be fully amphibious or fully dependent upon far less capable, stable and reliable allies. For the most part this means a screaming retreat of American active management of all four zones. That shift will be reflected most obviously and dramatically in the Middle East. Expect the Americans to be completely out of Syria and Iraqi Kurdistan within the year, and out of Turkey’s Incirlik base shortly thereafter. Even efforts in Afghanistan and the former Yugoslavia will feel the pinch without Turkish support.

Second, the Americans’ politicization of economic pressure is rightly sending some markets into panic. Turkey is the most obvious, but Europe isn’t far behind. In the immediate aftermath of Trump’s new policy, European markets and the euro tanked. (Full disclosure: I’m currently travelling in the French-speaking Caribbean, and so have a vested interest in talking this up!)

The relationship between Europe and Turkey is messy. The two comprise different ethnicities, religions, and views of the role of government and religion in society. Europe is becoming more secular by the day, while Turkey is shifting in the opposite direction. In ages past European powers have attempted to invade Turkey and vice versa. The European Union has proven unwilling to admit Turkey as a member for reasons that are cultural, political and tied to immigration, yet has proven totally willing to integrate with Turkey economically and financially. European banks are heavily involved in Turkish banking and debt markets – both private and public – while Turkish manufacturers are tightly wound into European supply chains.

Americans targeting Turkey with selective tariffs is only one step away from the threat of using secondary sanctions to impede Turkish access to global financial markets. Washington has already prepped the secondary sanctions tool for use on Iran and is highly likely to apply them to Chinese entities in the not-too-distant future. Pretty much all European entities that were doing business in and with Iran scrapped all that business to avoid being targeted, and now European entities doing business in and with Turkey are terrified that their far more substantial business will be targeted.

It’s a reasonable fear. Any use of secondary sanctions against Turkey would be catastrophic for the Europeans, not just for the lost links into the Turkish economy, but also for any links to the wider world. Since secondary sanctions in essence break the link between an entity and international finance, they de facto bar any international trade links as well.

The European Union is a weird critter, dependent as it is upon the security platform and global market access the Americans have maintained since 1946. With the demise of NATO the security platform is shattering. With these new actions against Turkey in specific and the use of secondary sanctions in general, that global market access is now collapsing.

The euro meltdown was the first hint that the Europeans are even subconsciously considering the true horror of their vulnerable position. The Europeans have long fretted over a long list of minor, squabbling, internal issues such as the Greek bailout, refugees, Brexit, civil controls in Poland, democracy in Hungary, neo-Nazis in Germany, etc. On all these topics the Europeans actually have the resources and tools necessary to address the issues in question – what they’ve lacked is the political will. Now they’re faced with an unavoidable, mortal threat to the system that makes European peace, prosperity and unity possible – and so far, that’s not even with the United States taking aim at Europe directly. If I were European I’d be freaking out a bit right now.

Third, the American-Turkish split gives us an early case to watch as to what might happen after the global Order is gone. The Americans created the global Order of maritime security and free trade in order to bribe up the anti-Soviet Cold War alliance. The Cold War ended a generation ago and successive American administrations have steadily backed away from maintaining the Order. The Obama administration was at best coolly aware of the system, and now the Trump administration is formally dismantling it. For the United States this isn’t all that big of a deal. The war is long over, and the U.S. economy isn’t very internationalized. The global Order – the world we know – can end and most Americans might not even notice. The same cannot be said for everyone else, many of whom have based their political legitimacy and economic strength on a globalized world. America is less the bull in the china shop and more the flamethrower pointing at a house of cards.

That’s the big picture, but there will be dozens of little pictures.

There are any number of ways the Order can descend into Disorder. One possibility is all at once from a broad American repudiation, but another would be a piecemeal collapse as the Americans target specific countries one at time. That may be what started this past week. Turkey may be about to (unwillingly) pioneer a fundamentally new sort of regional economic, political and strategic management system because it is becoming excluded from the dying global Order.

Turkey will definitely suffer – greatly. Turkey’s dependence upon international trade is roughly double that of the United States in relative terms, with the greatest exposure being to Europe for merchandise and services trade. The pain will be intense. But Turkey will bounce back. It sports a young, growing, savvy and educated population. A strong infrastructure. Robust local consumption to limit its dependence upon exports. Zero threat of invasion. The most powerful army in its surrounding regions – including Europe and the Middle East. A geographic position that puts it in command of any cross-regional trade among Europe and the Middle East, the former Soviet Union and the Mediterranean. The few things that Turkey has no choice to import exist in countries Turkey borders. In a world without globalization, Turkey will fall – hard – but then will quickly rise to dominate its neighborhood.

This is part of why I’ve identified Turkey as one of five countries that will gain, regain or retain the ability to reshape their neighborhoods to their liking once the Disorder settles in. (Yes, that was a tasteless plug for my upcoming book – After the Superpower.)

A positive American relationship with such a resurgent Turkey is critical to neither American nor Turkish interests; the ponds in which the two countries swim are not really connected. But that’s not the same thing as saying that seeking a mutually hostile relationship is a good idea. As the Order falls, Washington and Ankara are most certainly getting off on the wrong foot.

Washington, D.C.

Which brings me to my final point. Just because the United States has few interests in the wider world does not mean the United States is going to fully retreat – no matter how logical such a retrenchment might seem. Last week’s spat with Turkey is not in the American national interest. It is wholly due to the inflammation of domestic political issues on both sides.

As little respect as I have for blind zealotry – regardless of the type of headgear worn, book waved, or whether the names tossed around are Jesus, Allah, Donald Trump, Justin Trudeau, or Elon Musk – I’d be an idiot not to recognize it as a political motivator, particularly in places as emotionally hopped up as the United States and the Middle East. Actions based on ideology rarely generate the desired results, and often lead to unnecessary escalations.

I’m not suggesting a new Thirty Years’ War is inevitable, but instead that the United States is about to have a lot of military assets with little to do at the same time the world gets a lot noisier. America’s economic and military power may be unrivaled in human history, but that doesn’t mean the Americans cannot be played. The hardest part of my job isn’t figuring out what is in a country’s best interests or what sort of actions would protect and further those interests, but instead keeping an eye out for the sorts of less-than-logical things countries do due to miscalculation or internal politics.

The best recent example is one of the darker moments in American history. Osama bin Laden’s primary motivation for the September 11, 2001 attacks was to bait the Americans into the Middle East, where he expected all Muslims to rise up, overthrow their secular governments, boot out the Americans, and usher in a new pan-Islamic empire. That it was an unrealistic plan that ultimately cost bid Laden his life isn’t the point. The Americans fell for it and spent the next 15 years invading and occupying territories of zero strategic or economic worth.

To be clear, I’m not thinking the Brunson issue is part of some complex plan to bait the Americans. My point is that while the Americans are broadly immune to the craziness that is about to become the global normal, they can still be had. And the only way to insulate the country from such schemes is to evolve beyond hyper-partisanship and willful ideological blindness. To be aware.

It might be awhile.

Treason Talk

Donald Trump’s past week has been eventful, travelling to Brussels for a NATO summit, London for a meeting with the Queen and the UK prime minister, and Helsinki for a much-ballyhooed summit with his Russian counterpart, Vladimir Putin.

Trump was his usual self, denigrating allies and organizations that the United States itself created and runs. A friend of mine in the foreign policy community referred to Trump’s actions at the NATO summit and in the United Kingdom as the equivalent of taking a huge, steaming s**t on the entire Western world. And then in Finland, Trump indicated he believed Putin’s word over the American intelligence community and the Justice Department when it came to accusations of Russian meddling in the 2016 presidential election. Trump has since clarified that’s not quite what he meant, but it was clear from his tone and caveats that his “clarification” was written by someone else. Best guess on the author: White House Chief of Staff John Kelly (who reportedly went all Marine General on his boss upon his return from Helsinki.)

Back in the States, pushback to Trump’s statements – particularly to the Helsinki summit were… thorough. I have yet to see anyone in the world of American media that was not at least partially pissed off. Even Fox and Friends, by far the U.S. president’s favorite news show, was less than complementary.

I was particularly taken aback by the sudden explosion in the use of a word that doesn’t often crop up in American political discussions: treason. First used by former CIA Director John Brennon, the word’s use quickly spread across the internet to permeate the American political conversation.

It is not, in my opinion, very useful.

