America Sells Its Seoul

The United States and South Korea have agreed on an overhaul of their bilateral trade agreement this past week. In it, the Koreans caved on pretty much every issue of contention, most notably agreeing to improve American firms’ access to Korea’s automotive and pharmaceutical markets while restricting their own exports of steel to the United States by nearly one-third. In exchange, the Koreans received the first permanent waiver to the Trump administration’s until-now unrelated issue of steel and aluminum tariffs.

In addition, Trump has personally made it clear he has little intention of formally signing off on the deal until after the North Korean situation is resolved, insuring South Korea must follow the American preferences on any subsequent arrangements with Kim Jung Un, rather than the other way around.

It’s the first formalized, publicly-declared instance of American foreign policy coming full circle. During the Soviet standoff the Americans made the global oceans safe for all and kept the American market open to the alliance, in essence trading some of its economic power in order to purchase a security alliance. But the Cold War is nearly three decades gone now, and until recently the Americans had yet to update their strategic policy. As such, the post-Cold War global economic boom was largely a result of the Americans continuing to pay for a global system without getting anything in return. That disconnect was in part responsible for America’s recoiling from the world and the rise of Bernie Sanders and Donald Trump.

We now have the beginning of a formal re-engineering of the old Cold War system. Linkage between economic and security issues is back – but without the Cold War rubric to shape it, American policy is taking on a somewhat à la carte characteristic.

South Korea was a great spot for the first of a new series of arrangements. Next to the three tiny Baltic states that have no hope of defending themselves against their monster neighbor Russia, there is no country in the world that has a greater defense dependency upon the United States. And since South Korea has a smallish, rapidly aging population (aka low local consumption and so export-dependent) and few domestic resources (aka import-dependent), trade is its lifeblood. No country in the world would be forced to come to terms with the Americans more, and Korea’s position as the world’s fifth-largest exporter means everyone must take notice.

Whether starting with the Koreans was the goal all along, or the well-worn contours of geography and economics guided the administration a bit like a luge course to this destination is really not relevant. (Donald Trump’s general lack of discipline and revulsion in the face of context suggests the latter. U.S. Trade Representative Robert Lighthizer’s laser attention to detail and dogged persistence suggests the former. National Security Advisor John Bolton hasn’t been on Team Trump long enough to participate in the Korea trade talks, but this sort of thing certainly fits with his style, too).

The biggest question in my mind is, who’s next?

China seems like an interesting bet, but I’m guessing the Trump administration wants to get far more out of the Chinese than merely new understandings on steel, aluminum, intellectual property rights, and North Korea. The White House appears set to link a host of until-now unlinked issues. Issues like agriculture and freedom of navigation, manufacturing and the South China Sea, finance and hacking, market access and policies on Iran, reciprocity and Russian sanctions. It is a heavy list and even if the Chinese were to simply roll over on it all (which is not very likely) it would take quite a bit of time to work out the details.

In my opinion, folks convinced of the Chinese rise aren’t very good at math or reading maps. The Chinese financial system is the most overextended in history and every country that has followed its investment-led model has eventually crashed hard. The one-child policy has destroyed China’s future – it is now the world’s third-fastest aging demography. China’s strategic position is horrid – a line of islands parallels its coast, preventing it from projecting power into the sea lanes upon which its economy depends. It is utterly reliant on global energy imports and global merchandise exports – imports and exports which are under the thumb of the U.S. Navy.

The linkage the Americans are about to impose is the opposite of what the Chinese have become used to the Americans doing. It is precisely what the Chinese do to everyone else whenever the issue of Hong Kong or Taiwan or Tibet comes up. The Chinese are going to hate/fear this sort of strategic thinking in the United States because it cuts to the heart of the Chinese political system and strategic policy. And there’s far more to this than Beijing knowing they lack the leverage on the Americans to win. The Americans are in effect putting a dollar amount on their Korean alliance, and the same thing can now be done to any other aspect of American policy – including the China relationship.

The same general issue holds true for the European Union. Most of the European states are in terminal demographic decline, meaning that not only are they deeply dependent upon exports for their economic well-being, there is absolutely no hope their economic situation can be sustained, much less improved, without either the kindness of outsiders or a fundamental reshaping of how Europe defines the terms “economy” and “government.” Considering the European experimentation with those two terms in generations past, that last sentence should make everyone a bit twitchy.

And of course those are just some of Europe’s problems. There are also ongoing and deepening debt, banking, refugee, and political legitimacy crises. With neighboring powers – primarily Turkey and Russia – becoming more aggressive, the European choice is between once-again submitting themselves to American strategic goals, aggressively rearming in an era of terminal economic decline, or going through a regional…re-invention.

It’s an ugly choice, and one made far worse by a host of until-now unrelated issues.

  • Brexit not only reduces the EU’s overall heft and thus its stature in the world and at the negotiating table, but the UK acting as a free agent can and will provide the Americans with a host of wedge issues to hurt the Europeans where they are most vulnerable.
  • Of the EU’s 28 current members, five – Ireland, Cyprus, Austria, Finland and Sweden – are not in NATO, and so have little history in making formal economics-for-security swaps with the Americans.
  • Full competence for negotiating trade deals is held collectively with the European Commission, the EU’s executive/administrative/bureaucratic authority. But full competence for negotiating defense deals is held individually with the member states.
  • On major issues – for example, economics-for-security swap deals – every EU member has full veto rights. Even a deal that makes sense for France and Germany and Italy and Poland and Spain and the Netherlands and Sweden could be undone by a local election in Belgium (nearly derailed a free trade deal with the Canadians), or a spiteful politician in Greece (did derail Europe’s Russia policy).

That means that either a) the major EU powers find ways outside of EU norms to crush the dissenters, b) the EU gets cut out of American and global markets which throws Europe into a long-lasting depression, or c) the Trump administration breaks the entire EU in order to get its deal with the members that matter. No matter the path, the strategic alignments that have made the EU the vehicle that have made Europe united, at peace, wealthy and free are over.

Zocalo, Mexico City, Mexico

If anything, the NAFTA renegotiation will be even tougher, but here the issues are different. Canada and Mexico are not dependent upon the Americans for strategic overwatch (or, more accurately, the United States has no option but to protect its continental neighbors from extra-continental threats if it is to protect itself). Neither of them trade very much with the rest of the world, with both in essence functioning as de facto extensions of the American economic space.

The Americans can, will and are playing hardball in the talks, but the Canadians and Mexicans are doing the same. They know the tactics the Trump administration is employing to bring the rest of the world to heel just don’t apply in North America. Both Canada and Mexico have been (repeatedly) successful in courting American corporate giants and American state governors to make their cases in Washington for them. Remember that NAFTA is the only trade deal the Americans have signed in the post-WWII era that was not about security. That gives both Canada and Mexico something that neither the Chinese nor Europeans have: leverage.

It also means that the Canadians are playing very dirty, following what has more-or-less become a scorched earth policy. As part of Canada’s NAFTA strategy the Canadians have launched a case at the WTO that would actually hurt them if they won, because if they did win, the case would impose such pain on the Americans it would likely induce the Trump administration to abandon the WTO completely. Additionally, Canada’s hardball tactics might be aiming to wreck NAFTA. If that were to happen, Canada has a separate bilateral trade deal with the United States…but Mexico does not. In a world without the WTO and NAFTA, Canada would become the only country to maintain preferential access to the American economy. Harsh. Brilliant, but harsh.

But all these talks will take time. For the Chinese and Europeans, these are all very messy, complex, interwoven issues that cut to the core of issues of national identity and even national existence. For the Canadians and Mexicans the negotiations will continue to be difficult because with those countries the Americans are actually dealing with a more-or-less level field. The Americans with their stereotypical boorish, freight-train style will plow through it all as quickly as they can – and Lighthizer and Bolton will revel in every minute of it – but unweaving and reweaving the strands of China and Europe will take time, as will hammering out a more sustainable understanding within North America.

Trump isn’t that patient.

My bet is the next two deals will be bilateral and done more or less simultaneously.

Japan will be far easier than most of the other negotiations in front of the Americans because it will be a one-on-one talk as compared the multilateral complications of NAFTA and the EU. Japan – like South Korea – is deeply enmeshed into American defense networks and fully admits and realizes just how important U.S. strategic policy is to its own strategic needs (while most of the Chinese and Europeans remain in deep denial). Contrary to the conventional wisdom, Japan is no longer a massive trading nation. Rather than engage in broad-based economic and financial reform in the 1990s and 2000s to fix their broken economic model, they instead walled themselves off from the world. Consequently, Japan’s share of the international export market has shrunk by four-fifths since the 1980s.

Most importantly, the horror show that is Japan’s aging demography long ago induced the Japanese to forward-position much of their manufacturing capacity in their end-markets both to minimize currency risk and curry political and strategic favors. In essence, Japan has already swallowed some of this economics-for-security medicine in the post-Cold War era. It won’t crush their sense of national identity or their national economy to do it again, so long as the Americans continue to hem in places like North Korea and China.

The other big about-to-be deal is the United Kingdom, and this deal will practically fall into the Trump administration’s lap. Because of Brexit, the Brits are already casting out for alternative systems. The search has not been going particularly well. Political bungling at home, unrealistic expectations from the Leavers, a united EU front, and a resurgent and increasingly economically suicidal Labor opposition have tangled up the UK’s negotiating positions on pretty much everything.

