The final text of my next book, Disunited Nations, is through copy edit and deep into proofing. Within a few weeks advance copies will be heading out for media review. Full publication is scheduled for the first week in March.
I’d like to thank everyone for their support, assistance and endless needling about when the damn thing will be finished. The world is a dynamic, ever-changing place, and nothing that I do happens in a vacuum. Everyone’s questions and comments and threats help shape what I know and what I look at. Please keep it up.
My goal with Disunited is less to sketch out the world as it is or as I would like to see it, and instead as it is about to be. Today’s world is dizzying in its complexity, but at its core it is a single integrated system underpinned by the Americans. This era is ending. Soon the world will fracture into a host of competing systems. Some purely national. Some regional.
My book contract said I would explain this world in 80,000 words. Heh. That didn’t happen. My first draft was 180,000. I was firmly, if politely, informed that wouldn’t happen either. We compromised with about 120,000. The rest ended up on the cutting room floor.
Anywho, as a partial thank you to all you who have directly and indirectly supported my efforts, and to perhaps keep some of those of you who are more intellectually ravenous at least partially sated, I’m happy to announce the launch of the Cutting Room Files. During the next couple of months we’ll be releasing an open-ended series of newsletters cobbled together from various bits that didn’t make it into the final version of Disunited Nations, as well as some embargoed not-quite-pieces of my previous books – The Accidental Superpower and The Absent Superpower – that have been waiting for release for some time.
Should you feel so inclined, you can click the following links to pre-order Disunited Nations on Amazon.com, Harper Collins, and IndieBound. Link options for Accidental and Absent can be found here and here, respectively.
On October 7, U.S. President Donald Trump announced a partial withdrawal of U.S. forces from Syria. Soon after, Turkish forces began moving south across the border to strike Kurdish forces which had been until extremely recently under American protection. Two days later the partial American withdrawal was upgraded to a full evacuation of all forces.
Wailing and gnashing of teeth across the American political spectrum quickly erupted, with many condemning the tactical and political aspects of the president’s decision. I’m of mixed minds:
On the one hand, the Kurds – whether in Syria or Iraq – have been America’s only reliable regional allies since America’s first major confrontation with Iraq back in the early 1990s. When we have asked, they have answered. Every single time. In many cases U.S. forces didn’t even do the heavy lifting, but instead relegated themselves to providing intelligence and materiel support. Without the Kurds’ assistance the overthrow of Saddam Hussein would have been far nastier affair, post-Saddam Iraq would have been far less stable, the defanging of ISIS and the destruction of the ISIS caliphate would not have happened. In Syria in specific, the Kurds habitually provided at least five times the forces the Americans did.
On the other hand, the United States was always going to leave Syria. If the Americans were unwilling to commit 100,000 troops to the overthrow of Syria’s Assad government and its subsequent forcible reconstruction, then there was little reason to become involved in a decades-long, grinding multi-sided civil war.
The primary reason American forces remain in Syria at this point is to limit Iranian penetration. That battle was lost six years ago when then-President Obama allowed the Syrian government to cross Obama’s own red line on the use of chemical weapons against Syrian civilians. Obama made it crystal clear that any U.S. military action would be small scale, focused on Special Operations Forces, and largely dedicated to backing up the Syrian Kurds. Whether under Obama or Trump, an American withdrawal has always been inevitable. It’s just taken seven years of Syrian-Russian-Iranian victories on the battlefield and the large-scale dismemberment of the ISIS Caliphate to make it imminent.
Aside from the Iranian vector, American national and strategic interests in Syria are utterly nonexistent. Syria – even backed up by Iran – is a military pigmy that Israel could easily shatter. If Jerusalem really wanted to, it could roll into Damascus in a long weekend. (Sticking around, of course, would be a barrel of shiv-wielding monkeys.) American interests in Lebanon are less than American interests in Syria. Jordan has been a de facto Israeli client state for years. And that is quite literally all she wrote.
The far more important fact – comfortable or uncomfortable depending upon your view – is that the evolving American view of Syria is really little more than a microcosm of an evolving American view of the Middle East writ large. American troop deployments throughout the region have been plunging for a decade and are now down to about one-tenth of their peak. America now has more troops in Afghanistan than the rest of the region combined, and that deployment is well on its way to a complete phase out. CENTCOM HQ in Qatar will almost certainly be closed soon (you don’t need a forward command center if there’s nothing to command). The Iraq advisory force is leaving. Kuwait, once the launchpad for multiple wars, has been reduced to lilypad status. The Turks are certain to eject U.S. forces from the Incirlik base within a year.
Within two years the total regional deployment figure will be in the low-to-mid single digits of thousands, at most one-fifth of what is there today.
That sounds shocking and, considering it wasn’t that long ago that the Americans had a quarter-million troops in-region, it kind of is. But take a step back and look – really look – at the region, and it actually isn’t all that mind blowing.
Iraq is falling apart. Mass unrest is now entering its third week and if it continues along its current trajectory it risks bringing down the government. That isn’t “bring down the government” European-style which would mean new elections, but instead “bring down the government” in the post-Arab Spring style, which means an extended period of mass chaos, violence, and very likely a return to some degree of civil war. While it is true that Iraq has experienced cyclical public unrest since 2015, never has the regional climate been more tenuous, with Iran, Turkey, and Saudi Arabia openly involved in regional conflicts – meaning the normal balancing act between Iraq’s Shi’ites, Kurds and Sunnis (and their foreign backers) is over. Stabilizing this mess would require the Americans (re)injecting 100,000 troops. Far more likely, the Americans will remove the five-ish thousand troops which remain, taking the last thin reed of stability with them.
Iran is the regional bugaboo that most Americans fear. Since the end of the Clinton Administration American policy has held quixotic goals: we want the Iranian government gone, but we don’t want to use U.S. forces to do it. Under Clinton that meant the dual containment. Under W Bush it meant a forward blocking position in Iraq. Under Obama it meant trying to set up a regional balance of power. Under Trump it means economic sanctions backed by exactly zero military force.
None of it has worked. None of it was ever going to work. The Shia clergy is the Iranian political elite, giving the Iranians the deepest bench of political leadership in the region. You’d literally have to kill 10,000 mullahs to induce a shift. Nor is Iran revolution-prone. The first task of the country’s infantry-heavy military is to occupy Iran to ensure domestic unity. There are solid reasons why Iran’s 2009 “Green Revolution” was over in under a month.
Nor is knocking Iran off feasible. Iran is a mountain nation, granting it a defensibility which partially obviates the sort of air and tank warfare for which the Americans are renown. Moreover, Iran’s population in 2019 is over triple that of Iraq in 2003. Overthrowing the government would necessitate a force over twice as powerful as the one that took down Saddam’s Iraq, followed by an occupation force three times as large. No thank you. The U.S. military and public has exactly zero interest in putting 400,000 troops back into the Middle East to fight another grinding war of occupation.
What about America’s “allies”?
The Persian Gulf
Qatar is the perfect example of a friends-like-these ally. In per capita terms it is almost certainly the top financial supporter of Islamic terror groups in the world (I say almost certainly since Qatar doesn’t disclose their terror accounting). On the nicer end Qatar fundees include the Muslim Brotherhood and Hamas, ramping up to more knifey groups like al Qaeda and ISIS. Doha also has a nuanced-to-positive relationship with Iran for various reasons, not the least of which is its gas wealth stems from the shared North Dome/South Pars gas field. Qatar has hosted the operational headquarters for most U.S. warfighting in the region for the past two decades despite being a place that is in part responsible for the Americans needing to do the warfighting in the first place.