Treason is the crime of betraying one’s country, in particular by attempting to overthrow the government, attempting to kill the sovereign, providing assistance to a foreign power against the United States in war time, or providing aid and comfort to a foreign government. Considering that Trump is the head of the American government and the United States and Russia are not at war, making a legal case for the first three of these conditions is impossible. That just leaves “aid and comfort” – and if the full power of the United States government cannot manage a treason conviction against someone like Walker Lindh, it is difficult to envision someone making charges stick against the dude in charge of the U.S. government.

The people using the “t” word cover a disturbingly wide spectrum. The first are those who believed they could and should impeach Trump before he even got into office. These are the people who do not analyze, but instead – much like Trump – react by instinct. Trump’s particular… style… amplifies this visceral reaction. No matter what happens, their scripts are written until the day Trump is no longer president. I don’t pay too much attention to this crowd.

The second are the more reasoned critics, on both the Left and Right, reacting to Trump’s statements and actions. Some of these critics have been vocal from the beginning – like the Never Trump crowd – while others have tried to avoid the fray. Their ranks are growing – and getting louder.

These two groups combined cover a growing swath of the American public and policy establishment. The primary implication of the growth of these groups is that their size and volume make it more difficult for the American president to manage domestic affairs. That by default forces the president into the realm of presidential power over which Congress and the public play little role: foreign affairs. That’s right folks. Trump is going to do morestuff like this recent Europe trip because it may soon be all he can do.

It’s the third group openly discussing treason that really gets my attention: those who have made it their lives to serve and defend the United States during the Cold War and beyond, for whom the Russians have always been public enemy number one. The idea that an American of any stripe – especially the Commander and Chief – would actively seek a friendly relationship with a foreign leader and country who has proven so consistently, pathologically, and above all recently hostile to American interests to them is a world turned upside down.

But therein lies the problem. We are in a world turned upside down. This groups’ reaction is more a reaction to that altered reality than it is to Trump.

The global Order is out of date to the point that it was going to break apart no matter who won the 2016 elections. We can argue back and forth over the details of how a President Clinton would have been different – and there are many – but the core issue is the American people have lost interest in managing the global system. Without ongoing American involvement, that system was doomed.

The real problem here is that the generally calm, reasoned national security community – the soldiers, diplomats, and intelligence teams that keep us all safe, the people who represent the vast bulk of American expertise on all issues foreign policy – are working from a playbook that dates back four presidential administrations. Trump is hardly the only American president guilty of abdicating America’s global vision – it was a failing of the Clinton, W Bush and Obama administrations as well. What is different about Trump is that he is not even giving the old playbook lip service. Instead he is leading by instinct, and demonstrating that instinct can still reveal truths… truths that have been apparent for 29 years.

As regards Russia, I’m not a fan. Never have been. I tend to not like countries that have pointed nuclear weapons at me my entire life. But Russia is no longer the United States’ primary enemy and hasn’t been since 1989. That’s not because Moscow has started acting like Minnesota, but because the Soviet collapse and Russia’s relative weakness means that containing Moscow with a globe-spanning alliance is no longer the lens through which the Americans view everything. America needs to update its strategic policy, and pick and choose friends and foes as guided by that updated policy. And with that update, who knows, Russia may well be something other than a foe. You don’t have to delve too deeply into history to find examples of the Americans partnering with unsavory elements in order to defeat more unsavory elements: Mao against Stalin, Stalin against Hitler.

Putin against al Qaeda.

That doesn’t mean Trump’s actions are wise or productive. That doesn’t mean Trump has a plan. Of course there are better ways to do this. There are aspects of the NATO alliance – in particular members of the NATO alliance – that are worth maintaining. Even cutting NATO into bait would be more productive than the path Trump has chosen. But the bottom line is the Order is gone, and so far the only person who seems willing to admit it, however frustratingly, is the man at the top.

I get why the American foreign policy class feels overwhelmed, offended. Betrayed. After a quarter-century of American leadership largely ignoring them or sending them on wild goose chases through the Middle Eastern Sandbox, they now have a leader who has torn up the script they’ve been following their entire adult lives. It isn’t that they are wrong about the risk to the international order, per se, but instead that they are late to the party. What comes next for the world is scary, particularly after decades of relative stability and prosperity. The American policy establishment (much less the public) is panicking and stampeding for the door. It hasn’t yet realized that there is no going out the way we came in. Until that sinks in (and probably well beyond), Trump will be blamed as the cause. There is plenty of criticism for the quick, ugly, instinct-driven way Trump is severing America’s ties to the world, but there are far greater forces at work than a real estate mogul from Queens.

Instead of panicking through the saddest party of the century, the Americans need to find a new way forward. That’s impossible without a national conversation on what America wants out of the world, and it is certainly impossible without a president who actually engages with his own people. Until the United States figures out that new strategic policy, we will be living in a world in which the Americans are not a force for Order, but instead the greatest wild card in history.

Of China and Oil

The economic conflict between the United States and China continues to ramp up. Earlier this week the Trump administration announced plans for tariffs on another $200 billion in Chinese exports to the United States. Barring (substantial) Chinese concessions the new tariffs will likely come into effect around the end of August. This is now the third volley in what has become a tit-for-tat trade war. I’m starting to think up snazzy names. “Pacific Pong” doesn’t have quite the right je ne sais quoi, but I’m working on it. Suggestions welcome.

The Americans’ imports from China are triple China’s imports from the United States (quadruple if you factor out services). The simple fact is the Chinese are already running out of American imports to penalize. Any effort to shift the dispute to something beyond goods trade will similarly end in colossal failure. The Americans control global trade routes, global energy, global security, and global finance — everything that makes the Chinese system possible. The Chinese simply can’t bring the fight to other fields without suffering immeasurably. (Which isn’t the same thing as me saying I’d like to be an American company operating in China right now.) Chinese holdings of American government debt don’t even give Beijing leverage as such “investments” in reality are capital flight from the Chinese system.

While Chinese state media continues to put on a brave face, the days of tone-deaf chest-beating are gone. Government censorship guidelines now regularly bar terms like “Trump tantrum” and “trade war” and in general discourage the discussing of any angle of the issue whatsoever. One of the problems with stoking nationalism is that it can be hard to turn off. With the Politburo realizing they have little ammo for this sort of fight, political consolidation at home is far more important than scoring points in a media firestorm.

But that’s not what I want to talk about today. I want to talk about one of the funniest things I’ve seen in months. On July 11 the Chinese floated the possibility of a 25% tariff on U.S. oil exports. Several media commentators immediately pounced on the trial balloon as evidence of something that would get Trump’s attention because of his stated interest in “achieving American energy dominance.” Maybe it will. The criteria for what attracts or doesn’t attract the American president’s attention continues to elude me.

But that doesn’t mean a tariff on American oil isn’t a fabulously stupid idea. It has to do with the nature of the oil market, and in particular the role of American crude within it.

First, demand for oil is inelastic. What you need, you need. If it takes ten gallons of gasoline to get your delivery truck from A to B and you only have nine gallons, you cannot make the run. You must have ten. So regardless of what the price of the gasoline is, you’re going to buy it. Applied to this situation, were the Chinese to levy the tariff they will simply have to buy oil from somewhere else, and America’s oil will (easily) fill that gap in that third market. Net effect on U.S. energy exporters: zero.

Second, American oil is different from the rest. Conventional crude percolates through rock formations over time, picking up impurities as it goes (sulfur being the most common). A big part of refining crude oil into finished product is removing those impurities. But American oil exports are not conventional. They come from shale formations. Shale isn’t as porous as most rock, so the oil never percolates. It is trapped. Shale technologies are all about cracking out these pure bits of petroleum out. Shale oil’s lack of exposure to impurities makes it the lightest, purest oil produced in the world, as well as the most valuable and easiest to refine. China likes shale oil because they can blend it with thicker, dirtier crude to make a cocktail that their refineries can use. American exporters will have zero problems finding alternative buyers, but since the United States produces more of this ultralight/ultrasweet crude than the rest of the world combined. China will find alternate supplies difficult to scrounge up.

So either China isn’t going to put this tariff on, or if it does it won’t have any meaningful impact on the American side of the equation. What the tariff trial balloon might do – what discussion of the topic is probably already doing – is pump up oil prices a touch. Markets – especially oil markets – hate anything that might even momentarily restrict oil’s availability. And this little China discussion is only one of four oil-related bits of news that oil markets are stressing about right now.

The second and third issues involve general civilizational breakdown in two major oil exporters: Libya and Venezuela. Ever since Colonel/President/Wacko Muammar Gaddafi was deposed and killed in 2011, Libya has not existed as a state. It is now a shifting series of warlord-run fiefdoms. Unfortunately for the oil markets, not only is Libya’s crude production not in the same area as the oil export facilities, oftentimes the connecting pipeline infrastructure is under a third party’s control. Libya’s larger oil export ports have switched hands twice already this month, with the expected impact upon export volumes – and global prices.