The government of Prime Minister Theresa May now fully realizes that there is going to be no Brexit deal. It took considerable concessions to the EU simply to extend the negotiation period for another year. The new arrangement is that the UK will remain subject to all relevant EU laws and regulations, but will gain no input or votes on them during the “transition.” The one concession London teased out is the one most relevant to this discussion: the EU will allow the UK to negotiate trade deals outside of the EU’s authority. So the Brits now need to and are free to fully recalibrate their national, regional and global security and economic norms just as the Americans are reforging national, regional and global security and economic norms.

If the Trump-Lighthizer-Bolton team can induce (browbeat?) the world’s third- and fifth-largest economies which control the world’s second- and third-largest navies into joining the United States in a refashioned economics-for-security arrangement, then not only will the Trump administration have gotten a couple “big wins,” but the global stage will be set for whatever strategic alignments come next.

This is the bit that worries me, but it is also the bit that I ultimately expected.

The established American foreign policy community, both in the government bureaucracy and distributed throughout Washington, is still living in the past and seems out of ideas. For its part, the Trump administration has no strategic vision; MAGA is a slogan, not a policy. The normal means of debating a new national grand strategy – discussion and debate between the major parties – is not possible because both parties are currently broken.

Trump may be stumbling/groping/learning his way into a common approach, but he is doing so without any guiding principles or goals. The Cold War structure was stable because the Americans paid everyone the same (by creating a global structure) and expected the same behavior in return (membership in the anti-Soviet alliance).

This time around the Americans are customizing the membership fee to match the need. For South Korea the cost is deference on North Korea. For China it will likely be deference on global policy. For Europe it will likely include a demand to follow American regulatory norms. And as the Americans are strategically unmoored, I see no reason why the goal posts won’t move as America’s perceived self-needs evolve. It is less the stuff of a global leader and more the behavior of a mafioso.

There’s a reason I call the next couple of decades the “Coming Disorder.”

Read more about it in my book, The Accidental Superpower.

Bolton in a China Shop

Thursday, March 22 was a big day, but before I get into the meat, there’s a couple of items I need to do a quick update/refresh on.

On March 1st the Trump administration announced tariffs on imported aluminum and steel. In the three weeks since the Americans have granted temporary waivers for a majority of the countries that send America the two metals, most notably Canada, Mexico, and the European Union. In the case of Canada and Mexico, it was so that the tariffs could be used as a cudgel in ongoing NAFTA renegotiation talks – something that has annoyed the Canadians and Mexicans more than a bit.

The European case is a touch more involved. Within hours of Trump announcing the initial tariffs, the European Commission – that’s the EU’s administrative/executive arm – announced a wide-ranging series of counter tariffs targeting firms headquartered in the districts of the entire Congressional leadership. I got a good laugh out of this. Not only did the Commission clearly have that list drawn up well in advance, it also highlighted just how ignorant they were of U.S. politics. Foreigners punishing Nancy Pelosi’s or Mitch McConnel’s districts for something that Trump did isn’t going to earn those foreigners any favors. If anything it might have encouraged the Americans to close ranks a bit.

(What Brussels was likely aiming for here was to copy the tried-and-true American strategy of selectively targeting countries in Europe that are causing problems in trade negotiations, for example putting tariffs on French cheese when France is causing issues in agricultural trade talks. That works well. But going after folks in unrelated industries who are not responsible for trade policy just tends to piss people off.)

All in all it was a traditional bureaucratic kneejerk reaction that can only come from a keyhole view of the situation, and Trump very quickly shattered the myth of European options by tweeting out that should those counter-tariffs come into play, he would simply bar the import of European automobiles into the American market. This would hit the Europeans on two fronts. First, the Americans are at least nominally still Europe’s security guarantor and any real trade war between the two would erase any pretense of alliance at a time when Turkey has become unhinged from NATO and the Russians are on the march (security issues are not a remit of the European Commission so such never entered into their calculus). Second, fully half the German economy is trade-dependent, and some 80% of the vehicles Germany manufactures are sent abroad. Any meaningful trade war would quickly wreck Europe’s core.

One can imagine the Prussian fury that surely flowed across Europe’s phone circuits when German Chancellor Angela Merkel called up the eurocrats to tell them what they were going to do. Those eurocrats have since cooled their jets and sought talks with the Americans on how to get a waiver for the aluminum and steel sanctions. Those talks were completed last week, and the Europeans made a very interesting concession. The EU only received its (temporary) waiver on the condition that they enter into talks with the Americans on presenting a joint position on aluminum and steel versus the Chinese.

China’s steel industry is the most overbuilt and oversubsidized sector in a country that is massively overbuilt and oversubsidized. It alone is now the source of the majority of the world’s excess steel capacity and global steel exports. A TransAtlantic gang-up makes a lot of sense.

Now back to March 22.

On that day President Trump announced tariffs on a mix of $50 billion to $60 billion of Chinese exports to the United States in retaliation for a product dumping, lack of reciprocity on market access, and intellectual property theft. The whiff of a trade war between the world’s two largest economies is in the air, and the American media is apoplectic… as it tends to be whenever it discovers the president did not die in his sleep. This time more serious commentators (i.e. the stock markets) also registered their concerns with most indexes selling off sharply.

The issue is this isn’t about “merely” $60 billion in goods. The Chinese development model is based on overbuilding, subsidization, product dumping, lack of reciprocity and intellectual property theft. Any serious effort by the Americans to pare any of that back cuts to the core of Chinese economic growth, employment, Communist Party dominance and the very political stability of the entire Chinese system.

But the Chinese have little leverage here. Let’s go down the list.

  1. China is a massive exporter to the American market, but the converse is not true. In any trade conflict the Chinese get hosed economically.
  2. The Americans maintaining of the global trade order is what enables the Chinese to export to everyone else. Just as the Germans fully realize that a fight with the US on trade is one in which they have no hope, so too do the Chinese (at least at the top, at least in private).
  3. Even without the trade order, the U.S. Navy controls the oceans to an overwhelming degree. Even with recent expansions the Chinese navy is no more than 3% as powerful as the American Navy on a global basis. If a bilateral trade war were to evolve into something more shooty, the Chinese would lose nearly allexports and all imports – including some three-quarters of their oil needs.
  4. North Korea is no longer a card the Chinese can play. Pyongyang’s recklessness with its nuclear and missile program has now attracted the full attention of President Trump – a man not known for his subtlety. There are only three ways forward for North Korea at this point. The United States nukes it which eliminates China’s only “ally”. The United States rings it with missile defenses which negates China’s own strategic deterrent. Or the United States cuts a deal that both Washington and Pyongyang can live with. Option 3 is by far China’s preferred option and Beijing is (quietly) facilitating a pending summit between Trump and North Korean leader Kim Jong Un.
  5. The T-bill bomb that many have suggested is China’s supposed ace is utter rubbish. The logic is that in a real spat the Chinese, the second-largest foreign holder of U.S. government debt, could just dump some of the U.S. T-bills it holds on the market and crash the U.S. economy. That’s not how things work.
    1. You cannot just walk up to the U.S. Treasury building and demand your money back; it’s a fixed term note.
    2. Any interim sale of a T-bill to another party has to have a buyer. No buyer, no sale.
    3. China could theoretically try and sell its T-bills whenever the U.S. Treasury was trying to sell new debt and that would raise the cost of U.S. financing. But not only is the U.S. T-bill market the largest in the world so it would have to be a big sale, but what would “massive” success bring? It would push down the value of the U.S. dollar. Considering the Chinese regularly intervene in their markets to push the U.S. dollar up so that they can sell more goods into the U.S. market, it would work at cross purposes to the set of Chinese policies that make the Chinese economy possible.
    4. And of course, the U.S. Federal Reserve can simply mop up the T-bill market if it chooses by printing currency. It’s a perk of running the global currency.

It isn’t that the Chinese cannot hurt the Americans on trade, just that they can’t without also causing themselves catastrophic damage. It is an America-sneezes-China-gets-Ebola sorta thing.

Which brings us to the other news of the week. Enter John Bolton.

On March 22 U.S. President Donald Trump fired his national security advisor, General HR McMaster, a man whom many in the national security establishment have profound respect for, and replaced him with John Bolton, a man whom very few hold any respect for.

Many people might rightfully despise Bolton and all that he stands for. Critics say he has never met a country he didn’t want to bomb, a government he hasn’t wanted to overthrow, and an ally he didn’t want to intimidate. And when you look at his public statements on Iran, Iraq, Saudi Arabia, Turkey, France, Germany, the United Kingdom, Russia, China, Japan and the Koreas it is pretty easy to come to the conclusion that the dude holds some fairly strong and mean-spirited opinions. I tend to lean toward the majority view on Mr. Bolton when it comes to his policy preferences. That, and he’s a prick.

But no matter how unlikable he may be, what you can not say about Bolton is that he’s incompetent or inexperienced. If you can put politics and personality aside for a moment, Bolton is one of the most skilled diplomats the United States has ever had. He was a protégé of James Baker, arguably the best Secretary of State in modern times. He knows the ins and outs of how diplomacy – both hard scrabble and polite – works and just where to dot i’s or twist arms, send flowers or send ammunition. His most infamous innovation is that he fully embraces military options as part of the “diplomatic” toolkit, something that many diplomats are too meek or polite to say publicly, but he also excels at building ad hoc international coalitions on the fly to change international law as he did to rein in North Korean missile proliferation in the 2000s. He certainly breaks the mold that claims that diplomats have to be diplomatic.