That’s nothing compared to Saudi Arabia. A half century from now when today’s headlines are parsed for the history books, the world will remember Saudi Arabia’s current de facto leader – Crown Prince Mohammad bin Salman (MBS) – as one of the evilest individuals in modern history.
The sheer volume of public support, money, arms and ideological cover given to religiously-tinted fighters – that’s jihadis or terrorists based on your politics – by various Saudi citizens and royals alike has boomed in step with the Kingdom’s regional ambitions. (Qataris have been implicated in plenty of terrorist financing schemes, but fewer than a relative handful have taken up arms themselves; 9/11 shows that the same cannot be said for Saudis.) Saudi Arabia habitually backs the most extreme, violent interpretation of Islam and regularly exports it far and wide at the end of a gun or leading wave of an explosion.
MBS has taken things further. Once he realized the Americans were serious about leaving the region, he shifted tact and instead of simply seeking destabilization of his enemies, he now seeks to burn down the pillars of civilization across the entire field of competition. Much of the Sunni Islamic extremism in Syria can be laid at his feet, as can much of the ongoing violence and chaos in Iraq and Afghanistan. Nor are MBS’ actions limited to the battlefield. About a year ago on MBS’ orders, a hit squad suffocated and dismembered a Washington Post columnist in Istanbul, transported his remains to the Saudi consul general’s house where they were incinerated in a custom-built “barbeque pit” just before the consul hosted a massive party that utilized the same pit to help degrade any lingering forensic evidence.
MBS is not a friend, nor is Saudi Arabia an ally. America used to have to put up with this sort of activity from the Saudis during the Cold War because without Saudi oil, the global trading system would have collapsed and taken the American alliance network with it. Courtesy of America’s shale revolution, those days are over.
Rhetoric aside, even President Trump doesn’t see the bilateral relationship as all that close. Last month the Iranians launched a drone and missile attack on Saudi energy facilities, taking some 5 million barrels of daily output offline. Under normal circumstances that would have prompted massive American military retaliation. Instead, Trump’s response to MBS’ call for assistance was something along the lines of, “sorry, I have a fundraiser.” For those of you who think oil is a globalized commodity and so the U.S. remains vulnerable to price swings, think again. The president has preexisting authority to limit U.S. crude exports. Should global prices get too crazy, an executive order can keep U.S. shale output at home, splitting the North American energy market off from the global market. The Saudi headache is now optional.
Even Israel isn’t what it once was. Within the next decade the country’s mostly-Palestinian Muslim population will become the majority, although about 90 percent of them have no political rights in the Israeli system. The two-state process that sought to generate a country for the Palestinians has been dead for years and we have already seen the Israelis implement a very successful separation plan more than a bit reminiscent of South Africa’s Apartheid.
In fact, Israeli ultranationalists in private conversations even welcome the comparison to Apartheid, because they think Apartheid was gentler than what modern Israel has achieved. Under Apartheid, the black South Africans could travel to white-controlled zones for work. Under the Israeli program the Palestinians languish behind 35-foot-tall concrete walls in what are little more than open air prisons with the Israelis controlling Palestinian access to power, food and water. As the thinking goes, who cares if this radicalizes the Palestinians if they are radicalized on the other side of a wall. Arguably, places like Tunisia or Pakistan are now “more equal” democracies than Israel. (Ugh, I’m going to get so much hate mail for these last two paragraphs.)
Turkey and the United States have been pulling apart for three decades. In a world where Soviet containment is the end-all be-all, the alliance was everything. Remove the Soviet threat, however, and the Turks have interests in the Balkans, Caucasus, Persia, Mesopotamia and the Levant that have next to nothing to do with American interests. Turkey is reasserting itself as a major regional power, and since the American military position in places like northern Iraq and Syria are largely dependent upon supply routes through Turkey, there is no long-term American strategic position in these regions without express Turkish assistance. That assistance has been removed, so the Americans – regardless of domestic policy preferences – have no choice but to leave.
That just leaves the Kurds, a mostly mountain people. That makes them a fractious bunch whose fractured leadership has traditionally been willing to fight to the last Kurd to determine who is in command, while enabling more homogenous ethno-sectarian groups on all sides to easily demonize them, oppress them, and play them off one another. They are the largest ethno-sectarian group in the world without a country, and their entire land-locked population is split among Turkey, Iraq, Iran and Syria. For those familiar with West Virginia, Switzerland or Chechnya, squabbling oppressed mountain people make great fighters, and since they lack a country they have little to lose by allying with, well, anyone. No wonder the Americans depended on them so much.
But the Kurdish dream of independence was never going to be more than a dream. Landlocked and partitioned, the only way a real Kurdistan could emerge would be if one of the four countries which house Kurds actively sponsor it. That’s just not in the cards. The Kurds are a lost cause; They were never more than an ally of the moment.
They are hardly the only ally of the moment the Americans have abandoned. At the end of the Vietnam War the Americans left the Hmong – another fractious mountain people who allied with the Americans – in the lurch. Their massacre at the hands of the Vietnamese is the stuff of legend. Something similar is about to happen to the Syrian Kurds at the hands of the Turks. The biggest difference between the two groups is there are too many Kurds to resettle them to Minnesota.
So why all the noise back in the United States? Aren’t the Americans exhausted with the Middle East? Shouldn’t they be celebrating?
In part it is because the extreme unpopularity of Donald Trump means any decision he makes is going to be parsed for negative sound bites, and there is no end of hypocrisy in play. My personal favorite are the former Obama team talking heads hitting the airwaves who only now find Syria’s murder and mayhem worthy of American military action.
In part it is because abandoning an ally is bad form, particularly if you think the U.S. should play a role in preventing genocide, promoting human rights, stymieing traditional rivals, or keeping a hand on the throat of the global economy. Even if you think none of this is the U.S.’ business, you’ve got to admit a lot of stuff happens in the region, and having a finger in the pot does prove useful from time to time. In the grand scheme of things, 2000 troops in Syria isn’t that big of a deal.
A deeper (and IMO far more substantive) issue is the fate of America’s national security professionals. Trump initially liked the generals because of their “yes sir” and “can do” attitudes. After all, civilian supremacy means the president is in charge, you do what you are told and if you have a problem with the president’s policy you don’t undermine him, you leave. Well, two years on, pretty much all of them have left.
The break has become so extreme that Trump now considers national security-minded Republicans to be greater ideological foes than the Democrats. One of the big outcomes of the 2018 mid-term elections was the wholesale ejection of that faction from Congress as well as from the Republican Party leadership itself. For many of this group, Syria is the prefect example of poor leadership: Trump’s policy not only betrays a loyal ally, it abdicates an American role throughout an entire region. We can debate the pros and cons of that abdication, but for folks in the military, intelligence and diplomatic communities this is a step that unwinds a half-century of painstaking military, intelligence and diplomatic efforts paid for with untold resources and blood. You don’t have to view the world their way to understand why they’re pissed.
That doesn’t change the simple fact that if not for the seemingly bottomless volume of TrumpDrama in America these days, most Americans would probably be sighing in relief right now. If the Americans really don’t have an interest in maintaining a global Order, then the Middle East is barren of American national interests and it can now firmly be someone else’s problem. It isn’t nice. It isn’t responsible. It won’t be pretty. But that doesn’t mean it isn’t true.
Of course the road from here to there is neither straight nor level. There are still plenty of land-mines to dodge:
The evacuation of U.S. forces has been ordered, but it has not been completed. That evacuation has to proceed through the Turkish advance and through Turkey. Things are already looking dicey. Shortly after the initial withdrawal order some Turkish forces apparently (intentionally) dropped some artillery near remaining American outposts, forcing the remaining Americans to scramble lest they find themselves in a shooting war with the Turks. The U.S.-Turkish alliance is over, but based on how events unfold in the next couple of weeks a U.S.-Turkish hostility may emerge.