If anything, Venezuela is even worse. Government ineptitude combined with a slow slide towards one-man dictatorship cum anarchy has transformed what was once South America’s richest state to one of its poorest and condemned much of the population of this once-food exporter to famine. The government’s ability to perform basic maintenance on its oil industry is now collapsing. Venezuela’s oil output is already down to a 30-year low and will likely dip below 1.0 million bpd by year’s end… assuming the country doesn’t completely implode.

Needless to say, such civilizational breakdowns can only exert upward pressure on oil prices.

Permian Basin, Texas, US

The fourth hit to the oil markets hasn’t quite landed yet: Iran. The Trump administration is pressuring, well, everyone, to eliminate their imports of Iranian crude by November. The expectation is for a two-thirds reduction in total exports. Countries that resist American pressure will find themselves subject to secondary sanctions that would bar their access to anything that touches the U.S. banking system. Since that is in essence anything that involves nouns it is sort of a big deal. The Indians and Japanese have already signaled they’re going to play ball, and the Europeans are rapidly coming around. That just leaves China.

While the pot-stirrer in me would love to see what would happen to a trade-dependent internationally-wired oil-importing economy like China’s under full financial embargo, I’m fairly sure the Chinese will blink on this one. Financial sanctions of the type the White House is preparing would hit China at least an order of magnitude harder than the tariffs they are staring down, and the Chinese are not suicidal. And while I firmly stand by my claim that no one can really claim to know what Trump is thinking I have to admit things are starting to look more than coincidental: a last-minute cave by the Chinese on Iran just as the third round of tit-for-tat tariffs really start to bite? I see some serious negotiating leverage there, useful in many theaters.

This – all of this – is quite possibly the best-case environment for U.S. shale oil producers. Chronic export outages in multiple countries for multiple reasons, a trade war that is both widening and deepening. All this pushes oil prices up. That helps whichever oil producers can bring new output online fastest. And with today’s shale tech American shale operators can bring on new oil output in half the time the Saudis can bring on their pre-existing spare capacity.

In the first half of 2018, before all this noise erupted, U.S. shale operators were already on course for increasing total U.S. oil output by the largest volume ever – in excess of a fresh 1.5 million bpd. Courtesy of China and Trump and Venezuela and Libya and Iran, that is now the low case estimate.

The concentration of power in the global system continues to gather in the Americans’ favor. Trump is demonstrating he doesn’t need to build an alliance to fight and win a trade war with multiple countries simultaneously. Trump is showing he can wield financial tools simultaneously with trade tools to crushing effect. Trump is showing an enthusiasm for standing up to the business community, something that resonates not just with his base, but also Bernie Sanders’. And in case you missed it, last week the United States became the world’s largest oil producer courtesy of shale, granting Trump even more leverage and autonomy in international relations.

As a guy who makes it his business to integrate context and data in to everything, I find Trump’s brash, details-be-damned approach to… everything a bit annoying. But that doesn’t mean he can’t get results.

Brexit Blunder?

It looks like the Brits are in trouble. In the past 48 hours two major UK government ministers resigned: Brexit Secretary David Davis, and Foreign Minister Boris Johnson. It’s not hard to see why they’re gone. Brexit is really the only foreign policy issue that matters to most Brits, and the Davis-Johnson duo have been at it for nearly two years with zero results.

First, the least important outcome. The government of Prime Minister Theresa May is probably fine. It is no secret that May brought major Brexit supporters such as Davis and Johnson into the government to deal with the Brexit issue in part to discredit them. That has now – thoroughly – been done. While May still may face a backbencher rebellion (she leads a minority government so that’s always a concern), breaking the Brexit leadership’s back should give her more room to maneuver (domestically at least).

Second, this does not mean that the Brits are going back on Brexit. General sentiment among the sort of people who supported Brexit during the referendum two years ago has, if anything, hardened. Moreover, Labor leader Jeremy Corbyn is a semi-stealth Brexit supporter, so even if there were new elections and even if Corbyn became prime minister, Brexit would still be on the menu… albeit likely with a less impressive negotiating team.

Third, with the Brexiteers on the outside of London’s negotiating team, they are guaranteed to vote against any version of Brexit that they don’t care for. A hard Brexit is now the only reality.

A “hard” Brexit is one where the UK crashes out of the EU with no deal whatsoever. Any deal the UK has struck with the EU – for health and sanitation, tariff reduction, capital repatriation, or any of a thousand other topics – will be affected or restricted. Any UK supply chain that begins, ends or passes through any other country will become sticky, with many of them simply breaking. That impacts – conservatively – two-thirds of the UK’s external trade which itself accounts for roughly one-sixth of the UK’s GDP.

In every instance for every good and every transaction, the UK will need to decide whether to unilaterally retain EU rules or unilaterally adopt the rules of the target market in the hopes that the other side – also on a case-by-case basis – decides to allow the trade to flow without a legal understanding in place. The bureaucratic drag alone may well double the cost of doing business in the Kingdom before the political issues are even considered. London will try to establish trade deals with other players to make up for lost EU trade, but the EU is close and big and trade deals take months to years to negotiate.

Financial flows will be hit most of all. The Brit’s proclivity to let capital ebb and flow to wherever it wants to go have made London one of the world’s three largest financial centers. That is now over. Financial centers need a low-regulatory environment and access to a large market and political and market certainty. There will be no deal with the EU on finance, meaning there will be no unrestricted access to the EU, and with the uncertainty of a no-deal scenario, London’s financial industry will now decamp en masse.

Maybe one-quarter to one-third will relocate across the EU with Frankfurt and Paris doing fairly well. After all, at least some of the relocating bankers and financiers will need access to the EU from within. But most will go to New York which has a larger labor pool, similar regulatory format and global reach.

The EU will attempt to claim that financial clearing for euro-denominated transactions must be done from within the eurozone to prevent the Americans from gobbling up the lion’s share of the business. The Americans will disabuse the Europeans of that notion by threatening to force all dollar clearing to occur within the United States’ borders. Since Europe’s external trade is dollar-driven and not euro-driven it will be a fun conversation to watch but it’ll be pretty short. Regardless, London will not be a participant in the discussions. Regardless, London will hollow out.

All in all, the UK faces the greatest economic disruption since World War II. The Brits are looking down the maw of a minimum of a three-year depression where GDP falls by at least a fifth.

But all that was baked in before Davis and Johnson left. All that has been baked in since the Brexit vote. As the Greeks discovered at the beginning of their crisis, you cannot vote yourself rich… but you can totally vote yourself poor. There was zero chance the EU was ever going to grant the Brits the benefits of membership without the costs. Brexiteers like Davis and Johnson who claimed otherwise were either lying, stupid, or suffering from head injuries. The only options before the Brits now are reneging on Brexit (not politically possible), and a hard Brexit. And so a hard Brexit is the only road forward.

This is not a condemnation of the Brexit vote. I see the entire global system crashing down in the next one to four years. The Bretton Woods Order – the basis for that system – is an artificial construct the Americans designed, created, maintained and subsidized to fight the Cold War. They’ve been backing away from the Order for three decades, and they are now abandoning it wholesale. It would have happened without Trump, although probably a bit more slowly and without the…flair.

That means that everything in the global system that was predicated upon the Order will need to find a new basis for existence. Europe has two big Order-dependent things. NATO – which may well formally collapse at this week’s summit – and the European Union. There is no way that an export-based union of mutually antagonistic countries whose security is guaranteed by an outside power can survive in an environment in which those exports are impossible and the security guarantor leaves. The EU was going down anyway which means the Brits had to figure out their way in the world anyway. Brexit means they get a head start on the rest of Europe. Recent developments haven’t brought disaster, they’ve brought clarity.

Yes folks, a hard Brexit is the best-case scenario for the United Kingdom because it forces the Brits to move on now. So yes folks, a three-year depression that knocks a country’s GDP down by one-fifth is probably the best-case scenario for anyone dependent upon the Order as the world slides into Disorder.

I expect the Brits to come out of this better than nearly everyone. For two centuries they ran a globe-spanning empire that was the largest economic entity ever (at least until the Americans came of age). If there is one country that knows how to operate in a disorderly world, without continent-spanning trade pacts, where military and economic power are often fused, that has already stitched together a strategic security plan, it is the United Kingdom.