The worldview of Donald Trump is far closer to Bolton’s heart than any other president, and it is obvious to everyone with a pulse that what Trump has been missing is someone who can translate TrumpTantrums (TM) into actual policy. For those (like me) who are frustrated with the lack of consistency in Trump’s actions, this could be a positive sign. For those terrified (like me) of all the implications of some of Trump’s positions, this could be horrible.

I don’t want to overplay this. The position of the National Security Advisor has exactly as much power as the president chooses to delegate. Some – like Condoleezza Rice and Henry Kissinger – had massive reach, while others – Susan Rice comes to mind – were barely in charge of their own stationery. But whether Bolton is large and in charge or simply tickles the part of Trump’s psyche that loves disorder while holding the door open so the bull can ravage the China shop, John Bolton may be just what Trump needs to translate his foreign policy goals into hard reality.

And the Chinese know it.

Consider the timing of events last Thursday. First, Trump announces his tariffs on China. Second, Chinese media explodes with vitriol and threats of retaliation. Third, the Europeans cut their deal with Trump to avoid the aluminum and steel tariffs should they join Trump’s efforts against China. Fourth, it is confirmed that Bolton will replace McMaster as Trump’s new National Security Advisor. Fifth, the Chinese government forces Chinese financial houses to massively intervene in Chinese stock markets to prevent a rout of epic proportions.

Beijing knows exactly what’s going on here.

If this is real, if Trump means to break the Chinese position (and maybe even the Chinese system’s back), then Bolton is a solid choice and tariffs are a good knife and Bolton will repeatedly use that knife in ways too effective and cruel for me to opine about at present.

Finally, a parting thought:

Trump is not a freshman president anymore. Might he be finding his feet? He seems to be linking issues and personnel and approaches together into a kind-sorta unified theme. If I didn’t know better, I’d say that Trump just might be in the process of getting a handle on this foreign policy thing.

Here We Go

After a particularly… volatile week in the White House of Donald Trump, the administration announced March 1 trade tariffs of 25% on steel and 10% on aluminum. Countries near and far almost immediately announced plans for counter-tariffs on American goods. Many, most notably the American president himself, are now openly talking about a global trade war. Trump went so far as to tweet “trade wars are good, and easy to win.” Anti-Trump reactions among the media, corporate world and global elite has been – in a word – acidic. Similarly, markets haven’t exactly taken news of a potential trade conflict with a ringing endorsement.

I need to start out by correcting what most commentators have been tossing out there: at the core, Trump isn’t wrong. When your country runs massive trade deficits and is functionally energy and agriculturally independent, you have far more options, flexibility and power when prosecuting trade wars. Not to mention the issue of raw exposure. The United States economy is the least internationally linked of the significant powers. The fractions vary widely based on whose data you’re using, but as a rule the American economy is roughly one-third as dependent upon exports as the major Asian or European economies.

And that’s before you consider the global framework. The United States created the free trade order at the end of World War II in order to contain and crush the Soviets. In essence, it used the currency of providing global security and trade access to purchase cooperation from its allies, so it could battle the Soviets the way it wanted (i.e. the Americans bribed up an alliance to fight the Cold War).

But when the Berlin Wall fell, the Americans never bothered to update the system. They kept granting all the security and trade goodies yet neglected to ask for anything in return. Three decades of paying for that lopsided “deal” after the Soviet collapse has generated sufficient blowback on the American Left and Right to push the American population away from valuing a rules-based international order. One result, among other things, is the rise of Donald Trump and Bernie Sanders.

So even if on pure economics the Americans hold the upper hand in a trade war, that drastically understates how much power and flexibility the Americans actually hold because they still are the only power responsible for a system that makes the majority of other countries’ systems – including the European and Chinese systems – even possible. I might not choose the word “easy” when describing how things could go down, but Trump’s theme is certainly on point.

That said, there are a veritable cavalcade of things to keep in mind.

To start off, this isn’t a normal president. This is Trump. As much as it is detrimental for a leader/negotiator to be as thin-skinned, uninterested in context, and offended by detail at any given moment, the most important personality quirk is Trump’s seeming refusal to either be consistent with his own positions or think about what might happen the next day. He tends to make grand statements (often via Twitter) and then expects Congress, the public, and the world to simply do things his way. It’s very Obama, and it tends to generate the same sort of anger and dismissiveness.

That’s a problem for more than just optics.

Competently prosecuting trade wars requires speed to undercut competitors’ positions faster than they can undercut yours, and that speed requires negotiating skill and coordination. Trump may love his executive orders, but he to date has yet to demonstrate a capacity or interest in using the levers of state in an efficient way.

Trade wars require the marshalling of forces government and corporate to know where to hit where it hurts, while also preparing defensive measures to guard domestic interests from likely counters.

The government entities most important to this sort of operation are the Department of Commerce, the Department of State, the Central Intelligence Agency, and the Federal Trade Commission – the institutions with which the Trump administration has the worst working relationships. And Trump’s erratic nature and pathological hostility to immigration has largely sunk his ability to marshal corporate America in any cohesive or reliable manner.

Trade wars – just like real wars – require allies. Most of those allies are at home, but of course some of them are of the more traditional sort: foreign nations.

Donald Trump is not popular, well, anywhere. The Brits think of him as the most uncouth American they’ve ever had to deal with (which after folks like Lyndon Johnson and George W Bush is an exceedingly high bar). The Germans are horrified at Trump’s willing, ongoing and insistent ignorance of European geopolitics. The Russians simply feel he’s a buffoon. The Japanese refer to him as a moronic man-child. (The French actually sort of like him. I think it’s a Jerry Lewis thing.) The average Mexican’s feeling towards the man is sheer hatred. The Chinese, as the ones most dependent upon the American-led order, probably take him the most seriously – but they’ve become increasingly confident of their ability to manipulate him to their ends.

The point is that a trade war isn’t a diktat, it’s a conflict with a lot of moving pieces that must be maneuvered through. How that maneuvering is handled determines how quick and/or “easy” the conflict will be, as well as the economic and strategic collateral damage the United States would need to manage.

  • If you want to target China, the weak points are electronics and finance – not steel and aluminum. But don’t forget to coordinate with the Koreans and Taiwanese who are exposed to Chinese supply chains. You’ll need their help to deflect the blowback.
  • If you want to target Europe, you hit Southern European agriculture and German manufactured exports. (A Trump Twitterstorm over the weekend expressly indicated that European vehicle exports are squarely in his sights.) But you do not levy tariffs against the Europeans in isolation – you make friends of France and Poland and Sweden, leveraging the fact that the European Union is not a single political entity. That way you can pry apart the entire EU negotiating position.
  • Japan has outsourced massive amounts of its manufacturing base during the past generation, making it a powerful ally in any trade war… if you can be sure to not damage the few sectors that are still important at home. Like steel.
  • In any case, it would probably be wise to not pick fights with Eastern Hemispheric powers as well as NAFTA partners simultaneously. After all, the Americans’ North American trade portfolio is nearly as big as everything else put together.
  • But let’s say you want to make Mexico your target anyway: you must go after automotive… but that also means shoring up Texans who are enmeshed into the cross-border supply chains. Otherwise your own political coalition fractures. And don’t forget to deflect Canada so you don’t have a 2-on-1 situation against you within NAFTA.
  • Speaking of Canada, the easiest way to counter America’s northern neighbor is to deliberately and publicly cut direct deals with individual provinces – for example, give concessionary benefits to Albertan energy or Manitoban wheat or Quebecois aerospace. Considering that the Canadian system reserves more power for the provinces than the national government, the result will be a quite undignified screaming match among the provinces that would paralyze the country’s foreign trade policy… as well as be fabulously entertaining. Fun fact: Canada only signed its first comprehensive internal free trade agreement in April 2017.

An “easy” trade war is eminently doable, but without doing the homework or laying the groundwork, the result is a free-for-all of sanctions and countersanctions with should-be allies rapidly degrading into didn’t-have-to-be enemies.

Three specific problems come from this. First, Trump seems pathologically unwilling to even take baby steps in the forging of an international coalition as regards, well, anything. Even low-hanging fruit like Britain and Australia have often been not just ignored, but deliberately repudiated. This whole thing has the feel of a knee-jerk, internal political decision even though most of the outcomes will be felt on the field of global strategic alignments.

Second, because so many people think so little of the American president, when he does act very few take him seriously. Never before in modern history has the most powerful man of the most powerful country with the most global economic and military leverage been thought of as so weak. In part it is because most feel the Americans would never seriously endanger the global order (which is a view as stupid and seeped in wishful thinking as it is widely held). In part it is because Trump never demonstrates follow-through (which is fairly accurate) so no one feels the need to plan for the worst. But all of that ignores the fact that Trump is the most powerful man of the most powerful country with the most global economic and military leverage and if he chooses to use that leverage, however inexpertly, then look out!

Third, considering the global nature of most modern supply chains, any America-First-themed trade war is a trade war with the entire international system: rivals, but also allies, with every action rippling throughout the entire global order. A global recession is absolutely guaranteed and based on how fast and heavy Trump lowers the boom, this could well be the singular action that drops the world into the Disorder that I often speak and write about.