The Kurds of Iraq and Syria are both armed and trained and experienced and on the edge of statehood. Just because they (especially the Syrian Kurds) are doomed to fail does not mean they are doomed to fail today. How they fight back and/or seek alignment with Syria and/or Iran and/or Russia will determine the region’s next set of battle lines. This matters the most for the Turks. The Turks are out of practice, having not fought a meaningful military campaign since World War I. If they perform badly it will reshape their regional ambitions. If they perform well there are lots of regional players – Armenia, Russia, Iran and Saudi Arabia come to mind – who will be extremely worried.
Of those, by far the most important one is Russia. Like American forces, Russian forces can really only operate in Syria with Turkish acquiescence. With the Americans gone and the Turks ramping up, it’s probably the Russians’ turn to GTFO of the region. If they don’t, a direct Turkish-Russian clash that leaves the Russians on the wrong side of all their backup will ensue. The climbdown and/or massacre would be globally humiliating.
One smallish bit of good news is that the ISIS Caliphate is definitely gone, and the ISIS militant movement is broken and on the run. Many have opined that without the American-Kurdish alliance ISIS in any form would have never been defeated. That is true. But that’s not the same as saying that ISIS is doomed to rebound. Historically, the territory that comprises eastern Syria and western Iraq – the ISIS heartland – has been on the bleeding edge of useless. Rain doesn’t happen and the only crops grown are those in the Euphrates floodplain. In most places that band is less than 20 miles across. Civilizing this region is wildly expensive, and so the powers of the region tend to ignore it…until some wackadoo group like ISIS starts causing problems. Then one of the region’s powers invades and burns everything to the ground. From 2003 until 2018 the region’s powers were non-functional: Iraq and Syria had civil wars, while Turkey was gun-shy. The fact that the ISIS Caliphate lasted as long as it did was testament to how abnormal the region had become. Well, Turkey is now invading. It will burn everything to the ground. The atrocities the world is about to pin on the Turks mean we are returning to something a lot more normal.
Europe is… screwed. It is one thing to have to deal with a prickly Turkey who stays at home. It is quite another to have Europe’s largest land army deploying in force in a way that most Europeans have publicly condemned. With the exception of the French, no European power has the capacity of independent power projection to the region. And now Turkey is publicly threatening to herd millions of Syrian refugees to Europe’s doorstep unless the Europeans shut up about Turkey’s new military campaign. After the United States, Turkey ties with Russia for being Europe’s most important partner. Expect those ties to burn in the months to come.
Finally, there’s Saudi Arabia. In the aftermath of the Iranian attack on Saudi oil facilities, the Saudis have paid the Americans to deploy 3,000 troops to the Kingdom. Two things from this: First, sooner or later the Americans will internalize just how messed up the Saudis are and will evacuate everything at once, precipitating a whole new regional crisis. Second, the Americans going pseudo-mercenary is about to be the new normal. If you cannot provide something shiny to bait the Americans into your region (cash is shiny), then you are on your own. That development will reverberate far beyond the Persian Gulf region.
Bonds are sliding toward negative territory across the developed world. Among the largest industrialized economies, only the United States is offering over 2% yields on 30-year bonds. And it’s not just the global economic pillars pushing rates down, but even in places like Poland that stretch the definition of “developed” market. Or Italy, which push the boundaries of concepts like “balanced budgets.” And even in Greece, which stretches the definition of… pretty much damn near everything.
What gives?
First, the technical answer.
Part of the shift toward negative territory is quantitative easing (QE). QE is, in essence, the expansion of monetary supply above and beyond what the economy says it needs, and then using the newly “printed” currency to purchase various bonds. This artificially drives down borrowing costs of all kinds and inflates financial markets. The idea behind it is that cheaper borrowing costs and an inflated finance market will boost business and consumer confidence and from that, spending — thereby boosting demand in the real economy.
Between the American, European and Japanese programs, the equivalent of some $15 trillion has been dumped onto markets through QE since the 2007 financial crisis. One reason for the dollar’s strength under Trump is that the United States’ QE program largely came to an end several years ago and the US has reverted to using more traditional monetary tools. In contrast, Europe has been at near-zero interest rates for a decade (and Japan for twice as long), leaving QE or things like it as their only means of using monetary policy to stimulate economic activity. The Eurozone, after a brief hiatus, just restarted QE again a few weeks ago. Japan never really stopped.
It all adds up to a lot of money chasing limited investment opportunities. That boosts stock and property markets, while the surge into bonds pushes yields negative.
Second, we have the traditional answer.
There is a whiff of instability surrounding everything. Germany is undoubtedly in recession and will drag much of the Eurozone down with it. Japan hasn’t seen reliable, sustained economic growth since the 1980s. The American-Chinese trade war has collapsed global confidence in the Chinese economy while the HK protests have collapsed Beijing’s soft power. Meanwhile, it seems that nearly every country in the Middle East is facing some degree of crisis. Even if you’re an aficionado of my brand of Kool-Aid and believe that the US is largely resistant to global upheaval, “resistant” is not synonymous with “immune.” While I still do not see an American recession on the horizon, the American economy has most certainly slowed.
Recessions — even fears of recessions — have consequences for capital. Spooked investors tend to push money into assets backed by either long-term income streams, government guarantees, or both. Fewer stocks, more bonds. High bond demand pushes yields down towards, to, and through zero.
It isn’t so much that either answer is wrong. In fact, they are dead on. But they are not the whole picture. There’s something else going on. Something much bigger than QE and much more structural than the normal ebb and flow of economic cycles.
It’s demography.
People act differently depending on their age. There’s aren’t a lot of retirees at spin class, nor do college students frequent buffets that specialize in creamed vegetable products. In a “normal” economy there’s a set balance of roughly four children to three young adults to two mature adults to one revered elder. So long as that proportion holds the economic system has some somewhat straightforward characteristics: young workers spend and borrow, mature workers invest, while retirees shift their financial holdings into decidedly less interesting and volatile holdings. Fewer stocks — more t-bills and cash.
The problem, if “problem” is the correct word, is that the onset of the Second Industrial Revolution roughly 140 years ago both pushed people off of the farm and into urban environments while vastly, dramatically increasing lifespans. As the decades rolled by our definition of “normal” has shifted. Families became smaller and smaller until most of the developed world slipped below the replacement level of 2.1 children per family. Among the developing world the process started latter, but the downward shift in fertility has been two and three times as fast. The partial exception? The United States. Its wealth of arable land has made it an industrialized country that urbanized slowly. The result? China’s population is already older on average than America’s, while Indonesia and Brazil’s will surpass America’s average ages in about a quarter-century.
The problem (and this time “problem” is certainly the correct word) is that the demographic shift has altered the structure of capital. From roughly 1970 to 2010 the decline in birth rates steadily increased the proportion of mature workers in the population relative to everyone else. It is this block that saves the most both in relative terms and in aggregate. Those savings are the bulk of the world’s working capital. Left unchecked, the growth of the mature worker cohort will eventually oversupply the world with capital.
Well, “eventually” is here. Right now, the population of mature workers as a proportion of global population is at its peak. As this cohort inexorably edges toward retirement, they are shifting their portfolios into less risky assets. Less venture capital, more bonds. The veritable tsunami of capital into the bond space has pushed the safest of those bonds — government debt — firmly into the negative.
Don’t get used to it.
The biggest thing that separates mature works from retirees is time, and in 2022 the majority of the world’s Baby Boomer cadre will have aged into mass retirement. Denied much in the realm of fresh income, the incoming tsunami of government-bond-capital won’t so much recede as evaporate.
Without those inflows, capital costs will — must — rise.