But that doesn’t mean the road from here to there won’t royally suck.

And Now For a Real Problem

With a very strong showing Andrés Manuel López Obrador won Mexico’s presidential elections July 1. The best description of López Obrador would be to combine the worst traits of Donald Trump, Hillary Clinton, Bernie Sanders, Elizabeth Warren, Ted Cruz, Jeremy Corbin, Vladimir Putin and Kim Kardashian. But perhaps without their impeccable manners.

Sorry folks, I don’t have a lot of guidance on this one. There are too many unknowns, with the biggest one being López Obrador himself. While he has been part of the Mexican political landscape for decades, this will be his first real position in national politics. He could be like another nationalist-populist – Brazil’s Luiz Inácio Lula da Silva – who dialed back the rhetoric shortly after his election, and whose policies never went as far into the wilderness as many feared during the campaign. Or he could be like Trump and the rhetoric is real. We just don’t know. And we won’t know for a bit yet. Mexico has the longest lame-duck political window in the world. López Obrador won’t actually take the reins until December.

But I can issue a few words of warning:

Both Mexico and the United States now have nationalist, populist, inexperienced leaders who believe current political alignments within their own countries as well as the broader geopolitical context are designed to cheat their people. Both regularly make political hay by demonizing those on the other side of the border.

With the entire global Order breaking down, and me – repeatedly – noting that the U.S. will not simply emerge broadly ok, but will be able to dictate the shape of the future, it is tempting to say the same will be the case with degraded American-Mexican relations. But this isn’t like American-French relations where the bickering is good fun. This really matters.

Spanish is America’s second-most common language; English is in the second slot in Mexico. Family connections across the border are the most robust in the hemisphere. Based on how you run the numbers, Mexico is either America’s top or second-largest economic relationship – a position that will hold regardless of what happens with the global Order or NAFTA. This economic relationship isn’t simply trade – this is integrated supply chains with products crossing the border multiple times. Retooling to adjust could be done, but it would take at least three years. Most important, Mexico borders the United States. Trouble in bilateral relations are not a world away, but right next door.

NAFTA may have its faults, but its economic success in Mexico has made net Mexican migration to the U.S. negative for a decade because it gives Mexicans jobs. Smash the agreements that employ Mexicans, and two results among many will be vast increases in drug flows and illegal migration as Mexicans find it harder to find a 9-to-5. A wall would only encourage such behavior.

Hostility between the United States and Mexico impacts immigration, trade, financial stability, supply chains, manufacturing attractiveness, wealth levels, drug policy, water rights, agricultural markets, the works. If there is one country the Americans need to have a productive relationship with, it is Mexico. Texas is particularly vulnerable to everything that could potentially go wrong.

I’ve no doubt that the United States – under any president – can “handle” Mexico. But Mexico isn’t Paraguay. Mexico has 130 million people and is a $1 trillion economy. Whatever shape this and future administrations beat relations into will take time and effort. Time and effort that would be better spent on locations where partnership is not the best (and easiest) option.

Yet, unfortunately, for now all we can do is wait and watch. Both Trump and López Obrador are famous for their unwillingness to take advice from anyone. And for the next five months López Obrador has a lot of free time on his hands to play on Twitter with his American counterpart.

I Think They Get It Now, Part Seven/Sept: Canada

Jump to other parts of this series: Intro, France, Germany, UK, Italy, and Japan.

Writing about Canada is a guilty pleasure for me. I find endless intellectual stimulation in delving into the particulars of a country that is so close – and yet somehow so far – in political and cultural norms to my own. I also find it highly entertaining at how offended my Canadian friends and colleagues are when I don’t talk about Canada… and how horrified they are when I do. (It’s one thing when this dumb Yank proves aware of Canada’s inner workings, and quite another when he highlights cracks in the façade of liberal Canadian perfection.)

Recent events have put the typically sleepy world of Canadian-American relations front and center. Canadian Prime Minister Justin Trudeau played host the G7 summit (which triggered this series). His team crafted an agenda for the summit, most of which American President Donald Trump found so superfluous that he came late and left early. Trudeau’s post-summit firm rejection of American trade tariffs (firm by Canadian standards, that is) so enraged Trump that Trudeau found himself the target of a presidential tweetstorm.

Terms like “dishonest” and “mistake” and “Canada will pay” peppered the airwaves. Trump’s trade advisor, Peter Navarro, went so far as to assert there was a “special place in hell” for Trudeau for his alleged baiting and switching of Canadian policy positions. (Navarro later recanted on his hell quote, although it was pretty clear his heart wasn’t in the apology).

Despite my glee that writing about Canada is fully topical, I get no joy from what I see coming down the pipe. The end of the global system is putting the existence of Canada into mortal danger. It all has to do with how the Canadians are attempting to manage the Trump administration.

First, let’s put Canada into the Bretton Woods context:

The United States set up the Bretton Woods system in order to fight the Cold War. The Americans traded global market access for security cooperation. It was a straightforward butter-for-guns swap.

As the Americans withdraw from maintaining the Bretton Woods system, all the structures they established – the WTO, NATO, free trade, freedom of the seas – are disintegrating. All the things that thrived in a world of open borders and wealth – the EU, the Chinese Communist Party, OPEC, globalized manufacturing supply chains – will crash and burn. Very few of these collapses will be clean. There will be chaos. There will be wars. Some will stay local. Some will span continents. A lot of B- and C-list countries will cease to be. Even a couple of the A-list face dissolution. Canada was a founding member of the Bretton Woods agreements, and Bretton Woods’ fall will impact Canada as well.

But Canada is different.

Global chaos has zero impact on domestic Canadian security. With the Cold War over, the Americans are freeing themselves of the responsibility of defending Europe from Russia on one side and from defending Japan, South Korea and Taiwan from China and North Korea on the other. (A particularly cold reading of the Eurasian situation suggests renewed conflicts on both of Eurasia’s ends might be good for the United States’ overall strategic position, but let’s leave that debate for another day.) Yet the Americans can never stop defending North America. Canada has the option of getting a free ride even if relations with Washington tank.

What about economics? Consider the rest of the world. When China or the EU beat the trade war drum, I find it kind of sad. Economic success in China and Europe has proven possible largely because of the economic concessions allowed and security environment imposed by the Americans. The Americans subsidize the global trade and security order in order to purchase the cooperation of the Bretton Woods allies, but the war the Americans needed the allies for ended three decades ago. The Americans no longer get much utility from the Order that makes everyone else’s systems possible. The Order’s end won’t cost the Americans much. Anti-American chest-beating may make good local political fodder, but anything that pisses off the Americans in general – or America’s thin-skinned leader in particular – just seems suicidal to me.

But Canada is different.

Canada has something other Bretton Woods members do not: leverage. Canada is directly adjacent to the United States. That means the Americans traded with the Canadians not only before Bretton Woods, but before the industrial revolution hit the North American continent. NAFTA is the only active trade deal the Americans have that was not a strategic swap of the Bretton Woods model.

That provides Canada a unique opening. Broadscale chaos in the global system will not overly harm the domestic American experience, but mild chaos in North America would. Unlike Japan or France or Italy or Germany or the United Kingdom, the Canadians have their claws into the American economy’s guts, giving Canada the option of hitting America where it hurts. When the Canadians talk reciprocal tariffs, it matters.

And the Canadians know what to do with that leverage, because Canada has something else the other Bretton Woods allies lack: insight.

Because Canada is different.

The bulk of the Canadian population lives within a couple hour drive of the U.S. border, massed on road and water infrastructure that admits Canadian citizens and commerce to the most densely populated American territories. Integration – economic, cultural, political – is guaranteed. Canadians and Americans are family. It’s a family where the Americans outnumber the Canadians nearly ten-to-one, but isn’t the younger, smaller sibling always the thoughtful, scrappy one?

Canadians might not always like what they see, but issue number one for any Canadian government is managing relations with their primary security, economic, trade, cultural, and political partner. America’s power and insulation from the wider world combined with the imbalance between Canada and America means the Americans can take a rather lazy approach to all things foreign. Canada’s lack of power and lack of insulation from the United States means the Canadians can never take bilateral Canadian-American relations for granted. And so Canada studies the United States more than the Americans study Russian, Chinese, Iranian, North Korean, Mexican, energy, trade, disarmament, military, and immigration issues combined. Canada knows the United States intimately, while the United States barely registers what’s going on north of its border. (The only country that even comes close to studying the United States as intently is Israel.)

In a time of global breakdown, all this security, leverage and insight has encouraged the Canadians to play hardball.