Finally, do not underestimate just how fast this unravelling can happen. One of the few points of Trumpian consistency is his White House’s desire to “get better deals” in trade bodies while systematically undermining those same bodies. For example, the new American steel tariffs will do the most damage to Canada, a country that the Americans are hip-deep in negotiations with on the future of NAFTA. Or there’s the WTO which the Americans are attempting to overhaul, yet they have refused to allow the confirmation of the judges within the body’s appellate courts which hear trade disputes – rendering the entire organization impotent to deal with rising trade tensions.

For those of you who remember, in the Accidental Superpower I expressly noted that the global system was so fragile and counter-intuitive and out-of-date that it was a waste of time to guess what specific action might cause it all to crash apart. An American-initiated trade war is perhaps one of the ways to destroy it most quickly and thoroughly. I believe I referred to it as the “American bad hair scenario.” And so, here we are.

And here we go.

The Turks Return

Thousands of Turkish troops poured into the northwestern Syrian province of Afrin in recent days. Turkish Prime Minister Tayyip Erdogan promised that the deployment was only the start of a broader effort that would see Turkish forces sweep the entirety of northern Syria – all the way to the Iraqi border – in order to purge Syria of forces hostile to Turkish interests.

Under pretty much any circumstances, the entry of a new power into a multisided melee that involves the Syrian Alawite leadership, the Lebanese militias, the Iranians, the Russians, the Americans, the French and dozens of local warlords when that new power alone has more armed combatants within arm’s-reach than all the other factions have in-theater put together would be notable. But the kicker is that this is only the first of three relevant facts.

The second is that the world has forgotten just what “Turkey” means.

The Ottoman Empire’s fall in the First World War (1914-1918) was far more than a mere military defeat. For much of the previous millennia, Istanbul had been the world’s economic and cultural capital – the crossroads not just between Europe and Asia and the Black Sea and the Mediterranean, but between everything that mattered. At war’s end the country suffered not just an economic depression and loss of nearly all its imperial territories, but crushing humiliation on every conceivable level. At one point it got so bad that dysfunctional, tribal, underequipped Greece even staged a brief invasion. It would be as if the United States didn’t just lose a war, but had all its territory west of the Appalachians amputated and divided among other countries, and then somehow the Puerto Ricans marched on Atlanta.

In the aftermath, Turkey’s response was to close itself off from the world, lick its wounds and struggle to forge a new identity. Two factions eventually emerged as heirs to the empire: a secular, military-rooted group that sought integration with Western structures; and a mildly Islamist, more Orientalist faction who saw advantages of the non-Western way of doing business whether that be the centralization of the Soviet/Russian system or the dynastic, clan-based communities of the Arab world. Put simply, one faction favored the military and economic patterns of the West, while the other preferred the cultural and political styles of the East.

While this soul-struggle ebbed and flowed through the Cold War decades, the Turks realized they were simply too broken to stand on their own. One result was reluctant inclusion into the NATO alliance. Another was a partnership with the Europeans that stopped short of formal European Union membership. But beyond those narrow topics, the Turks kept to themselves.

Istanbul, Turkey

There are a few thoughts to take from this:

  1. Even in times when the Turkish soul was most divided against itself, both factions maintained a firm belief in the unique nature of Turkishness – a self-identity that is far less compromising than that of most peoples. Even the most ardent pro-Western secularist never saw Turkey being the same as the West, just as even the most Islamist Orientalist always considered Turkey as being apart from (and above) the Arabs, Persians and Russians. American commanders operating from Turkish bases consistently and unequivocally warned their troops that on Turkish soil you follow Turkish law or else you end up in a Turkish prison and there’s not a damn thing that American military lawyers can do about it.
  2. Since 2000 the Islamists/orientalists haven’t simply won the culture contest, they’ve won so decisively they’ve eliminated the secularists from nearly all walks of Turkish life. Ruling Turkish Prime Minister Erdogan has also purged the ranks of the Islamists themselves so that his particular version of Orientalism will remain the ruling ideology of Turkey for decades to come. Turkey is once again of a single, consolidated, confident voice. If you don’t like its tone and timbre, well, you missed your opportunity and you’ll have to wait for the wheel of history to turn once more. Last time that took a century.
  3. Turkey in general and Erdogan in specific are only now making their first steps as an independent power in their neighborhood. In a neighborhood made up of the Balkans, the Caucasus and the Middle East the margin for error is thin, the opportunities for missteps are omnipresent, and complications that will take decades to sort out are all but guaranteed. Between the neighborhood’s volatility and the twin, potent egos of Turkey as a nation and Erdogan as a leader, Turkey has become an erratic force in the regional geopolitic.

Much as America’s remoteness from the Eastern Hemisphere coupled with its naval prowess means that American power doesn’t matter until suddenly it does, Turkey’s century of self-imposed isolation combined with its 600,000-strong army means that the Turks are roundly ignored until they suddenly and unexpectedly show up.

As they are now in Syria.

The final issue is that the Syrian war is no longer some tangential issue for the Turks. It has been elevated to an issue of national survival.

Part of Turkey’s post-WWI cultural reflection was a dismantling of its old multi-ethnic imperial Ottoman identity and its replacement with a far narrower emphasis on ethnic Turks specifically. If you’re Turkish this of course makes perfect sense. If you’re of one of the few other nationalities that live in Turkey, however, it is somewhat problematic. The largest of these “other” groups are the Kurds, who started out as second-class citizens (at best). Over the decades some Kurds didn’t simply resist, they revolted, with the more militant ones forming the PKK – a quasi-terror rebellion group under the leadership of one Abdullah Ocalan. Conflicts between the Turkish government and Ocalan’s PKK have claimed tens of thousands of lives.

Another armed Kurdish faction – the YPG – is active all along the Syrian side of the Turkish-Syrian border. They are by far the most competent fighters battling the Syrian regime in the civil war, and have often served as reliable proxies for American efforts against both ISIS and Damascus. The YPG has proven itself united, capable, loyal and ultimately effective at breaking ISIS not simply in the Syrian periphery and ISIS core territories, but right up to and including ISIS’ capital at Raqqa. The YPG is the centerpiece of America’s Syria strategy, and American success against ISIS would have been fundamentally impossible without the YPG.

 

The fact that the YPG is Kurdish and that YPG’s presence is right on the Turkish border was enough to make the Turks nervous, but YPG actions at the Raqqa battle chilled the Turks to their core. At Raqqa’s moment of liberation from ISIS, YPG fighters replaced the ISIS flag with the personal standard of none other than Ocalan himself.

Turkey cannot and will not tolerate a PKK-leaning Kurdish statelet on its border, and so Turkish troops have rolled across the border.

They haven’t moved alone. Turkey has mobilized every Syrian faction over which it has influence. Beginning in late 2016 the Turks assumed functional control over the Free Syrian Army, transforming a ragtag coalition of local Arab and Turkmen fighters into a direct Turkish proxy. The “Army” is operating hand-in-glove with Turkish forces… against the American-backed YPG.

Turkey is now not only the most powerful faction in the conflict, it is putting its back into the war, and it is motivated by a deep-seated fear to the coherence of its national identity. This is not the stuff of which compromises are made. And the Turks are now not just standing against the Americans, but literally firing artillery into the very heart of the Americans’ entire Syria strategy.

It is my belief that the NATO alliance ended back in 2017. It is a position which I’ve seen no reason to amend, but what is occurring now in Syria is a whole other level. Two NATO “allies” are not simply having a disagreement, but they are shooting at one another’s assets in a conflict that one of them defines as an existential crisis.

Many have commented that a meaningful breach between the Americans and Turks would spell disaster in Washington’s ability to manipulate the Middle East and hold Iranian and Russian power at bay. I don’t necessarily disagree with those concerns, but they miss the broader issue:

Turkey, the Middle East’s most powerful player who is far more economically and militarily potent than Iran and who could even stand up to the Russians in a fair fight, has returned to the world as a fully independent player. With the Russians, Turks, Iranians and Saudis all gearing up for a battle royale, the United States has already achieved everything any sane Middle Eastern policy could ever hope for: The region is divided against itself and will marvelously self-contain for decades.

The United States has no meaningful interests in Syria. Israel is safe. Iran is locked into a combat it cannot possibly win. The United States no longer has a stake in the region’s oil. And the newest power player – Turkey – just made an open-ended commitment to a multi-sided land war. There has never been and likely never will be a better time for the Americans to disengage.

So what’s the problem again?

From Tel Aviv to Jerusalem

The administration of US President Donald Trump declared December 6 that from now on the U.S. government would recognize the city of Jerusalem as the capital of Israel. The result has been quite the political cacophony, with condemnations from Trump’s traditional opponents across the United States, a wide bevy of countries – particularly those in the Middle East with an Islamist bent – and throughout the United Nations system.

So what’s the big deal? Israel has held all its capital business in Jerusalem for decades, but nearly all countries run their embassies out of Tel Aviv. The issue is regional politics. Israel conquered the bulk of the city of Jerusalem in wars that occurred after its modern founding in 1948, and as the city is important for three mainline religions, it is often also considered the capital of the once (and future?) Palestinian state. By claiming Jerusalem, the Israelis are not all that indirectly claiming that the Palestinians cannot have it. Trump’s recognition similarly implies that the United States has given up on any meaningful two-state solution, instead siding wholly with Israel – the Palestinians be damned.

As such, the issue of embassy-placement and capital-recognition has been a hot button topic in all things Middle Eastern ever since Israel declared Jerusalem the united capital of Israel in 1980.

But before we condemn or extol the virtues of the Israeli government or the Trump administration, let’s keep a few things in mind.