That’s the best-case scenario. It assumes no disruptions. No breaks in global continuity. A rapid climbdown from the trade war. That Italy doesn’t implode. That the Eurozone holds together. That the Brexit debacle calms down. That the Japanese economy can manage its aging and shrinking worker pool via automation and robotics. That the Chinese political center holds. That the broad swathe of the developing world can somehow double their standards of living in under a decade without sacrificing family size. That there’s no shock to energy markets. That the economic contortions of mass aging somehow magically avoid touching banking and finance. That the Americans elect a mild-mannered accountant to be their next president.
Anything that injures either globalization in general or employment and wealth levels specifically immediately imposes burdens, both in terms of raising financing costs directly and preventing capital created in one region from pouring into another. Fragmenting global capital markets will, all by itself, turn regions that have recently become used to ultracheap capital (sub-Saharan Africa, Brazil, and India come to mind) once again into capital deserts.
That’s still a pretty good scenario.
It assumes the global system while beaten and bloodied ultimately holds. Historically speaking, the downturns an instability we’ve experienced to date — and this includes the Great Recession — are pretty minor stuff. The global Order is what has enabled many countries to exist in the first place, and if you cannot exist you cannot issue bonds. A heartily inconvenient fact of economic history is that before the Order (that is, 1946), it was pretty common for markets to not simply fail but go to zero.
The first time that happens the financial markets will come face-to-face with a level of risk and risk pricing that no one alive has any expertise in managing.
A few months back a South Korean court ruled Japanese firms needed to pay compensation to Korean laborers who worked in Japanese-run factories during the 1910-1945 Japanese occupation of Korea. A big piece of this involved compensation to the Korean “comfort women.” In the Asian theater of World War II, the Japanese military created brothels with (mostly) Korean women for their troops. The Japanese said the women were gainfully employed volunteers who were fully compensated. The Koreans assert it was – at best – sex slavery. (Most of the world and nearly every non-Japanese historian sides with the Koreans on this one.) Anywho, from the Korean point of view the Japanese strategy on reparations is to deflect, deflect, deflect until the last of those who suffered pass away from old age, which will undoubtedly occur within a few years, ergo the new push from South Korean courts to provide a new legal footing for prosecution.
The Japanese didn’t like this very much and so slapped the South Korean economy with export restrictions that will cause long delays for certain materials that are absolutely critical to advanced Korean semiconductor manufactures. In retaliation Korean boycotts of Japanese goods have sprung up. Both sides have since withdrawn the other from their respective “white lists” – a classification when enables trade in sensitive technologies without the need for time-consuming and cost-intensive permitting. The Koreans are now threatening to cease intelligence sharing, which would undercut the very existence of Korean-Japanese security cooperation. If the Japanese go through with their threats, this will have a more immediate impact on the South Korean economy than what we’ve seen from the US-China trade war so far. The semiconductor industry is 7% of the South Korean economy so anything that threatens that industry is a threat to the entire economy. Translation: the Japanese are going for the jugular.
At the risk of sounding like a Millennial, wtf? Aren’t these countries supposed to be on the same side?
Some quick background:
American security policy in the post-World War II era is based upon a single, simple premise: we will pay you to be on our side. Everyone gets access to the U.S. market, the U.S. Navy will make the global ocean safe for everyone’s commerce, everyone gets an iron-clad guarantee to their physical security as well as the shelter of the U.S. nuclear umbrella, so long as you stand shoulder to shoulder with the United States against the Soviet Union.
One of the problems of this strategy is that having millennia of human history meant there were millennia to build up mutual antagonisms. The American-led global Order didn’t so much end grievances among the allies as freeze them in place. It would do no good, for example, for France and Germany to go to war (again) if they were supposed to be jointly resisting the Soviets. Making the Order work didn’t just require aircraft carriers and army divisions, but also the American diplomatic corps riding herd on oftentimes quarrelsome partners.
Under “normal” circumstances, the United States would have ordered the South Koreans and Japanese to cut this crap out the day after it started. But the Americans are getting out of the global management business and so the bilateral snit has been allowed to boil up into and beyond a full international incident. It is incorrect to think of the South Koreans and Japanese as being allied. South Korea is allied to the United States, and Japan is allied to the United States, but they only work together under direct, heavy-handed American overwatch. Remove that overwatch (honestly, remove the American interest in the pair of bilateral alliances themselves), and the South Koreans and Japanese revert to what they’ve always been. Two countries sharing an epic poem of mutual dislike. A hateful pair.
Most of my work these days is predicting how the Order of the past seven decades crumbles into the messy Disorder of the future. I christened the path from the mostly functional here to the mostly dysfunctional there the Descent. There is no singular trigger event, but it all stems from the Americans’ washing their hands of the world writ large. It involves everything from food supplies to passenger aircraft routes to manufacturing supply chains to tariffs to armored formations to…squabbling countries that most people thought were allies. Every event triggers more, and as regards hateful pairs there are a lot of squabbles to internalize and so a lot of consequences to be aware of.
Let’s begin with East Asia. The South Koreans and Japanese are hardly the only members of the Order who loathe one another. The most obvious starting point is China v Taiwan. China sees Taiwan as a wayward province and while most of the Chinese’ last decade of naval buildup wouldn’t do jack to threaten the United States, it is fully capable of threatening Taiwan. Taiwanese-Chinese economic integration in the world of computers and electronics is hip deep, with the sector most exposed being Silicon Valley. That sort of integrated supply chain systems will completely go away. The company that stands to lose the most in absolute terms is Apple.
The only country that hates China more than Taiwan and Japan is Vietnam. In nearly every Chinese consolidation period stretching back two millennia Vietnam has been a target. The Vietnamese don’t hold a grudge against the Americans – they don’t see the Vietnam War as all that big of a deal. But the Vietnamese call their conflicts with the Chinese the Two Thousand Years War. All those Chinese firms that are setting up shop in Vietnam in an effort to get around the new U.S. tariffs on China? Pbbbbbbbt.
Further south both Singapore and Malaysia were carved out of the same British colonial administration. At first Malaysia didn’t want Singapore because they feared all the Chinese ethnics there would tip the new country’s demographic balance into being Chinese majority. When Singapore went on to be an economic success story, the Malaysians got peeved, threatened war, and still on occasion threaten the city-state’s water supplies. Not only are they too central to regional manufacturing supply chains – particularly in electronics – they share control of the Strait of Malacca, the world’s busiest trade lane. Singapore does extra duty being Southeast Asia’s primary financial hub.
On the opposite side of Eurasia, it isn’t like any of the Europeans are actually friends with one another. Even with all-hands-on-deck in the U.S. State department during the Cold War, Greece v Turkey managed a couple serious scraps and even today maintain a just-shy-of-snarling relationship.
Of more economic importance, the United Kingdom was the world’s superpower for over two centuries, more than enough time to sow a great deal of mistrust. The UK, even with its navy in a historically weak position, still commands sufficient force to make or break most northern European commerce. And with it feeling a great deal of Brexit-related umbrage, will soon be itching for ways to get back at the Continent.
Germany’s more recent (and failed) bid for superpowerhood generated flat-out detestation, especially from those countries who have no choice but to be in the German sphere of influence. Poland in particular resents being a cog in the German machine, but is now so integrated into Germany’s manufacturing supply chains it is a vital part of Germany’s supply chain network (in other words: exports). France is only Germany’s ally so long as France feels it can control Germany. That ship sailed a decade ago. For the handful of French who can (at least privately) swallow their pride and admit reality, the living horror of the Now-German-dominated European Union cannot end soon enough.
That’s just the big rivalries. There are plenty more: Poland v Lithuania, Romania v Hungary, Austria v Hungary, Bulgaria v Macedonia, the UK v Ireland, Belgium v Belgium (Belgium is weird). About the only European country everyone respects is the Netherlands because the Dutch have made not giving a f**k about other peoples’ passions their defining characteristic.