Canada’s foreign policy of late hasn’t seemed to be about protecting the global order, but is instead about wrecking it:
•   Canada is pursuing cases against the United States at the WTO that – should Canada win – actually hurt Canadian producers and exporters… but a win would prompt the Americans to abandon the WTO altogether.
•   Canada is one of only a scant handful of NATO countries that has made any effort to increase its military spending… but rather than spending on NATO programs, the assets it is building are for independent power projection.
•   Canada’s intransigence in NAFTA talks are likely to wreck the negotiations altogether… assuming the Trump administration in the United States and likely incoming López Obrador administration in Mexico don’t wreck them first.

The logic is as simple as it is dark:

If the global order does not collapse, Canada will have made itself the leader of the anti-Trump league of nations, reaping beaucoup gravitas for the country in general and for the Trudeau administration in particular. If the global order does collapse, the Canadians have a separate trade deal with the United States outside of NAFTA and the WTO, so Canada would be the only country of consequence to retain access to the world’s largest and most stable market as the world falls apart.

Such a scorched earth policy has almost a Trumpian feel to it, but delivered as it has been with panache, politeness and perfectly poised hair, the world in general and Americans in specific have interpreted Canada’s burn-it-all-down campaign as a hug offensive. (Say what you will about the Trudeau team, they know how to manage public relations!)

Canada’s hardball strategy is clever, but clever is not the same thing as smart. There is a very real risk that the Trudeau government’s America strategy puts the very existence of Canada in doubt.

In most places a single ethnic group forms in a specific location and forms a government to look after the interests of that people in that place. The people and their government then expand outwards until they control a large, rich and securable enough geography that they can become what we now call a nation-state. The English of England dominate Great Britain, the French of the Beauce dominate metropolitan France, the Japanese of the Seto Inland Sea dominate the Home Islands, and so on.

But Canada is different.

Canada is by far the least centralized of all the world’s operational countries. Canada is a settler state, colonized by a mix of different ethnicities in different places. The governments of settler states are far less centralized than those of the traditional nation-states, with a great deal of decision-making power reserved for regional and local governments.

It is a direct reflection of Canada’s geography. The northern four-fifths of Canada is tundra, taiga and the broken poor-soil, heavily-forested lakelands of the Canadian Shield. Its entire population exists like a sort of thin frosting on the southern border. But even this is broken up into disparate pieces.

Populated British Colombia, which is to say the city of Vancouver, is blocked by a 12-hour winding drive through the Canadian Rockies from the Prairie provinces. The Prairies are blocked by a 24-hour winding drive through the Canadian Shield from Ontario and Quebec, Quebec is blocked by a 10-hour winding drive through deep forest from Halifax, the largest city in the Maritimes (whose name gives away that you cannot drive to most of it). Each province has its own legislature which enjoys broad decision-making power almost over everything but foreign and defense affairs. Topics that are national policies in most countries as a matter of course tend to be devolved to the provincial level.

Much has been made – rightly – of how the cultural split between Anglophone Ontario and Francophone Quebec threatens Canada’s national coherence. The two provinces may have the bulk of Canada’s population, but starkly different economic management styles have generated starkly different economic structures – and it doesn’t help that Ontario’s window on the world is the St Lawrence Seaway… a waterway Quebec controls. Quebecois independence referendums have, repeatedly, threatened Canada with national dissolution.

But Quebec separatism is hardly the biggest threat to Canada these days. Ontario ultimately bought Quebecois loyalty to Canada by paying Quebec off. Fat financial transfers – largely funded by taxes on Ontarians – have kept the Quebecois fat and happy. But times are changing. Canada has the world’s second most distorted and fourth fastest-aging demographics. The Quebecois are on the cusp of mass retirement which means the state will need a lot more money to support a population that will no longer be working. But the Ontarians are but three years behind, meaning that Ontarians can no longer afford to pay the Quebecois to be part of Canada.

The two provinces have decided the solution is to jack up taxes on the remaining provinces to make up the difference. But citizens of the Maritimes and British Colombia are as old or older than the Quebecois and Ontarians. That leaves the tax burden on the Prairies, most notably on Alberta and Saskatchewan. In The Accidental Superpower I included a chapter titled “The Alberta Question” in which I detailed at length how the disconnects between Alberta and the rest of Canada threatened the country’s national coherence. I stand by that assessment, but now I see something more ominous.

The United States is a global power. As such it has a lot of brands in a lot of fires at any particular time. Canada may be America’s largest trading power, but the Americans haven’t viewed Canada as a security threat in nearly two centuries. Washington tends to allow American-Canadian disputes to slide down the to-do list. That, in part, is what has enabled the current Canadian government to take such a firm stance on trade issues. There’s a perfectly reasonable expectation that the Americans will get distracted by something shiny out there in the great wide world, and give in to Ottawa just to simplify things.

But something most Canadians miss is that while their proximity to and close relationship with the United States does indeed grant them security and leverage and insight, that’s only an advantage if the Americans are distracted.

End America’s position as the global leader. Take most of those irons out of the fire. Contract America’s already small international economic footprint. Washington’s to-do list shrinks immeasurably. Purely by circumstance, Canada moves up. Way up.

Canada faces very real danger of national fracture without American attention. But if the American population or presidency perceives – rightly or wrongly – that Canada is part of the problem rather than part of the solution, then the full power of the American system can be brought to bear on its politically, economically and strategically fragile neighbor.

Many Canadians think of Trump as a child, but there are soooo many weak points in the Canadian confederation it would be child’s play to pry it apart. Even without going for the jugulars of Albertan or Quebecois separatism, there are a host of options. Here’s a few:

  • Canada’s riven geography means every Canadian province trades more with the United States than with the rest of Canada. Canada only implemented their first comprehensive internal free trade agreement among the provinces last year. Granting preferential access to this or that province’s politically sensitive sector in exchange for monkeywrenching Ottawa would be painfully simple.
  • The Ontario-Quebec cultural split means Ontario gets more electricity and electricity inputs from the United States than it does from neighboring, hydropower-driven Quebec. That gives Washington the ability to jerk with energy supplies and/or tariffs to either benefit – or harm – Canada’s two core provinces.
  • Pipeline politics in Canada have forced Prairie producers to shunt nearly all their petroleum exports south to and through the United States rather than to their own country’s ports despite orders from the central government that new pipes should be routed through British Colombia. Carrot and/or stick options to benefit or slam Canada’s primary export moneymaker abound.
  • An environmental/petroleum spat between Alberta and British Colombia is forcing BC to get most of their refined products from the United States. Restricting and/or allowing such products to flow enable the Americans to take sides on what has become a blistering Canadian domestic argument.

The Maritimes survive on financial life support from Ottawa, a situation that can only persist so long as Ottawa has spare cash. Any number of tweaks of American policy could crimp the financial flow.As America’s global interests shrivel, Canada may be about to evolve from the country that the Americans are most likely to grant a pass to the one they are least likely to ignore.

After all, Canada is different.

I Think They Get It Now, Part Roku: Japan

Jump to other parts of this series: Intro, France, Germany, UK, Italy, and Canada.

Japan was a latecomer to the modern world.

The Home Islands are rugged territory with few chunks of flat land that can play home to the sort of agricultural infrastructure from which most cultures rise. Geography made transport between these little pockets of land treacherous and rare. Combined with a dearth of local resources much of Japanese history right up until the industrial age was flat out feudal. Local leaders would rise and fall based upon local politics and dynastic struggles. Family was everything. The odd imperial impulse towards unification did occur, but typically the emperor’s powers were of the limited sort. Most competitions had a distinctively local feel. Hell, most names had a distinctively local feel. Most Japanese commoners didn’t have last names until after 1868.

The islands’ distance from the Asian mainland combined with China and Korea’s brand of insular chaos layered on more locality; aside from pirate raids, Japanese interaction with the mainland was at most episodic. Foreign ideas, culture, technology and norms were a world away. Life was slow. While the Germans and Americans and Brits and French and others were using (early) industrial volumes of steel in railroads and stoves and weapons in the first half of the nineteenth century, pre-industrial Japan’s steel use was pretty much constrained to a handful of implements and those famous samurai swords.

But then the Americans arrived.

Admiral Matthew Perry’s flotilla of hybrid sailing-steam ships likely comprised more steel than had been produced by all Japanese in the previous decade. The world realized Japan wasn’t some mystical kingdom, but instead a hugely, hilariously, outdated backwater. The tsunami of American trade – and the new technologies that came with it – surged across Japan, wiping away and transforming the country’s entire political, social, cultural and economic system in what is arguably the most holistic transformation in modern history. It wasn’t an entirely pleasant experience, including as it did the greatest industrial buildup in history, regional civil wars, a class-based genocide, a massive imperial expansion, and a fascist rise to power,

It happened so quickly that Japanese cultural mores couldn’t possibly keep up.