First, there is not one Arab government that loves the Palestinians. Though maybe not for the reasons you’d think. Before 1948, the Palestinians were the forward-thinking, secular, economically vibrant jewel of the Levant (and by extension, the Middle East). Geography and ports made them a cosmopolitan capital, and a religiously and ethnically diverse population – reflected by Jerusalem – ran contrary to what we see in Wahabbist-states like Saudi Arabia or Shia-hardliners in Iran. As such, they earned the envy or worse of Arab governments everywhere who considered the Palestinian way of life a threat to the fabric of nepotism that was the regional norm. When the Israelis displaced those Palestinians – first in their Independence War of 1948 and later in the 1967 and 1973 wars, the fervor of the celebrations in some Arab governing institutions was only matched by the hypocrisy of their condemnations. So something happening now that heats up the Palestinian issue isn’t really something that any Arab governments feel is particularly problematic. (That is, outside of those countries who host a large Palestinian diaspora and so see riled Palestinians as less something to be encouraged than to be contained.)

Second, the Israelis have physically – and unilaterally – altered their relationship with the Palestinians during the past fifteen years. There is now a thirty-foot-tall concrete wall with precious few access points separating Israel proper from most Palestinian-controlled territories. Even if every Palestinian could simultaneously grab a gun and charge the nearest Jew all at once, the Palestinians simply lack the access to do much anything more than scream. Palestinian suicide attacks dropped off to almost zero not because the Palestinians had a collective change of heart about all things Israeli, but because they are on the other side of an uncrossable barrier. If there is a third intifada, it will rage in Palestinian lands rather than anywhere that the Israelis (or anyone else) cares about.

Third, there is less than a zero chance of a war erupting because of this. Syria is in civil war. Libya is a farce of a non-state. Lebanon is edging into (another) civil war. Iraq is shattered. Jordan is a satellite. Egypt is folding in upon itself into an isolationist dictatorship. Saudi Arabia and Iran are fighting a not-quite-cold war. Groups like al Qaeda and the Islamic State are at war with other Muslim entities; they cannot and have never been able to get at Israel. Sure, groups like Hamas (based in the West Bank) and Hezbollah (based in Lebanon) will continue to lob rockets into Israel, but no one in the region has the capacity to even obliquely threaten Israel with invasion. Israeli diplomats would never say this on the record, but this is the best strategic situation the Jews have been in since the decades immediately after Moses.

Finally, there isn’t an Israeli-Palestinian peace process to protect. Any possible peace between the two peoples require unified positions on both sides in favor of rapprochement – and an underlying strategic or at least economic reason for that rapprochement. None of that currently exists. The Israeli government sits fairly hard to the right and isn’t about to trade land for peace when the wall gives Israel all the peace the government thinks they’ll ever get. The Palestinian “government” is split between Hamas in the Gaza Strip, which favors taking the fight to Israel, and Fatah in the West Bank, which is indirectly on the Israeli payroll. The wall also eliminated the role of Palestinian labor in the Israeli economy, reducing the Palestinian territories to open-air prisons completely dependent upon Israeli power infrastructure and international handouts for operation. About the only institution keeping the “two state solution” alive is the United Nations, and even UN efforts are little more than going through the motions.

Shifting Saudi Sands

The Saudi Arabian sky is falling… or at least that is the tone being set by the mainstream media. In a broad-scale “anti-corruption” action over the weekend Crown Prince Mohammad bin Salman (MBS) arrested 11 senior princes, 4 current ministers, and dozens of others across the country’s military, political and business elite. Most appear to be held in the Riyadh Ritz-Carlton (which isn’t taking new reservations until December 1 in case you are planning a trip).

MBS has only been the Crown Prince since this past June, and his father has only been king since 2015. In the past, Saudi Arabia has been ruled by private consensus among many members of the House of Saud. Seeing any bit of what happens behind the curtain – much less something as notable as mass detentions of the American equivalent of senior senators and cabinet secretaries – feels and sounds like upheaval.

It is upheaval. But please keep in mind that there is no such thing as “normal” in Saudi Arabia.

Saudi Arabia is a relatively new monarchy. As such, I find it less than helpful to discuss topics like succession “tradition” and how things are “supposed to be.” The country is an absolutist monarchy that has only ever had seven kings, the second of whom was deposed, the third fell victim to the hands of an assassin, the fifth suffered from dementia and let his crown prince run the place in his name while he shopped in Switzerland (for the better part of two decades), and the seventh (the current one) is likely too physically and mentally frail to run the county.  A “normal” day in the life of Saudi Arabia is anything but.

What this does look like is a new, young leader – one Crown Prince Mohammad bin Salman – attempting to firmly establish just whose country this is. In a word, his.

Riyadh, Saudi Arabia

And this isn’t Phase I. That was when he dished out some $5 billion in bribe- er, cash payments to Saudi families and the military at a time when oil prices were plummeting. In doing so he discovered just which branches of the family could be bought.

It isn’t even Phase II. That was the Yemen war when he started the process of establishing the military as a power node loyal to his person. (That MBS is the world’s youngest defense minister doesn’t hurt.)

This is more Phase III. Figuring out which family members cannot be bought or flattered, and putting them in a (velvet) box to see who cracks. The media has lost its mind a little bit because one of those detained is Prince Al-Waleed bin Talal, long a major (and loud) personality in the Western investment and media community for his large stakes in everything from Citigroup to Facebook and Twitter. Within Saudi Arabia, however, al-Waleed is simply a buzzing annoyance. The most significant thing about his detainment is that we (thankfully) won’t have to hear about him for a while.

Far more important are two sons of one of the country’s previous kings: Princes Mutaib and Turki bin Abdullah. While neither have direct claim to the throne, Turki is/was governor of Riyadh Province and the manager of his branch of the family’s money, while Mutaib is/was commander of Saudi Arabia’s National Guard – one of the country’s few tools of hard power that MBS does not (did not?) already control directly. (In a bit of delicious irony that is no longer possible in Western democracies, the National Guard’s primary responsibility is protecting the ruling family against coup attempts.)

What’s happened so far has been MBS being nice. Next will come Phase IV – using heavy and/or sharp objects on those who refuse to bow to the Crown Prince’s vision.

The importance of this process should not be trivialized. There are tens of thousands of members of the extended Saud family, with in excess of 2,000 princes of reasonable power. Before now Saudi Arabia’s rulers have placated many of them with the hope that they or their progeny would hold a governorship or high-ranking ministry or perhaps even be in line to rule. Salman’s appointment of his son to the position of Crown Prince leapfrogged literally dozens of potential rulers, brutally ending that pleasant fiction. MBS is only 32, so barring poison, bullets or something of similar unpleasantness, MBS will rule the country for the better part of this century. In my opinion, he’s already been ruling the place since his dad became king.

Al-Masjid an-Nabawī Mosque in Medina

In my last newsletter, I discussed how personalities rarely matter in the world of geopolitics… except in the moments when they do. Mohammad bin Salman is not yet king and there’s no way I can guarantee that he will be or, when he takes the throne, he will be successful in his endeavors. But what I do know is this: that despite its relative wealth, Saudi Arabia is one of the most staggering collections of geopolitical weaknesses in the world. It is a slap-dash fusion of desert hicks elevated by the British to royalty, fused to one of the world’s most backwards-looking and violent political ideologies, who rule over a largely uneducated population that lives in a trackless desert fueled by but a single commodity that is sold in markets far beyond their reach, that find themselves standing against some of the world’s powerful nations (Russia, Iran and Turkey). And the one country that has traditionally protected them – the United States – no longer finds that singular commodity particularly useful.

This is not a recipe for success. MBS has upended the country’s go-slow consensus model largely because he has no other choice. He needs unity, or at the very least, loyalty. And he is hardly the only world leader to realize that saying “please” doesn’t necessarily get you where you need to go.

China needed Mao to gut a corrupt bureaucracy, Deng to catapult the country out of terror into the 20th century, and now Xi to forcibly unite what’s left. India’s Indira Gandhi smooshed the various disparate elements of her country into a mostly-modern, largely-meaningful whole. The French and English fought multiple civil wars over what it would mean to be French and English – names like Joan and Napoleon and Elizabeth and Victoria are celebrated for good reason. Even Lincoln is well known for prosecuting a brutal conflict as a means of unifying a country that after four-score-and-seven-years had yet to gel. Blessed are the few that can do it without violence, but not everyone can be New Zealand or Singapore.

For many countries – Saudi Arabia among them – the cold, hard geopolitical reality is that the only way to successfully cobble together a cohesive modern state is through strong, direct leadership and the consolidation of authority. Considering the proto-tribal nature of Saudi politics, the only bit that surprises me is how civilized the consolidation of Saudi Arabia has been to this point. Don’t count on the calm lasting.

Asian Pivot Pending

By Peter Zeihan and Michael N. Nayebi-Oskoui

There are many things that geopolitics teaches us. One of the more important lessons is that personalities rarely matter. The fate of peoples and nations are largely determined by a mix of geographic features that they cannot amend, and technological trends that are damnably impersonal.

The operative word there is rarely.

There are instances where the cultural zeitgeist and the singular attributes of certain individuals intersect so elegantly that the political or cultural changes that follow emblazon themselves on history.