And that’s just the hateful pairs fully in the Order. There are plenty of ill feelings from Order members towards non-Order members. Iran-Saudi Arabia could get explody at a moments’ notice and set global oil markets on fire. Iran’s relations with Pakistan aren’t much friendlier. Russia hates everybody (and everybody hates Russia).
Since 1946 the Americans haven’t so much poured oil on troubled waters as smothered everything with a lead-weighted, waterlogged blanket. The security framework that supported the Order isn’t simply disintegrating, the economic access the Americans enabled isn’t simply collapsing, but the fires of history are burning through all of it at the same time.
Not one to collect moss, Donald Trump shot directly from the G20 summit to South Korea July 1 where he nearly skipped the pro-forma niceties with the South Koreans for a tete-a-tete with North Korean dictator Kim Jong Un. Not only did the meeting happen in the DMZ itself, Trump became the first sitting American leader ever to cross into North Korean territory proper. The bulk of the talking heads in the American foreign policy community had a series of minor strokes at the sort of friendly PR Trump laid out for a guy who remains one of the most violently repressive leaders on the planet. They’ve got a point.
In (partial) contrast, I’m one of the people who was cautiously optimistic when the White House announced Trump would be meeting face-to-face with Kim both last year and this week. My feelings are less because I had high confidence in Trump personally or the new approach of engagement in general, and more because nothing else in the past seventy years had worked so why not try something new?
There were two things about the American-NorK summit that caught my eye.
First, personnel.
Trump is a bit hard on his staff. He’s impulsive, rude, belittling, and he becomes supremely bored and more than a bit aggroed when folks start presenting him with… information. He particularly loathes the sorts of details that accompany a contextual briefing. (I’m certain he would despise my work, for example.)
His cabinet, therefore, tends to fall into four general buckets. First, the blindingly incompetent (think HUD Secretary Ben Carson). Second, the sycophants (think Secretary of State Mike Pompeo). Third, those in charge of departments Trump just doesn’t care about (think Education Secretary Betsy DeVos). And fourth, those precious few who know how to say just the right thing to their boss so he gives them real leeway on real issues.
Of this last category only two staffers remain. The first is U.S. Trade Representative Robert Lighthizer. This newsletter is about harder security issues than are on Lighthizer’s remit, but if you’d like a bit of refresher you can review my thoughts on the current USTR here and here.
The second is National Security Advisor John Bolton.
When I read about how many people dislike John Bolton, I’m reminded a bit about Ronald Reagan – even those who hated Reagan’s policies admitted Reagan was pretty damned effective at getting his way. John Bolton is capable and competent in that vein and he lives and breathes all things foreign policy. Which most certainly does not mean he is an easy man to work with. Most who have had the dubious pleasure would never call him a prick because that would insult pricks everywhere. He is brash, aggressive, rude, and has little regard for things like diplomacy, tradition, alliances, institutions, or human rights. (Which come to think of it, is probably why he’s lasted as long on TeamTrump as he has.)
Two of Bolton’s pet projects are that he believes the Iranian and North Korean governments should be overthrown, preferably by force. And as the National Security Advisor he has the ability to shout that into Trump’s face (Bolton’s not the ear-whispering type) at every opportunity.
He’s had lots of opportunities of late.
Relations with Iran have been getting steadily sharper for months, what with the Americans laying on the sanctions thick while the Iranians have once again spun-up their nuclear program. Similarly, relations with North Korea aren’t exactly peachy, what with the North Koreans continuing to proceed with their own nuclear program in violation of clear American preferences. Bolton has repeatedly and forcefully advised Trump that the best counter to the Iranian and NorK positions involves ammunition.
Bolton has not gotten his way. A few days ago the Iranians shot down a large American surveillance drone. Bolton led the charge within the administration to retaliate with strikes on Iranian military facilities. Trump called off the strikes at the last minute.
But it is on North Korea that issues are proceeding in a new direction. Trump didn’t even let Bolton tag along to a summit with a foreign leader. Instead Trump sent Bolton off elsewhere.
It is one thing to overrule an advisor. After all, Trump is the president and it is his prerogative that matters, not Bolton’s. But to banish the only competent foreign policy hand in your administration to literally Mongolia (seriously folks, I cannot make this shit up!) is something entirely different.
National Security Advisor John Bolton, center, during a visit to Mongolia
’ve never been worried that Trump would start a war. Despite his trademark fire-breathing rhetoric, Trump has time and time again shown that upon reflection he’d rather de-escalate hostilities. But no matter what I feel about Bolton personally or professionally, I think it is an eminently good idea for at least one person in an administration to be able to locate Canada on a map. It appears Trump may be ushering out that one person.
The second issue is more… wishy washy, but has far grander implications than any mere personnel shift.
Even if Trump believes and trusts everything Kim says and Kim believes and trusts everything Trump says, the straight-up denuclearization of North Korea was never really on the table. North Korea lives in a tough neighborhood. Prickly (nuclear-armed) Russia to the north, nationalist (nuclear-armed) China to the west. Resurging (nuclear-capable-in-a-long-weekend) Japan to the east. And anxious (nuclear-capable-in-a-month) South Korea to the south. For the North Koreans these days, the American strategic preferences as regards the Korean Peninsula isn’t much more than a supportive footnote further justifying a program already viewed as core to national survival.
That seems to be reflected in Trump’s Korea policy. If the Americans are to step back from the world writ large, it is impossible for them to continue keeping the five-way strategic competition among Taiwan, China, South Korea, North Korea and Japan locked in ice much longer. There is something to be said for establishing a regional balance of power …and then simply leaving. To that end the handshake “deal” struck at the first Trump-Kim summit last year appeared to be that North Korea could keep their nukes so long as they forgo the developing of an intercontinental missile system. Put bluntly, North Korea’s nuclear program was being drop-kicked from being America’s problem to North Korea’s neighbors’. Kind of a dick move, but hey, geopolitics isn’t often about hand-holding.
The problem with this strategy – and the reason I’m hesitant to put my personal stamp of approval on it – is what happens next? Any Korean Peninsula without active American involvement is one in which the South Koreans have no choice but to go nuclear (just as any East Asia without American involvement is one in which both the Japanese and Taiwanese have no choice but to go nuclear.)
The American retreat will unlock a series of regional grievances that have been on hold for decades, but with the technologies of the now. An Asia without America is going to be a bit of a free-for-all, but that doesn’t mean someone won’t emerge on top.
My bet is entirely on Japan. The Japanese economy is the only one (aside from North Korea) that is not dependent upon international stability for its functioning. Put simply, everyone in Asia faces challenges as the world’s economic and strategic norms disintegrate, but for Northeast Asia, Japan’s challenges are the least extreme and Japan’s capabilities are the most advanced.
Fast forward less than a decade and Japan emerges from the post-Order maelstrom as Asia’s first power.
At that point Japan will not only have broken Chinese power, but will have massively added to what is already the world’s second-most capable expeditionary navy andit will be nuclear armed. A future America-Japanese dust-up is not inevitable, but history (strongly) suggests the future’s two most powerful naval forces will stumble across a few spots in the Greater Pacific where they rub each other the wrong way.
I’m fully willing to admit that the current East Asian balance of power is far from sustainable, but that hardly means I’m looking forward a Japanese-Asian Co-Prosperity Sphere with a nuclear chaser.
Hong Kong has been one of the most important economic locations on the planet for over a century.