The Japanese thought of their enclavic geography as granting them infinite variety, but when exposed to the kaleidoscope of the wider world they realized just how uniform Japanese culture was. The Home Islands’ isolation sharply limited contact with the wider world; the Japanese are nearly homogenized racially, not just compared to multi-ethnic America but even to rather monochromatic places like Vietnam or Korea.

The sudden exposure encouraged some significant rank-closing, further deepening Japan’s cultural monolith. And since the consolidation occurred during a time of rapid economic development and technological advancement, cultural unity became synonymous with the ideals of Japanese superiority and invincibility.

Cross that cultural tweak with Japan’s geography and East Asia got something new… and dangerous. For Japan wasn’t simply a unified nation, it was a unified island nation – and islands have navies. Industrial prowess, an industrialized navy, a culture bordering on the wrong side of haughty with a burning desire to show its neighborhood just how invincible and superior it really is… you can see where this is going.

Japan’s participation in the Second World War resulted in the imposition of a regional brutality that while not as industrialized as Germany’s Holocaust, was more pervasive through the Japanese armed forces. More casual in its application.

The combination of cultural arrogance and the reach of an industrial navy inevitably brought the Japanese into sharp conflict with the Americans, who eventually rolled the Japanese all the way back to the Home Islands. The post-WWII settlements were crushing – Japan lost absolutely everything from over a generation of imperial expansion. That made sense to the Japanese. They had lost the war so they lost territory.

But the post-WWII order the Americans imposed was downright bizarre from the Japanese point of view. Through the Bretton Woods system, the Americans offered the Japanese everything they had fought for for decades: access to global resources and global markets. In addition, the Americans offered to protect the Japanese from all threats. In exchange all the Americans asked for was that the Japanese join an alliance expressly designed to combat a country that the Japanese had crossed swords with three times in the past half century. Confusion reigned, but the Japanese know a good deal when they see it. They signed up for Bretton Woods eagerly.

The American occupation continued with the now-familiar Japanese tradition of root-and-branch overhaul. The emperor was stripped of everything except his clothes. Democracy was imposed. Bombed out cities – three of which were little more than cinders – were rebuilt from the ground up. The Americans used Japan as a launching pad for their military operations, first in Korea and later in Vietnam. By the early 1960s, Japan had recovered and was humming along nicely.

And then the changes… stopped.

Sure, the newest technologies were still layered into the Japanese system as soon as they were developed, sure booms and recessions came and went, but there were no wars. No political revolutions. No jarring cultural upheavals. No coups. No invasions – either by Japan or of Japan. No shocks – internal or external.

For the next fifty years.

After a century of shock and reinvention and revolution and war and pain, Japan simply was allowed to… be. In a way, time stopped. In a way, Japan walled itself off from the world again. In a way, the average Japanese citizen’s interactions with the world ended.

In a way Japan’s cloistered narcissism returned.

Now the Americans are backing away from it all. All at once the Japanese are discovering the global structures which enabled them to be wealthy while also being isolated are evaporating. That there isn’t a thing Japan can do to preserve the world order. That very soon they will have to choose between wealth and isolation. Considering that one involves high living standards, electricity and full bellies, I’m pretty sure I know which they’ll go for.

But East Asia isn’t as simple a place for the Japanese in 2018 as it was in 1928, because the Japanese were not the only Asian peoples the Americans brought into Bretton Woods.

Taiwan too came in early, and became nearly as technologically sophisticated as Japan. Access to global markets combined with American military protection transformed backwards, poor, wrecked Korea into an industrial powerhouse. Richard Nixon and Jimmy Carter brought mainland China into the fold, starting Beijing on the path to the colossus it would become.

With the Americans leaving, Japan finds itself in a struggle to be Asia’s first power. Unlike in 1928 when Japan was industrial and the rest of Asia undeveloped, the whole East Asian rim is overflowing with industrial might. No longer is Japan towering above the rest.

But that hardly means Japan is going to lose. All Japan’s perceived vulnerabilities are real, but in all cases those same vulnerabilities apply to all its East Asian neighbors – where they are all far more serious.

  •   All the East Asian powers face a dependency upon foreign markets, but Japan has long since offloaded its production capacity to be on the safe side of currency and political risk. Its trade exposure is less than a third relative to its economic size of any of its neighbors.
  •     All the East Asian powers have horrid demographics, but Japan mastered automation over a decade ago and has been steadily modifying its industrial base to operate in a world of constrained supply chains ever since. As a percent of GDP, Japan’s vulnerability to disruption is a shadow of everyone else’s.
  •     All the East Asians face cultural difficulties in dealing with other countries, and Japan has utterly failed to collaborate with its neighbors as equals. Yet far from weakening Japan this exclusionary attitude has forced the Japanese to find economic and technological means around immigration. For example, a refusal to admit foreign health workers has lead to the rapid rise of automation and AI in geriatric care. This not only generates positive knock-on effects throughout the Japanese economy, it keeps a large chunk of the Japanese economic system in-house and utterly immune to the ebbs and flows of the international environment.
  •     All the East Asian powers are hugely dependent upon oil imports, but Japan sits on the outside of the island chain that constrains Asian mainland access to the world. Japan also has a long-reach navy that can go almost anywhere in the world without encumbrance.
  •     All the East Asian powers are poor in any sort of electrical input fuel whether it be high-quality coal, natural gas, or uranium. Not only does Japan’s geographic position enable easy access to diversified sourcing, but Japan’s overbuilt power system enables it to fuel switch with a few days’ notice to whatever imported inputs Tokyo can scrounge up. (For those Greens out there, East Asia has pathetically low wind and solar potential too.)
Will Japan have to fight? Certainly. But it is a fight Japan is well suited for.

My concerns are twofold.

First, part of what made the Asian theaters of the Second World War so nasty was the norms of cultural and racial superiority that emerged from Japan in the pre-war decades. While democratic Japan today is a far cry from the imperial fascism of the 1930s, the Bretton Woods system has certainly enabled pieces of the old cultural milieu to re-entrench. The sort of culturally isolated Japan that exists today, combined with a technologically advanced navy, and a need to use that navy to achieve national prerogatives feels uncomfortably familiar.

Break the global system and it is devilishly easy to imagine an East Asia where the Japanese are not simply on the warpath (again), but one where the Japanese are less than gentle with countries who disagree with them. Most focus on the likelihood of Chinese aggression throughout the region. I think that’s a bad reading of East Asia’s geographic, industrial, trade, and historical characteristics – both past and present.

Second, is the issue of “what then?” I typically try to limit my forecasts to the next couple of decades. Past that range, changes in demography and politics and culture and technology tend to layer in a lot of future fog that limits data-and-geography-fueled forecasting to little more than armchair prognosticating. But if the Japanese have the deck so stacked in their favor, I believe it is useful to push a bit further forward and guess at what’s just over the horizon. What happens after the Japanese have re-established some version of a mercantilist colonial relationship with their region, an Asian Co-Prosperity Sphere, if you will?

More than any of the other major players, Japan needs to be cognizant of American goals, interests and whims. The United Kingdom is in tight and won’t break with Washington. Canada is family. Family fights, but family also makes up. The Germans and Italians swim in different ponds. The French will be the French, but there’s no real likelihood of meaningful French structural competition with North America.

But Japan is likely to emerge from the coming Disorder as the dominant regional power. Its relations with everything from Vladivostok to Yangon will be a diverse mix of neo-imperial management systems ranging from alliance to partnership to suzerainty to occupation. That sort of dynamism and variety is certain to suck in external powers. And this phase in American isolationism is just that: a phase. It will end.

Of all the soon-to-be-rising powers, it is Japan which must tread most carefully to ensure it doesn’t step on Washington’s toes. Tokyo remembers full well what miscalculation in that department leads to.

I Think They Get It Now, Part Cinque: Italy

Jump to other parts of this series: Intro, France, Germany, UK, Japan, and Canada.

In any discussion of foreign affairs the same list of powerful countries have been bubbling up for decades, if not centuries. The order often shifts, but the countries themselves tend to hold on: the United States, Russia (aka the USSR), Japan, the United Kingdom (aka the British Empire), France, Germany (aka Prussia). There’s also a secondary list of largely regional powers: Iran, Turkey, India, Mexico, Brazil, Argentina and Sweden. Israel, Korea and Pakistan are relative newcomers to the second list while China has graduated from the latter list to the former.