But we’re reaching a point within two of East Asia’s powers where it seems like the impact of personality is tipping the scales. There were two noteworthy events that took place during the past few days. The one that is getting the most attention is the ongoing National Congress of the Communist Party of China. It’s wrapped up in a story that media and policy experts love to tell: Chinese President Xi Jinping has burst onto the scene, quickly and deftly amassing authority and shaking up the Chinese Communist Party apparatus, and elevating China to global prominence. Demolishing various factions and pursuing an almost-legitimate anti-corruption plan, Xi is the very popular and surprisingly astute leader to guide China through its unavoidable economic slowdown. Part of which is true, I suppose, and part of which is just really glossy PR bullshit.

There are a few key fundamentals that are absolutely necessary to keep in mind when looking at China:

  1. China as a culture and a historical concept are ancient, but the “Chinese people” and their amalgamated histories are not the same as the “People’s Republic of China,” which is also distinct from the “Communist Party of China.” Part of the Xi myth is attempting to make those three labels synonymous in everyone’s minds. That flies in the face of millennia of Chinese history, but hey, PR has to start somewhere.
  2. The current iteration of China is predicated on many things, but chief among them are employment and a national safety net overseen by the party. In turn that employment and safety net are predicated upon Chinese access to international markets, both for resource imports and the income that comes from merchandise exports.
  3. China’s geography is atrocious. Less than one-fifth of its land is habitable. Its flood- and drought-prone north is a flat security free-for-all that has suffered nearly three millennia of incessant internal warfare. Its south is a tropical disease belt. All but one of its rivers are too moody to help with commerce. Its interior is alternatively desert, mountain, tundra, jungle – or some brutal combination thereof. A line of archipelagos parallel its coast, all but preventing military or economic interaction with the wider world.

With that in mind, it doesn’t really matter so much if Xi is an anti-corruption reformer, a savvy consolidator of power, or re-establishing a cult of personality to rival that of Mao Zedong himself (my money is on the latter for those of you keeping score). If he can’t sell his schtick to the masses, well… in a country of nearly 1.4 billion, everybody’s expendable. And so we can’t lose sight of the fact that Chinese media, international outlets – everybody – focuses on Xi’s popularity, especially among China’s urban youth. And it is this popularity (or the belief that its constant repetition confirms its veracity) that provides the political currency for Xi to act like almost every other leader in Chinese history and create a political leadership and patronage structure that entrenches his own power.

That he has certainly achieved. China’s Communist Party holds a big meeting every five years, ostensibly to cement the country’s development plans and party leadership changes. In reality the meeting serves more as a clearing house, disseminating information and decisions made well in advance. Despite all the speeches about China now being “the” world power, the real reveal was supposed to be Xi’s nomination of his successor. Tradition tells us that a Chinese premier serves for five years, nominates his successor, and China then has a five-year leadership transition period.

Xi didn’t simply nominate himself to succeed himself, he enshrined himself into the Chinese constitution so there’d be no doubt just who was in charge. The Party Congress was a Trumpian celebration of Xi. A bit much, n’est pas?

The problem Xi sees is that China’s economic success has very little to do with China… or the Communist Party… or even Xi. China as it exists today is only possible because of the global Bretton Woods economic order Washington has upheld since the end of World War II. Simply put, a land-based power with some of the longest supply chains in the world cannot exist as a manufacturing and export powerhouse unless someone with a global navy enables it. That someone has been the United States, who has guaranteed the safety and security of the goods flowing to, from, in and out of Chinese ports, and who has offered largely unfettered market access for decades. With that in place, the specifics of China’s rather horrid geography haven’t mattered. That’s enabled Beijing to employ millions and millions of people in factories to make widgets and gadgets, and employ even more to feed China’s urban factory populations and to build roads and houses, etc. etc. etc.

But the Americans are going away, and they are taking the Bretton Woods system with them. China’s current economic slowdown is nothing compared the dawning tragedy it will experience during the emerging global disorder for which Beijing is terrifyingly ill-suited. When viewed in context, I don’t see Xi’s surpassing Mao to become the most powerful leader in Chinese history as an event driven by an excess of confidence, but instead an increasingly desperate effort to completely lock down the Chinese political space before the covfefe hits the fan. China is running out of time, and Xi knows it.

So I don’t get excited or worried about China taking over the world, or even its neighborhood, as I do about Japan. While most of the world had eyes on Xi’s celebrations, Japanese voters braved a hurricane over the weekend to participate in parliamentary elections, granting incumbent Japanese Prime Minster Shinzo Abe a commanding majority. Sure, Xi Jinping is disrupting and reshaping Chinese political corruption to better suit him, but why don’t we talk about how Shinzo Abe was able to get his anti-war, Buddhist coalition partners to support his efforts to expand the role of Japan’s military forces? It is Japan, not China, that boasts the world’s second most capable navy. It is that navy that is second only to the United States in the number of aircraft carriers floated (Japan claims those carriers are only for helicopters but that is, if you’ll forgive the repeat, just some more PR bullshit).

Nor do I understand the lack of excitement over how the Japanese, (in)famously fickle when it comes to sacking Prime Ministers, have stuck with Mr. Abe through three concurrent rounds of parliamentary elections. It’s also worth noting that Abe is the first Prime Minister since the American Occupation ended to serve non-concurrent terms, even as he seems likely to coast toward becoming the longest-serving leader in modern times. The Japanese government under Abe has attempted several painful economic reform initiatives – and the fact that Abe has remained in power to oversee more than one strategy is a testament to not only his singular staying power but the trust the Japanese people have in his vision. But perhaps most important is the shift in Japanese society toward a more nationalistic, assertive position both regionally and globally.

That will make the region decidedly sparky. Unlike the Chinese system which is based on backroom-manipulation, globe-spanning economic links, suppression of minorities and carefully-sculpted public relations, Japan is a vibrant democracy with no minorities to speak of that has relocated most of its industrial base to the territories of its foreign customers and a boasts a leader who is genuinely popular despite (because of?) his increasingly militant stances.

This shift isn’t happening in a vacuum. As North Korea increases its provocations, as China is an ever more belligerent actor in its various littoral waterways in order to stoke nationalism at home, and as the United States seeks to diminish its global presence, it’s Japan that has the correct mix of geopolitical underpinnings, unique leadership personality, and national character to pounce on the opportunities ahead.

China is still the world’s second largest economy, the biggest by population, and its domestic (d)evolutions will certainly cause international ripples. But Beijing will remain constrained by its domestic concerns as its economy remains tied to a disappearing global order it cannot hope to replicate, not even – especially not even – in its own neighborhood. But while the world has eyes on China, mine (and I imagine many of those who attended the Chinese Communist Party’s Congress) will be fixed squarely on Japan.

Revisiting Iran

By Peter Zeihan and Michael N. Nayebi-Oskoui

The White House has been strongly hinting for two weeks that President Trump is unlikely to “re-certify” the Joint Comprehensive Plan of Action (JCPOA) or as it’s better known, the Iran Nuclear Agreement. The emotions from across the political spectrum range from jubilation to outright hysteria though, it’s important to note, the reactions don’t fit neatly within American party lines (plenty of Democrats had to be strong-armed into supporting the deal, and more than a couple Republicans believe it is in America’s interest to stay within the accord). The reality of the matter is much more complicated, though I believe it’s safe to tell everyone to take a deep breath and calm down.

A quick and dirty discussion of the mechanics of the JCPOA are in order. Technically speaking, it’s a non-binding political agreement (remember the Paris Climate Accords?). The Iran Nuclear Deal is not a treaty. It’s a series of interconnected agreements and a complex set of verification steps and was designed to make it easy for the United States to pull out or re-apply sanctions on Iran at will. To that end, the American president has to re-certify the agreement every 90 days, as well as sign off on a series of sanctions waivers that cover periods of time from a couple of months to a year. We’ll come back to this part.

The agreement, however, was approved by Congress, and in the event that President Trump or any of his successors decide to refuse certification of the deal – essentially declining to admit that Iran is holding up its end of the bargain – Congress has 60 days to attempt to change portions of the JCPOA they disagree with or (re)apply sanctions both old and new.

That last bit about sanctions is where things get tricky, before we even get into the fact that Congress couldn’t get anything done in 60 days in a normal political season, let alone when they’re racing to hammer out a budget and attempt to forge some sort of tax reform deal. The JCPOA and the Presidential waivers cover a web of sanctions that are both those passed by Congress and those that came into effect via executive order. The latter is where Trump could snapback previous executive sanctions and apply new ones if he feels Congress isn’t taking Iran to task as much as he’d like.

There are other complicating factors here, namely the five other nations who are members of the accord (including a France that has steadfastly refused to renegotiate the terms of the deal as its companies race to access Iranian energy plays and the third largest market in the Middle East). Europe as a whole and France, Germany, and Britain in particular are loathe to re-enter a difficult and prolonged negotiations with the Iranians given all the other problems they’re dealing with (like Russia, Merkel’s declining power, and an overhaul of the socioeconomic pillars of political life…  just to name a few), and traditionally have had a much easier time dealing with Tehran than the Americans.

At the end of the day, though, not much is likely to immediately change. There is a strong argument to be made that it’s bad for America’s long-term interests to be seen as an unreliable partner to international agreements as well as further alienating EU/NATO partners, but the most likely scenario is that President Trump refuses to certify, the US Congress gets busy doing nothing, and that Iran continues trading and dealing with Europe, Russia, and China. Meanwhile, the US create a unilateral sanctions system to target Iran – perhaps with secondary sanctions to target European and Asian players who are doing business with Iran. That’d return us to the status quo ante that defined the US-Iran relationship for not only much of the Obama administration, but also the past four decades.