China has always had problems holding together, but it has also always been a land of opportunity for outsiders who held a logistical and technological edge. Few powers in history have held a sharper edge than the British Empire. Hong Kong sits at the mouth of the Pearl River Delta, and in dominating HK the Brits were able to exploit the cheap labor of the lower basin, while also controlling any exports from the broader Pearl. It was a strategy the Brits had used to great success in locations as diverse as Suez, Calais, the Gambia, Durban, Charleston, and New York City.
As Mao’s de facto alliance with the Americans took form in the 1970s, British Hong Kong became internationalized. The Hong Kongers would use foreign tech and capital – repeating a pattern that stretched back literally a millennium – to create products for export.
In the late 1980s then-British Prime Minister Margaret Thatcher negotiated the transfer of Hong Kong to the Chinese mainland and a new chapter began. Hong Kong shifted from being a manufacturing base to being a financial and logistical hub. The same foreign tech and cash came in, but HK used its already-sophisticated managerial skills to funnel it into the lower Pearl.
That’s the economics. Here’s the politics:
It is not an oversimplification to say the Chinese Communist Party is obsessed with national unity. The “country” of China has historically not held together well, and Hong Kong was no exception. For most of Chinese history, the southern coastal cities from Shanghai south to Hong Kong were integrated more with the wider world than with their own countrymen. But with the Order’s advance in the late 1940s, the imperial age ended and Maoist China was able to establish control over the entire coast… aside from Hong Kong. The handover from London to Beijing in the 1990s brought Hong Kong into the fold as well.
But there was a poison pill.
The British ran Hong Kong like the imperial territory it was. While the Americans forced the Brits to divest nearly all their empire, the Americans made an exception when it came to Hong Kong. It would have been ludicrous to squander the intelligence opportunities of having British control of such a rich and strategically located bit of allied territory. But when it became obvious to Thatcher that handover was inevitable, the Brits started democratizing Hong Kong. In the aftermath of the June 1989 Tiananmen massacre, the effort intensified. When the handover finally occurred in July 1997, Hong Kong was a full-fledged democracy (albeit one who obviously had no say as to which country it would be associated with).
Thatcher hardwired into the handover treaty a looooong political transition period. While Hong Kong would immediately and officially become “Chinese” territory in 1997, its political system would remain largely self-governing for another half-century. An island of democracy in a sea of authoritarianism. The Chinese call it One Nation, Two Systems.
Say what you will about Thatcher, she was very good at monkeywrenches.
So long as the Chinese economy performed well, Two Systems was an annoyance Beijing was willing to tolerate. But things have changed:
First, the Chinese export-led system has peaked. Global demographics have turned negative and global consumption can no longer absorb exports on the scale China can churn out.
Second, the Chinese financial system is in dire straits. Lending in China isn’t like lending in most places where you… well… have to pay back the loan. In China the government banks funnel cheap credit to firms who guarantee high employment, and to hell with profitability. The goal is to keep everyone in a job so they don’t protest. A side effect of this policy generates scads of subpar quality products that no one needs. China then dumps those products on the international market. Not only can the global market no longer absorb all the Chinese stuff, the financial model has pushed to the point that there are so many debt bombs on the foundations of so many sub-sectors that it would make the bad actors of the US financial crisis blush.
Third, Chinese demographics have peaked. Replacing global demand with Chinese demand was never really an option, and in 2019 it became obvious that Chinese demand was plateauing. Automotive sales – typically the purest indicator of customer demand – have dropped more than most countries do during heavy recessions. Blame the One Child policy – China is running out of twentysomethings. That’s driving labor costs up at the same time it is driving consumption down.
Fourth, the friendly geopolitical environment that China has thrived under – that all-important American-led Order – is in its final days. Much of what has brought China rapid economic development – foreign technology and capital, bottomless global markets, endless raw material imports – is ending. With local markets insufficient to replace global markets, the Chinese hold an economy designed for the 1990s that has no place in today’s world.
Fifth, the Americans are formally and directly targeting Chinese industrial and trade policy. U.S. Trade Representative Robert Lighthizer has already dusted off plans to triple the total American tariff load on China as soon as he gets the go-ahead from his boss. There may be a bit of an American-Chinese trade truce in place, but I doubt it will last much longer than the last two (which each lasted about 75 days).
Sixth, an oil crisis is brewing in the Persian Gulf. Should the Americans do anything to impinge upon Persian Gulf oil flows – and “anything” includes leaving – China faces an energy crisis far worse than what the Americans struggled through in the late 1970s and early 1980s. Some two-thirds of China’s oil is imported, with over half of that coming from the Gulf. China’s navy is utterly incapable of convoying what it needs should convoys become necessary.
The Chinese leadership is fully aware of all these concerns and is fully aware that the Chinese ship of state can no longer sail in its current direction. President Xi Jinping – rightly – fears for the future of the unified Chinese state. To that end Xi spent the bulk of his six years in office to date eliminating anyone in the Communist Party who was willing to defy him under the guise of an anti-corruption purge. The effort was done with more than a bit of side-eye to smashing any sort of regional autonomy. Now’s he’s working on new tech-heavy programs designed to purge dissent throughout wider society. The jury is still out on how successful that will be, but it points to the it’s-not-paranoia-if-they’re-really-out-to-get-you feel of the Party at the moment.
Enter the Hong Kong protests of recent weeks.
Part and parcel to Xi’s efforts to preserve national unity is to lock down Hong Kong. In partial violation of the Two Systems policy, Xi pushed an “extradition law” on the Hong Kong government which would enable any mainland Chinese judicial entity – all of which are arms of the Chinese Communist Party – to issue arrest warrants for any Hong Kong citizen. China’s security services already kidnap Hong Kongers and smuggle them back to the mainland as they need to, but with the new law any local magistrate could force the abduction of anyone in broad daylight. (Such legal authority already exists within mainland China for everyone else.)
The Hong Kongers, realizing the extradition law’s adoption would mean the end of their special status some three decades early, have resisted. And protested.
The timing is far from coincidental. Beijing is ratcheting down on Hong Kong because it fears for the unity of the Chinese state as a whole. Hong Kong is resisting because it doesn’t want to be part of the Chinese state. The primary rationale for Xi’s new law is to keep the country together. The Hong Kongers’ rebellion is largely because of the new law. And now the phrase “Hong Kong is not China” keeps popping up in the protests.
Something’s gotta give, and it isn’t going to be Beijing.
The question, as it seems to be with everything, is timing. Much of the Chinese government’s actions these days – as regards Trump and trade talks, or Japan and territorial disputes, or Iran and oil – seems to be about buying time, but that time may be running out. On July 1, a group of Hong Kong protestors stormed the local legislative assembly with a degree of intensity that was new for the protests. This was less families-with-children-in-strollers and more clubs-and-pipes-of-the-Antifa-type. In the aftermath some of the graffiti caught my attention: “It was you who told me peaceful marches did not work.”
Hong Kong, People’s Republic of China
I don’t have the insight to know who spawned this particular action of vandalism.
Was it the leaders of what have so far been a hyper-organized protest movement? Are they testing the waters for a new push?
Was it some imported anarchists who just love a good riot?
Was it a false flag operation launched from the mainland to justify a crackdown?
Was Beijing aware the storming was imminent, and yet did nothing so that the radicals would provide a justification for their own destruction?
I don’t know. And unfortunately, it doesn’t really matter. Whoever thought that ransacking the assembly building was a good idea has crossed the Rubicon. Whether you view the true power in China as President Xi, the government in Beijing, or the Chinese Communist Party, it cannot tolerate this sort of action in Hong Kong – especially at this time. No matter what your view of Chinese history is, no matter what your view on Xi’s personal vindictiveness might be, the Hong Kong protests have become a threat to national unity. A new crackdown is imminent.