One country that most don’t spare thoughts for, however, has been one of the world’s top ten economies ever since humanity developed sufficient command of statistics to come up with the list in the first place. That country is Italy, and it is about to crash back into the world as a significant player.

But first, it has to…crash. Hard.

Contemporary Italy is beyond dysfunctional.

  • The country is flat out broke — only Japan and Greece have national debts that are higher in relative terms.
  • Its banking sector is arguably the most overextended in the world, with a relative weight of bad loans that is eighty times that of the United States at the height of the subprime crisis.
  • Unemployment is at a level that would spawn riots in the United States.
  • The birthrate collapsed thirty years ago and never recovered. Its population is one of the ten most rapidly aging on the planet, and already well past the point of meaningful recovery.
  • The country’s current pension overhang is already among the worst in the world, and that before the Italian Baby Boomer generation even begins to retire.
  • Italy suffered greatly during the European financial crisis and its economy hasn’t seen appreciable growth since 1998.
  • Citizen trust in government is so low as to barely register in opinion polls.

And the political situation is an utter circus, complete with actual clowns or, more accurately, a populist comedian but you get the idea. The Italian equivalent of the Republicans and the Democrats have been gutted to the point of extinction, being displaced by an alliance that could only happen in Italy: a pair of parties that most closely resemble Texan secessionists (the Northern League) and Bernie Sanders…if Bernie Sanders was a career comedian who used a lot of racist jokes and opened rallies with the song “America-F*** Yeah” (the Five Star Movement).

What’s the way forward here? There isn’t one, except national collapse. Italy as a modern political economy is already over. The only reason it has not passed into history already is that it is lashed into the European Union. There are many structural issues embedded within the European system that could bring the entire edifice down. The United States withdrawing from the global order is one. The death of Italy is another. Weighing in at over $2 trillion dollars, the Italian system isn’t too big to fail — it is too big to save.

But from the rot of the current system, from the end of a Europe that is united and free, something new is about to arrive. Or perhaps it is more accurate to say that something old is about to return.

The Italian core territory is unlike anything else in the world. The Po Valley is a rich land with a perfect climate nearly encapsulated by some of the world’s most rugged mountains. The Po’s entire northern horizon are the European Alps. Even with today’s technology and centuries of infrastructure building in what was until very recently the world’s richest continent, the Alps still remain a massive barrier to communication, much less armored columns. To the south the Apennine Mountains of the Apennine Peninsula are certainly less imposing, but the utter lack of large chunks of flat land (and the fact that southern Italy is a peninsula of peninsulas) make it both a non-challenge to the economic and political supremacy of the Po as well as an at best imperfect invasion route.

In the Po’s near neighborhood there are no meaningful threats. To the north — across the Alps — are Switzerland and Austria, a Germanic pair of countries far more concerned with issues on the Northern European Plain than in the Po. To the east are the minor and often failed states of the Western and Southern Balkans: Slovenia, Croatia, Bosnia, Serbia, Montenegro, Macedonia, Kosovo and Greece. None of which — individually or in concert — can hold a candle to Italy’s economic heft, and none of which — individually or in concert — pose even a modicum of a security threat. (If anything, their bickering chaos provides Italians with a massive strategic buffer.) To the south across the Mediterranean is Northern Africa, a region that has not posed a meaningful danger to Southern Europe since Christopher Columbus was a teenager.

That just leaves its western neighbor, France. The Italians may have some differences of opinions with the French, but since the Franco-Italian border is a chunk of the Alps and the Po’s window on the world lies far to France’s east via the Adriatic, it is rare for the pair to butt heads. Add in a moderate sized navy of moderate skill — which the Italians have — and the Po is if anything more secure than the United Kingdom.

And that’s how we must think of the Po — as an island. Separate from Europe, separate even from the rest of Italy. Within that distinction lies the Italians’ future.

In the world before World War II the Po Valley was one of, and at many times the, economic powerhouse of the both Europe and the Greater Mediterranean. Its physical separation and inviolability made it the logical location to broker deals, to install infrastructure central to the economic health of the broader region, and to serve as trade middlemen for everything that mattered.

Part of the attraction of the Americans’ installation of a global security order was that geography mattered less, so countries with often-compromised geographies could shine — in many cases for the first time. For the Po Italians whose geography was their ticket to centrality and wealth, this sort of sucked. Had they not been on the wrong side during the war and not already been issued an opinion on the matter, they may well have sat out membership.

As the Bretton Woods order expanded, as the European Continent unified under the aegis of the European Union, as stability spread, what made the Po special became less so. Italy as a whole saw its position slide. With the end of the Cold War the Po is little more than a rich backwater. Italy as a whole hasn’t seen meaningful economic growth in nearly two decades, and its end is nigh.

But Trump’s actions at the G7 indicate that the system that has so enriched the rest of the world and so stabilized Europe — in part at Italy’s expense — is at its end. Remove global stability, remove the European Union and NATO, break the supply chains that supply the global system with everything from cars to crude, and all of a sudden the Po’s island-but-not-an-island geography combined with its relative centrality makes it the place to be.

So what kind of place will the Po become? What does it have to offer?

First, a step back to frame the discussion:

Just as the Po Valley and “Italy” are not the same thing, the Po Valley itself isn’t one place. The cities of Northern Italy in many cases have identities and histories just as distinct from one another as full-blown European countries. Verona, Trento, Parma, Bologna, Milan, Venice, Turin, and Genoa were all independent players from the fall of the Roman Empire right up until Italian Unification in the 1870s. That means they only rarely act as a unit, and the emphasis of all things Italian has always been on diversification and differentiation.

In the world of energy it means the Italians maintain one of the most varied set of refineries in the world, able to take in any crude stream and process it into any end product. Today Italy boasts roughly double the refining capacity they need. Toss in the sort of economic adjustment that comes from state collapse and dollar to donuts the Italians’ surplus capacity will soon make them the largest source of available refined product within three thousand miles in a world where energy security for most is a long-faded dream.

In the world of manufacturing it means the Italians make things a bit differently. For Italians wares are not about assembly lines or efficiency — that requires economies of scale and integration. The Italian cities compete with one another instead. They don’t share. They keep all the steps in house, so it is all about expression and perfection. The sort of long, gangly, multinational supply chains that can only survive in a world of stability and global market access are not the sort of things Italians do well. Think Fiat. So instead of mass producing serviceable items, the Italians hand-craft products that could easily be mistaken as art. Think Lamborghini and Versace. That sort of “manufacturing” does just fine when the world falls apart.

The problem with this machinery-as-art model is labor. It literally takes a lifetime to train a Ferrari craftsman. It is something the new manufacturing techniques that are sweeping the American industrial space cannot integrate into. The Italians don’t hate immigrants for simply the standard religious, ethnic and economic reasons, but also because immigrants simply cannot help with the problem the Po faces.

Nor is this new. Nor is it constrained to outsiders.

The Po Valley versus Italy’s south is a study of polar opposites; the Po’s sophistication and productivity contrasts sharply with the statist rot, civil breakdown, organized crime, and poverty of the South. Between unification and 1940, southern Italians moved en masse to work in northern factories. This was at a time when Northern Italian sentiments toward many in Southern Italy was racist in a generous sense. Even Mussolini’s son-in-law is said to have privately mused that perhaps it would have been better to be born a Jew than a Sicilian in Fascist Italy (against the backdrop of the Holocaust, no less). Today, the south’s population is smaller, older and sicker relative to the north than ever before. It is already on the ragged edge of failed statedom, and northerners fear southern in-migration nearly as much as they resist boatloads of migrants from Africa.

Northern Italy doesn’t need Southern Italy for anything in the traditional sense: labor, market, capital, technology, food, even strategic depth. What the Po does need is free access to the Mediterranean for oil inflows and trade outflows (and perhaps the refineries that dot the southern coastlines). It needs Southern Italy to be in a box that also contains the Southern Italians and blocks would-be migrants from the world beyond. It needs to be able to treat the south as an occupied territory.

There’s really only one governing system that can fit that bill: Fascist. Again, this isn’t new. Fascism was well established in Italy a decade before Adolf Hitler’s rise to power in Germany for much of the same reasons.