So… now what? If the US is serious about disengaging from the Middle East—and the relatively standoffish (in terms of the US response) American action in Libya, Syria, post-ISIS Iraq, and Yemen are goods signs that the US is indeed serious—there are few realistic options on how to contain the Middle East quagmire.

Option one is to establish a regional balance of power. This requires encouraging Turkey to be an independent actor rather than a state that is a mere adjunct of NATO (check), turning a blind eye to Saudi Arabia’s tendency to spawn Sunni terror groups (check), and somewhat rehabilitating Iran in the international community so that it can counter the other two. That last was the Obama administration’s rationale for the nuclear deal in the first place. The advantage of this route is that the region’s various players become locked into a never-ending death struggle that so consumes them, they lack (ideally forever) the freedom to act out-of-region.

Option two – which appears to be Trump’s preference – is to anoint one of the three major players to run the region in the Americans’ stead. Those of us who remember the heady days of sword-dancing and orb-touching from President Trump’s earlier visit to Saudi Arabia will not be surprised to hear that the likely beneficiary of the Trump administration’s emerging Middle East policy is Riyadh. What’s more important is that Riyadh certainly thinks so, too. From lip service moves such as allowing women to drive, to staging a practice war against mountain-bound Shi’ite-aligned rebels in Yemen, to buying-off and/or strong-arming regional Arab competitors such as Egypt and Qatar, the Saudis are certainly trying to set themselves up as the regional powerhouse.

But Saudi Arabia is an odd choice. It is a desert country completely dependent upon oil sales, predominantly to a China that hopes to challenge US hegemony in the Pacific. It is the only of the three that is not a democracy, and shows zero interest in even considering shifting its domestic politics in a liberal direction. It’s primary foreign policy strategy is to spam out militant groups to turn its rivals’ neighborhoods into post-apocalyptic carnage zones (its hands were in the rise of al Qaeda, the Taliban and ISIS). Between its deliberate lack of civil society, its brittle political culture and its monochromatic economy, it simply doesn’t have any of the “normal” levers of power that would allow it to be a regional hegemon without a great deal of ongoing help.

And if it needs a great deal of ongoing help, that doesn’t really mesh with the core American desire to get out of the region.

NAFTA’s Witching Hour

We’re about halfway through the NAFTA (North American Free Trade Agreement) talks and things…have taken a turn for the worse.

Let me back up a bit. Wherever you land on the issue of trade and U.S. engagement with the broader world, there are a few key truths:

For the United States, trade has only rarely been about trade. It has instead been about security. The Americans created the global trade order at the end of WWII to bribe up an alliance to fight the Cold War. The Americans subsidized their allies, granting access to the U.S. market and safe sea lanes, and in exchange those allies gave the Americans security deference to battle the Soviets the American way.

The Cold War is long gone, but the Americans never adjusted their strategy, resulting in a steady bleed of political support for a security policy that is now three decades out of date. One result, among many, is a broadscale shift on the American Left (Bernie Sanders and Elizabeth Warren) and Right (Donald Trump and Ted Cruz) towards populism, broadly discrediting the very concept of free trade. It’s understandable: why continue subsidizing the allies if the war is long since over?

So that’s the big picture. Let’s look at some of the specifics:

Most of the United States’ Eastern Hemispheric trade is wrapped up in rules run by the (U.S.-designed) World Trade Organization, which among other things provides the legal and structural baselines for trade with the European Union and China. Other pieces of the global trade portfolio are based on bilateral deals with key allies – think South Korea, Australia, Morocco, Jordan, Israel, Singapore. For the most part, economic rationale was not the driving force in any of this. The deals designed to cement strategic alliances, either as incentives to cooperate (the WTO) or as a reward for consistently loyal behavior (Australia).

With the Americans changing their internal weightings on the trade-vs-security question, all such deals are subject to re-evaluation. Since none of these deals were made with economic linkages in mind, the U.S. government never prioritized making such linkages. In percentage terms, the United States remains one of the least internationally-wired economies in the world, so the economic consequences to the United States for walking away from those deals are somewhat limited.

NAFTA has understandably gotten caught up in the anti-trade tirades, but NAFTA is notlike America’s other trade deals. It was never part of the global trade-for-security trade-off. Its primary purpose was to deepen and broaden American economic penetration throughout the North American continent. Nearly unique among America’s trade deals, NAFTA wasn’t about security. It was actually about trade. Today, roughly 30% of America’s entire trade portfolio is within NAFTA.

The result has been a complex entanglement of the economic and political fortunes of the three signatories. Manufacturing supply chains now crisscross the two international borders at multiple points in multiple industries with the deepest integration occurring in automotive, aerospace, electronics and agriculture. Regardless of what you think of the balance of such integration or how well/badly NAFTA was negotiated by the George (no W) Bush administration, an outright severing of such links would have horrific results.

  • The United States and Canada would suffer a deep recession. Texas, the state most dependent upon trade with Mexico, would be worst hit.
  • Mexico would suffer a flat-out depression. The United States is the end-destination for four-fifths of its exports.
  • Economic calamity would uproot millions of Mexicans from their jobs. One of the great NAFTA success stories is the creation of a Mexican middle class where there didn’t used to be one. Throwing these people back into destitution would trigger the greatest migration surge in Mexican history, and there is really only one place for them to go: north.
  • Ending NAFTA would enflame the North American drug war. Part of the reason why the Mexican cartels have expanded so slowly (feel free to read that again) is that NAFTA has bolstered the living standards of tens of millions of Mexicans. Deny those Mexicans the ability to earn a living by trading with the United States and Canada and the cartels will find their recruitment and bribing operations far easier. And not just on the south side of the border…

It isn’t that a NAFTA renegotiation doesn’t makes sense, it does; NAFTA is a quarter-century old. When it was implemented the Internet didn’t even exist. An update is perfectly logical. Necessary even. And since the United States is far better at all things tech-related than either Canada or Mexico, a meaningful update would certainly address things like the trade imbalance that so impassions so many of NAFTA’s US-based detractors.

But simply uprooting NAFTA would be a catastrophic mistake for the American economy. Add in Texas’ reputation as an anything-but-liberal state with 38 electoral votes, and I’ve always assumed that in time cooler heads would prevail and that NAFTA was never in any real danger.

But four things changed recently that have made me far more sanguine.

First, in Mexico the drug war is turning hot at exactly the wrong time. Violence is rising in areas very visible to the Americans, most notably tourist areas such as Cabo and Puerto Vallarta, and the border towns of Tijuana and Juarez. I expect the violence to surge in a few months in what is a quintessential example of bad timing: just as the NAFTA renegotiations are pegged to be completed, just as the new NAFTA documents will be presented to Congress for ratification, and just as the United States’ off-year Congressional elections campaigns kick off.

Populists of all stripes will be railing against free trade in general and Mexico in specific, just as record levels of gratuitous gunfire exchanges, beheadings and kidnappings just across the border populate local newscasts in San Diego, El Paso and Laredo. It will seem very attractive to many Americans to simply walk away from NAFTA altogether.

Second, Trump’s general anti-Mexican mood has put most Mexicans into a general anti-American mood. The United States is hardly the only country with inconvenient elections in 2018; Mexico’s presidential campaign is already heating up, and the full vote occurs next July. While calling an election this far out is silly, a bugaboo from Mexico’s past – one Andrés Manuel López Obrador – is polling disturbingly strongly. López Obrador is in essence the Mexican equivalent of a Trump-Sanders mashup when it comes to trade policy and bilateral relations. A López Obrador election wouldn’t simply crash NAFTA on the Mexican side of the border, López Obrador combined with Trump would sour every piece of the American-Mexican relationship. Everything from cooperation on the drug war to water rights would turn from today’s cold cooperation to pathological hostility.

Third, never forget that while Mexico and Canada are both eager to work with the United States, they view each other as the primary competitors for access to American markets and investment. That competition may well be getting more cut-throat than usual.

There are a pair of issues the Canadians have highlighted as make-or-break: tribunals and government contracting.

NAFTA’s tribunal clause manages disputes within the treaty’s competencies. Should a firm in one country feel it is being treated unfairly, it calls for a bilateral panel to adjudicate the dispute rather than suing in the court of the offending party. This keeps disputes out of often-slow and clogged courts, prevents countries from enacting protectionist measures that can fall back under the protection of their home legal system, and in general speeds and ensures the fairness of the dispute resolution. The government contracting clause is similarly straightforward: it codifies that governments cannot discriminate against non-national companies for contracts.

The Trump administration has very strong opinions on both topics: it wants the tribunals to go and it wants to be able to preference domestic companies for domestic government work (The White House calls the latter the “Buy American” provision.)

The Canadians have diametrically opposite positions. For them, the tribunal issue is a red line – both now and during the initial negotiations. They know that should disputes with the United States be remanded to U.S. courts, they’d either not have a chance or couldn’t stand the years-long appellate process. (Brian Mulroney, the Canadian prime minister during the original NAFTA negotiations, nearly closed off talks altogether over the tribunal issue.) And of course the Canadians would like for their firms to be able to keep taking cracks at servicing the U.S. government.

Which is why Canadian Foreign Minister Cristina Freeland has been playing hardball on both issues, to the point that by most reports the Mexicans are simply standing to the side while the Anglos slug it out. And by some reports it is the Canadians – not the Americans – who have stalled the talks altogether.