The scale of what’s about to happen is difficult to grasp:
At their peak, the Tiananmen protests involved 300,000 people, mostly students. The Chinese government sent in nearly as many troops to crush the movement. Fatality reports varied wildly from zero (the number Beijing proffered) to 10,000 (the estimate of the British embassy).
In Hong Kong, the protestors have regularly managed to get a million people out in the streets, a figure that has swelled to two million on several occasions. They aren’t just young people. They are families. Retirees. Bankers. Lots of people who normally never protest. I’ve not seen anything like this since the broad-spectrum Iranian protests that dislodged the Shah back in 1979. It is a huge proportion of Hong Kong’s total population (less than 7.5 million).
Ending the protests means nothing less than a full military invasion and occupation of the island. And unlike the Tiananmen massacre where reports of the military operation made it out piecemeal, in today’s social media age Hong Kong’s fall will be broadcast live for the world to see. It will be like Japan’s 2001 Sendai earthquake, but with a wall of tanks instead of a wall of water.
This all feels… momentous but I can’t quite put my finger on the implications. I’m a context guy and for this I just don’t have any. I cannot think of a military crackdown in a first-world economy in modern times. In the United States the last one was the Kent State shooting in 1970, but that was only a few hundred students and 67 bullets. Paris in 1968 got pretty messy, but the violence there was…what, threeorders of magnitude less than what’s imminent in Hong Kong. I’ve got to go back to the riots in Europe in the 1930s at the height of the Depression. The norms of our age are breaking apart and we’ve not yet developed the frames of reference to process what’s coming.
For the immediate future, the bottom line is that while Hong Kong lacks the size and reach and means to export its protest movement to the mainland, the CCP certainly has the size and reach and means to export its forces to Hong Kong. China’s information control systems are sufficient – and the grip of the CCP strong enough – to prevent meaningful contamination of the mainland political system. The protests will not only fail, they signal the end of Hong Kong.
Hong Kong is about to become an absolutely horrible place to be. The degree of Chinese… reconstruction of the island will be on par with the cultural genocide already being imposed upon the Uyghurs of China’s western Xinjiang region. It won’t last a week or a month or a year. We’re looking at something that will last at least a decade.
That will have deep implications for anyone doing business in the country.
At a minimum every ongoing reservation about operating in China is about to get a hard underline. Foreign business magnates like Tim Cook have so far been able to ignore the ethical implications of their firms’ China dependency. It is difficult to see that continuing in light of what’s about to occur.
And it isn’t simply about ethics. Many of the financiers that make Hong Kong work are Chinese citizens. Whether Bank of America or whoever is willing to stay in a place where their workers disappear is… questionable. But it doesn’t end there. It’s not just Chinese citizens; the extradition law also applies to foreigners. These companies are used to working in China, so it’s not that the Chinese system is so scary that they can’t stomach the country. It’s that none of these companies have tried to operate in China during an active crackdown.
The coming violence and occupation will utterly remove Hong Kong from the global network of logistical and financial hubs. Hong Kong has been China’s primary entry point, China’s primary export point, and most capable financial center. Its end takes the gem out of the Chinese crown, as it were. For the past thirty years, China has provided foreign investors with scale, cheap labor, security and local expertise. The ending of Hong Kong damages all that and more.
I recently had the opportunity to be in New Zealand and Australia for a few days. Being on the opposite side of the planet is a bit magical – and I’m not talking about the people, culture, topography, food or alcohol. It’s the fact that the Australasian countries are more than a half-day ahead of the U.S. news cycle. As a forecaster the idea that my day begins fifteen hours earlier in Sydney than back in the States gives me the sort of giddy excitement that I’m sure bubbles up from new companions of Doctor Who.
In part it is because all the inanity of American media’s ongoing obsession with the less important dramas consuming Congress and TeamTrump are (thankfully) muted, while all things Asian are loud and proud. I’d like to think that I would have noticed what’s going on in China regardless, but Down Under it is absolutely unavoidable. Events are pushing rapidly toward the cataclysmic, and how they unfold in the next few weeks will determine much about how China evolves – or devolves – for the decade to come.
There’s quite a bit of backstory for this one. Chinese history is less a straight path from here to there and more a tangle of knotted social, cultural, technological, economic, political and strategic threads. As such this newsletter will read a bit like a mosaic. There’s a lot going on and a lot of long-term trends all coming to a head at the same time. That, and I get a sort of perverse satisfaction writing things that I know will be blocked in other countries. Anywho, buckle up.
In recent decades the primary source of legitimacy for the Chinese Communist Party has been the delivery of steadily improving job security, growing wages and all the things that go along with economic growth… but such wasn’t always the case. Pre-1970 legitimacy flowed from the delivering of beatings. Anyone who challenged state rule could look forward to being beaten into submission, assuming they weren’t summarily imprisoned and/or executed.
But in 1972 that bleeding heart liberal Richard Nixon travelled to China and struck a deal: America would admit China into its global Order of security and trade on the condition that China solidify its recent split with the Soviet Union. The Sino-American rapprochement reworked the Cold War and was one of the phalanx of factors that ultimately crushed the Soviet Union.
For the CCP, the decision was not one to be made lightly, and not simply because the Soviet Union had a lot of nuclear weapons and the Russians tend towards historical umbrage as a leading motivator. Chinese history is not a tale of wealth and unity, but instead of chaos and privation. The Chinese heartland in the north is too big to be easily consolidated, and too exposed to the outside world to be easily defended. While the Brits were able to become British in the relative isolation of their island, and the Russians were able to steadily expand their writ throughout the lightly populated Eurasian steppe, Chinese history is a tale of warlords and collapsed imperial systems that just couldn’t make it stick.
It’s a simple issue of geography. China is mammoth in size, but it lacks the sort of internal riverine transport network that would enable pre-industrial Chinese authority to reliably project power to its own periphery. Combine poor transport options with high population densities and China suffers from a center that cannot impose its will on its outlands on its worst days, and outlands that cannot become strong enough to fully resist central control on their best days. The whole place spins apart and crashes together with regularity – and that even before one considers the predations of outsiders. For the millennia of Chinese history, the “country” of China has really only held together as a unified political entity for about three centuries, and half of that was under Mongol occupation.
Half of what’s left is during the American-led Order since the end of WWII. Part and parcel of the Order’s system was the elimination of empires. For the Chinese who had been under the boot of the Japanese and Europeans during their “century of humiliation,” this was a critical factor. Once the Chinese civil war ended with Chiang Kai-shek’s retreat to Taiwan, Mao Zedong was able to finally consolidate control of all of China under a single government.
While the strategic implications of the CCP’s 1970s decision to formally join the American-led Order were robust, the decision was still beyond risky. It meant purposefully flooding the country with mammoth economic and technological changes. It subjected poor-but-unified Maoist China to nearly everything that had in ages past wrecked China: outside influence, shifting economic norms, new ideas, internal migration.
In the years that followed, the Communist Party fundamentally reworked its economic system to take full advantage of their new global access. It wasn’t exactly swords-to-plowshares, but it certainly included rapid development and industrialization of the Chinese coast.
This transformation required a different sort of educational system. Or more accurately, it required an educational system worthy of the name: less blind ideology and Mao-chants and more math and management skills. The effort of achieving mass literacy had many effects and side effects, but one aspect is something Americans can identify with intimately:
Chinese parents didn’t want their kids eking out a meagre existence on subsistence farms, but instead wanted them to earn advanced degrees, wear suits and work in climate-controlled offices. China’s changing economic life may have required a more educated workforce, but just as American parents’ predilections oversupplied the American job market with white collar workers, so too did the preferences of Chinese parents. By the late 1980s it had become apparent that many of China’s twentysomethings were trained for the wrong things.