Assuming the Italians of the Po can constrain and contain the Italians of the south, there is little need to venture further out. The Po will again become the lynchpin between the Middle East and Africa on one side, and Europe on the other. The Italians’ very lack of strategic ambition makes them the perfect middleman. About the only weakness in such a system is ensuring sufficient inflows of crude so that Italy can be a large refining center. There’s nothing new here either: The Northern Italian cities have been brokering deals with whoever controls the Eastern Mediterranean for the commodities of the day for over a millennium.

To paraphrase an old European saying: Italy is dead. Long live Italy.

I Think They Get It Now, Part Four: The UK

Jump to other parts of this series: Intro, France, Germany, Italy, Japan, and Canada.

The United Kingdom has been the United States’ firmest and most capable ally for over a half century. As such many often think of the British Prime Minster as a sort of Washington Whisperer. The Brits, so the thinking goes, are a civilized people who can bring the oftentimes erratic Americans around to a saner course of action.

As one of the United Kingdom’s great statesmen, Winston Churchill, famously put it: “You can always count upon the Americans to do the right thing… after trying everything else.” The quote is as much an homage to the immense power of the United States, as it is to the trademark patience, dry humor and stiff upper lip of the English.

And so it is with no surprise that many world leaders have called upon British Prime Minister Theresa May to intervene on humanity’s account with U.S. President Donald Trump. But it is no surprise to me that she has done nothing of the sort. Nor will she. It is all wrapped up in why the United Kingdom is a major power in the first place.

The United Kingdom matters not simply because Great Britain is an island, or because the Kingdom has the naval power to defend its island, but because the Kingdom has sufficient naval strength to project power well beyond its island. That enables the Brits to pick the time and place of the conflicts they choose to engage in. Even if they choose poorly, they can always pack up, sail away and try again later. Clashes that leave most in ruin at most force an early election in the Kingdom.

There are only two things that could undo this strength. First, the United Kingdom’s flexible strength could be overwhelmed by a more powerful navy. Since the only Atlantic Ocean navy that is more powerful is the American Navy, this is a low risk. Second, the United Kingdom could for whatever reason find its navy degraded to the point that it can no longer project power. And that is precisely the challenge facing the United Kingdom today.

Ironically, painfully, the UK’s current naval weakness comes directly from an attempt to generate strength.

It is difficult for any student of global strategy who is not willingly blind to ignore the role played by the American supercarriers. The Nimitz class carriers are not simply the largest combatants ever floated, as a rule they pack at least seven times the combat capabilities of any rival naval vessel – including the largest carriers floated by other countries. The Nimitz ships have enabled the Americans to project power not just anywhere on any ocean or coast, but in most cases several hundred miles inland as well. Without nuclear weapons they are the most powerful conventional weapons systems any country has ever fielded, and just one of them if nuclear-armed has more firepower than the entire military of France. (No, that is not a France slam. The supers are simply that cool.) The Americans have ten of them. The combined rest of the world? Zero.

So long as the Nimitz carriers (or their soon-to-be successors in the Ford class) are the top shelf of military capacity, anyone seeking to oppose the Americans has to find a way to push the Americans at least a thousand miles away from shore (ergo why the Chinese are so heavily invested into long range anti-ship missiles). And should any naval power seek to ally with the Americans, they will always be entirely in the shadow of the massive, raw American power that the Nimitz ships provide. So long as the Americans are the only people with fully-operational supercarriers, no one but the Americans gets a vote as to how the Americans and their allies perform global strategic policy – even if you are one of the allies.

There are a lot of non-blind students of global strategy in the United Kingdom, and about two decades ago they all came to the same conclusion: if the UK is to matter at all, we must have our own supercarrier. And since, like any other vessel, ongoing refits are part of the process, we must have at least two. The end result was the launching of the Queen Elizabeth carrier program. Weighing in at 65,000 tons displacement they will be the largest combat ships ever floated with the notable exceptions of their inspirations: America’s Nimitz and Ford classes. Fully operational, they will give the Brits exactly what they are after: a seat at a table for two, the only table that matters. When the first ship of the new class started sea trials in December 2017, a veritable army of bubbly erupted at Whitehall.

Just one problem. The Brits screwed it up a little bit.

Maintaining weapons development systems over multiple decades and multiple administrations is difficult. In the time since the plans for the Queen Elizabeth class were first floated, the Brits have had a dozen elections and five prime ministers (and unless my political tea-leaf reading has gone completely off the rails, they’ll have a sixth before long). With each change of leadership there is a change in priorities, and oftentimes life rudely intervenes. Financial crises of the Asian, European and global kind have competed with the British Navy for resources. The Iraq War, the Afghan War and the Libyan intervention ruthlessly pulled British defense prerogatives away from the sea and towards land. The Joint Strike Fighter development program has gone egregiously, criminally, hilariously over budget.

At each step the Queen Elizabeth carrier program had to re-justify itself and fight for funding anew. In the process the Brits found themselves forced to mothball their existing jump carrier fleet in total in order to funnel resources to the new supercarriers’ construction effort. The Brits had to transfer their navy aircraft, pilots and flight crews to the U.S. Navy in order to maintain any hint of naval aviation capacity. And now, with Brexit looming, they’re having to slim the rest of the naval force to keep their supercarrier program on track.

Which means the Brits no longer have sufficient ships to protect their new supers once they are fully operational.

Carriers are not just massive and massively capable combatants, they also represent years if not decades of investment into equipment and personnel, and while they cannot be sunk easily, sunk they most certainly can be. As such every carrier is but the nucleus of a battle group, with all the other vessels’ primary purpose to ensure the carrier does not sink. The British Navy has atrophied so much for so long that it can no longer assemble two credible battlegroups and still defend Great Britain itself.

For the Queen Elizabeths’ deployments, this is nothing short of a Charlie Foxtrot. The new British supercarriers dare not venture further away from shore than the reach of British air power, whether that air power be launched from the United Kingdom itself or from the territory of a trusted ally. Support ships can certainly be built up more quickly (and cheaply) than the supercarriers themselves, but ships don’t grow on trees. This will be the state of the British Navy for at least a decade. Probably two.

This presents London – the naval power par excellence of earlier eras – with a galling choice:

  1. Abandon all hope of ever projecting power, and treat its shiny new supercarriers as the same sort of idiotic chest-beating paperweights the old Soviet “carrier” was,
  2. Fold its supercarriers into the Americans’ battle groups and de facto merge with the United States on all strategic policy… and hope against experience, culture and hope itself that the Americans will listen to your strategic opinions because you contributed a couple big boats.

The decision has already been made. The Brits know better than to fly solo, and they certainly know better than to fly solo against the Americans. The key memory is the 1956 Suez Crisis.

At that time the Brits were certain when the Americans said under the Bretton Woods system all the empires would be disbanded, that it didn’t apply to the British Empire. The British assault on Egypt inadvertently forced the Americans to choose between maintaining the British Empire and their own new global order. It wasn’t a hard choice. The result was strategic castration – with the Americans using all their ample political, financial and military strength to force the United Kingdom into a permanent, subservient position within the alliance that has lasted ever since.

To underline how annoyed the Americans were, they also forced the Brits to stick to the letter of the deals signed to support the United Kingdom against Nazi Germany in the early days of World War II before the Americans themselves were involved. The terms of such loans were so onerous that the Brits didn’t finish paying them off until the 2000s.

And so the Brits have no choice but to stiffen that lip and march forward into the very much known.

  • They will seek a direct bilateral trade deal with the Americans in order to replace the European Union at the core of their economic strategy. It may have fewer regulations, but it won’t enable the United Kingdom to be as wealthy as they have been, and the Americans will offer few concessions because the Brits are economically and strategically without options.
  • They will surrender the financial centrality of London to New York City either as part of the trade negotiations in the hopes they can glean a few concessions on other topics, or because without a firm Brexit deal the financial sector will up and leave London anyway.
  • Should the Trump administration manage to extract a final NAFTA deal from the chaos of the current negotiations, the Brits will grudgingly sign on knowing full well that direct competition from Mexico will do to the United Kingdom what Team Trump says Mexico has done to the United States. The alternative is to be a forgotten side deal only tenuously linked to the American market.
  • And no matter what military adventure the Americans go on, the Brits will be there. They know better than anyone it is far better to be in the Americans’ shadow than in the Americans’ way.

Put simply: what Trump wants, Trump gets. It’s that simple, because if the goal is security and stability for the British people, there is no other option.

This might sound humbling, horrible even. But it really is not. So the Brits don’t matter strategically on their own. They are still safe. They are still wealthy. With the world crumbling down there are worse sides of history to be on than being an adjunct to the Americans. And isn’t it the fate – if perhaps not the goal – of most parents to eventually move in with the kids?