Which makes a sort of backwards sort of sense. While NAFTA is the issue for Mexico’s modern political and economic survival, for Canada the issue isn’t so clear. Equal access for both Canadian and Mexican manufactures to the U.S. market has cratered Canadian competitiveness; Mexican manufacturers have moved up the value-added chain quickly this past decade, while Canadian manufacturing – particularly in the Toronto region – has more or less stalled. Add in Mexico’s cheaper wage structure, and NAFTA is far more of a wash economically for the Canadians than it is for the Americans.

Yet, Canada has a separate free trade deal with the United States that pre-dates NAFTA. If NAFTA were to fail, Canada doesn’t simply have a fall-back, a tanked NAFTA would boost Canada in American markets at Mexico’s expense.

Cold. Brutal. Arguably very unCanadian. But damnably effective.

Fourth, back in Washington, NAFTA has lost its loudest cheerleader. There were never a lot of free-traders on the Trump Team, most of what few there were have already left the administration. The most prominent of the Remainers is Commerce Secretary Wilbur Ross.

The Commerce Department tends to view NAFTA from a data point of view, not a nationalistic one. A few weeks ago, Ross warned that NAFTA has not really deepened economic linkages among the NAFTA signatories, but instead has encouraged countries beyond North America to ship parts to Mexico and Canada, get a few tweaks made so that they qualify for the Made-in-NAFTA stamp, and then get shipped on to the United States. He argues that in all actuality, NAFTA has squeezed out American-made components not in favor of Mexican or Canadian components, but instead Chinese and German components. (His op-ed is here.)

If there is any truth to Ross’s concerns, then forget gut-nationalism and rabid-populism, the economic case for NAFTA suddenly looks a lot weaker. And even if all the data Ross cited is cherrypicked and/or questionable – and my left eyebrow is fully arched – anything other than full-throated praise from the Commerce Department lands NAFTA with a pretty damning problem.

Ross’s solution is to sharply update NAFTA’s rules-of-origin criteria, and hardwire a 5-year sunset provision into the agreement, forcing all three players to revisit and update NAFTA about once a president. It would be laborious, contentious and make NAFTA a political issue in all three countries All. The. Freaking. Time.

But if the emerging American position on trade is to ensure it doesn’t undermine local economies, and if the future of trade is that it can only occur with strong public support, that may well be the only way forward.

Mexico’s Next Drug War

Urban violence has been a stable feature of the news and politics mash-up of the past year or so. Whether it’s the murder rate in Chicago, or the threat of immigrants and the call for a southern border wall, or the civilizational threat of Antifa, it seems like there’s a lot out there to be spooked about.

Which makes it kind of odd that we’ve heard so little about Mexican drug violence as of late. The issue would play into hard right talking points regarding immigration, law enforcement, and The Wall™.

But, while there is certainly a lot of violence throughout Mexico still, things have quieted. The decline in violence since its peak in 2011 has been substantial and real – but it is not lasting. Violence is already very much on the rise again and Mexico is on the verge of a much more violent chapter in its drug war.

The story of these fluctuations in violence can all be told through the evolution of the Sinaloa cartel, by far the most active drug trafficking organization (DTO) in terms of smuggling and transporting activities within the United States. The cartel owes it success to a few key pillars:

  • Geography: Sinaloa has control over the Golden Triangle, a region in northwestern Mexico between the cities of Chihuahua to the north, Sinaloa on the Pacific coast, and Durango near central Mexico. The golden triangle is one of the few places in Mexico with a climate conducive to growing drug crops on a large scale. While that would be important income stream regardless, the real benefit is that all Mexico’s other DTOs are largely dependent upon transiting drugs from South America. Should something interrupt those supply chains, only the Sinaloa maintains independent sourcing. Meanwhile, the Sinaloa’s position on the coast also gives Sinaloa access to imported chemicals and other ingredients in producing synthetic drugs, which have become extremely important to cartel profits in recent years. In fact, the Sinaloa is in many ways a pioneer in pushing synthetics into the U.S. market.
  • Timing: The United States has been surprisingly successful lately in its anti-drug programs. Large-scale, domestic production of meth has all been shut down since a 2005 initiative against precursors. Marijuana began a path to legalization that has shifted a lot of production to the United States and out of the hands of cartels. Legal opioids were attacked head on, shutting down pill-mills and placing heavy restrictions on prescriptions. But this success has been ironically self-defeating. The Sinaloa was quick to take up meth production to fill the gap of lost U.S. production. And while legalization of marijuana certainly hurt the cartels, cutting into the profits of some DTOs by nearly half, it only drove Sinaloa to refocus its energies on local production of heroin.

  • Opioids: As a result, cheap heroin has flooded the markets to win back market share even as people in need of pain relief (or a fix) are willing to go to extreme measures to get now-less plentiful opioids. Complicating the picture, the Sinaloa has pioneered putting their heroin and synthetics into pill form and marketing it as counterfeit opioids, earning them a big new market across Middle America. Such heroin/opioid pills are a big reason why U.S. overdose deaths have tripled in recent years.
  • Structure and Tactics: The Mexican government began its crackdown on cartels in earnest in the mid-2000s and it has been broadly successful in carrying out a kingpin strategy. But as other cartels found their leaders picked off and their cartels fractured, the Sinaloa Cartel was able to continue uninterrupted due to its cellular structure and strategic use of intelligence. The head of the Sinaloa Cartel, known as El Chapo, was no street corner dealer. He excelled at managing the various factions within his cartel, encouraging them to experiment with new drugs (fentanyl) and new delivery mechanisms (heroin in “opioid” pill form), while discouraging them from engaging in petty crime – better to keep the Mexican government and Mexican population agnostic about Sinaloa activities. He was not afraid to play government forces off his rivals, supplying the government with both strategic and tactical intelligence on the other DTOs. And then there is simple mechanics: Mexico’s DTOs have proven so numerous and tenacious that Mexico City couldn’t possibly fight them all simultaneously. Why fight the Sinaloa if the Sinaloa is making it easier to fight the rest?
  • Border connections: By 2008, the Sinaloa Cartel was one of the most important DTOs in Mexico, but they didn’t directly control any of the border plazas. Plazas are not the quant city squares you might be thinking of, but key drug trafficking marketplaces or smuggling points. So the Sinaloa embarked on a campaign against the smaller but still powerful cartels who controlled the plazas of interest along the Northern border, most notably the Tijuana and Juarez cartels. What proceeded was the most violent chapter of the drug war to date as the Sinaloa literally fought in the streets to forcibly assimilate these cartels. It was during this Sinaloa consolidation effort that the city Juarez became the most violent city in the world.

And then, suddenly, the violent murder rate fell just as quickly as it rose.

As the other cartels faced inner-turmoil and a quickly changing market up north, El Chapo’s Sinaloa Cartel thrived and expanded as he gained a reputation for cutting down his allies. By 2014, Sinaloa was the major wholesaler in most American cities and Mexico had come under what came to be known as Pax-Sinaloa over a huge swath of Mexican territory. It wasn’t exactly rainbows and unicorns, but compared to the incredible violence of 2011 and 2012, Mexico was at peace. Juarez became safer than many large U.S. cities because the drugs could now flow without hinderance through the territory of a single (huge) cartel.

And this is the key point: the violence stops when someone wins.

The U.S.-Mexican Border

But that victory was short lived. Success in the plazas meant the Sinaloa could easily expand north of the border. By 2015 the Sinaloa was not just the top DTO in the world, but also the top organized crime group in the United States. El Chapo and the Sinaloa quickly became priority number one in the U.S. as opioid deaths rose to epidemic levels. El Chapo still had significant protection in Mexico, but he underestimated American interest in his removal. By 2016 El Chapo had been arrested (and escaped and re-arrested) and extradited to the United States. Bereft their leader’s sophisticated management, the Sinaloa immediately started to break down.

Which brings us to today. As the Sinaloa slides into internecine warfare, other cartels seek pieces of the Sinaloa’s empire; violence is again on the rise. The most important of these was a one-time partner of the Sinaloa known as the Jalisco New Generation Cartel. Based in the southwest, the Jalisco also has important geographic advantages, primarily in their control of the two most important Pacific ports as well as the synthetic drug capital of Mexico, Guadalajara. Their leader – El Mencho – lacks El Chapo’s diplomatic and personal touches. Instead he is more paramilitarily-minded, and more than willing and able to bring heavy equipment and advanced tactics to intimidate and/or eradicate his foes. He has formed alliances with several of the groups that El Chapo once sought to cut down and is continuing to take advantage of shifts in the American drug market. The Jalisco is far more violent than the Sinaloa ever was… and the Sinaloa were f’ing brutal.

The Jalisco started by taking advantage of the collapse of the Gulf Cartel in Mexico’s east, exacerbating the violence between the Gulf’s remnants and that of the Gulf’s former enforcers, the Zetas. Of late the Jalisco has barged into core Sinaloa territory, taking them on throughout the Baja Peninsula (ergo the Cabo violence) and especially the Tijuana border plaza. They are just now starting in on Chihuahua and the Juarez plaza. And within a year – unless the incredibly reclusive El Mencho falls to the kingpin strategy – the Jalisco will likely be in Nuevo Laredo as well.

That would put all the meaningful plazas in the hands of a single group that is arguably the most violent and organized major cartel yet. Even in the unlikely event that the violence does not spill over into the American side of the border, it will be very visible to Americans at a time when American-Mexican relations are already at a generational low.

Just in time for the NAFTA renegotiations to reach a critical point…