So they did what twentysomethings do: they complained about it. At a party. All at once. All in the same place. In Tiananmen Square. In 1989.
The Tiananmen protests were not about democracy, or at least not at first. They were about an entire generation who had known nothing but upwardly rising standards of living for their entire lives, who suddenly discovered the world wasn’t going to be quite as packed with golden eggs as state propaganda had promised.
The economic changes wrought by China’s post-Nixon opening pushed the CCP well out of their comfort zone. The protests, in a manner of speaking, pushed the CCP back into its comfort zone. The club returned, the CCP deployed tanks to Tiananmen, killing thousands of Chinese young people.
President Donald Trump has a knack for making Prime Ministers and Presidents hope to remain unnoticed. It’s a stunning ability given that national leaders aren’t exactly wallflowers. The past few days have seen a flurry of news releases indicating the Trump administration has turned its focus to Japanese Prime Minister Shinzō Abe. Specifically, the DC community is abuzz with leaks out of the White House that Trump is considering abrogating the American-Japanese security alliance. Trump has long made his displeasure with the alliance public, noting (correctly) that the treaty calls upon the United States to come to Japan’s defense but not vice versa.
Yet the reason for the one-sided relationship isn’t random. Japanese actions during World War II include such atrocities as the enslavement of Korea, the rape of Nanking, the Bataan Death March. Add in the sort of ultra-nationalism that could generate the industrialized suicide attacks of the kamikaze and the Americans of the late 1940s had zero problem forcing the Japanese – formally – to give up the right to wage war at all.
The Japanese loved that. And to understand why not having an independent security policy can be a good thing, we need to take a step back.
The littoral waters of the East Asian Rim are different from the great wide opens of the global ocean. The South China Sea, East China Sea and Sea of Japan are starkly contained with the Asian landmass on one side and a line of archipelagos on the other. The topographies of the lands they border are defined by internal barriers, mostly mountains, that not only factionalize the great regional ethnicities of the Japanese, Koreans, Philippines, Indonesians, and Chinese from themselves, but also from one another. Such separations made pre-industrial integration within, much less among, these groups paltry.
The mid-19th Century, however, was a turning point. Deep sea ships and military technology had improved to the point that the Europeans and Americans could pop over for a quick forced port opening party and be back home before anyone got too rowdy. The Opium Wars and the arrival of Commodore Mathew Perry of the US Navy were parallel events that had widely disparate impacts in China and Japan. While China continued to disintegrate politically and would largely continue to disintegrate right up into the mid-20th century, Japan ultimately unified under the Meiji Reformation and set about to adopt as many of the outsiders’ technologies as possible in order to industrialize in its own right.
Yet Japan had zero of the resources necessary to drive that industrialization, so from the beginning industrializing Japan had no choice but to be an empire. Those same disconnected geographies bracketed by those same isolated seas never had a chance. Japan’s naval acumen – now backed by firearms and steam ships – quickly dominated those seas and shortly thereafter all the coasts of East Asia.
The Japanese were not kind rulers. The Empire’s need for resource extraction all but required the slave labor of its conquered subjects. With a sense of dark irony that was apparently lost on its founders, the Greater East Asia Co-Prosperity Sphere became the vehicle for Japanese imperial expansion.
Japan’s defeat at America’s hands in 1945 ended the raping and pillaging, but it would be the grossest understatement to say that mistrust remains. The Japanese knew that without their empire they could not be industrialized, and without industrialization they could not be unified. They believed their defeat would be their end.
But the Americans tend to surprise. Instead of officiating the end of Japan, the Americans offered to pay the Japanese to be on America’s side in the Cold War. The Americans would protect all global shipping and open their market to their allies. Everything the Japanese fought for in the war would be granted for free. All the Japanese had to do was join the Americans against the Soviets.
This confluence of American strategic needs and East Asia’s regional geography led to the greatest trade expansion in history. Instead of trade being a highly militarized affair, trade routes became fragile, spindly things spread out over the world. But there are few locations where that fragility is as clear as the series of seas that connect the East Asian powerhouses. These same seas that before enabled first outside powers and later the Japanese to dominate East Asia are now the roads to prosperity. Ports and inland infrastructure began the long arduous process of connecting nearly half of the global population and making their labor accessible to the wider world. For all intents and purposes, the region has the most prosperous, economically advantageous “inland” waterway of anywhere in the world. It didn’t matter that no one in the East Asian littoral liked or trusted the Japanese. The Americans kept the peace, and the peace enabled growth that paid for a lot.
The system lasted for decades, until the Americans won the Cold War and got… bored.
Trump’s musings on the nature of Japanese alliance are not a cry in the wilderness, but the manifestation of disenchantment with the world from across the entire American political spectrum. The tenor and specifics of Trump’s foreign policies may change with his successor, but the general thrust of disengagement has been building since 1992.
One way or another, the Americans are leaving Asia, and not simply because of a change in strategic vision. There is also the issue of capability:
During the Cold War the Americans boasted a 500 or 600 ship navy with 6 or 7 supercarrier groups. That’s the sort of force required to control the global oceans and still have enough punch to hit a tough target here or there on any continent of Washington’s choosing. Now, however, the US Navy is “only” 300 ships, but with 11 supercarrier groups. This is a Navy that can project force anywhere in the world with stunning efficiency. It is a military that was designed to show up on your doorstep with a tank, Bugs Bunny style. It is the most powerful military the world has ever seen. What it lacks, however, are the large number of small ships required to provide the necessary global coverage to protect all maritime commerce. It is a Navy operationalized not for continuity, but instead for disruption. Not for Order, but for Disorder.
Bluntly stated, the Americans are getting out of the global management business. The Japanese cannot help but take notice.
Those littoral seas that have become some of the richest zones on the planet? Screwed. It is the American security commitment that makes all of it possible. At best the Americans will sail away and leave the region to its own devices, and history has zero favorable anecdotes as to how the locals can make it work. At worst the Americans will start a few dumpster fires as their often-shifting mood dictates.
Yet for Japan, therein lies a once-in-a-century opportunity.
Of the East Asian states, Japan is the only one (aside from North Korea) that is notdependent upon international stability for its functioning; the Japanese long ago de-sourced the portions of their industrial based linked to exports to the countries that purchase their products. Japan is the only Asian country with a true blue-water navy. Japan is the only Asian country with a power sector that uses diversified imports rather than being focused on a single imported fuel. Japan is the only Asian country that faces no strategic complications in importing or exporting to the Western Hemisphere. Japan’s population may be aging rapidly, but not as rapidly as either South Korea or China, and unlike its neighbors, Japan already has twenty years of experience in countering aging populations with technological patches.
Everyone in Asia faces challenges as the world’s economic and strategic norms disintegrate, but for Northeast Asia, Japan’s challenges are the least extreme and Japan’s capabilities are the most advanced.
And there is one other itty-bitty advantage the Japanese have. At least for now, the Americans like the Japanese. Especially Donald Trump.
When Abe made his first trip to visit Trump he did all the right things. He showered Trump with praise, brought him gold-plated golf clubs, allowed himself to be soundly defeated over the course of 18 holes. Japan’s combination of relative insulation from the rising global chaos and a positive relationship with the global superpower provides Tokyo with an opportunity most countries do not have. The possibility of purchasing the American largess that once was available for free.
Put simply, if the Americans are going to remain constructively engaged in East Asia, it will be because they are being compensated appropriately. America has the ships, Uber has the business model. The Americans are happy to pick up the slack with the right surge pricing in a strained geopolitical environment. The United States has done this before, choosing to be the last minute relief in the European wars of the 20th Century – first with Cash-Carry, second with Lend-Lease, and finally with the Army – and in the process going from a net debtor with a so-so navy to the undisputed financial, military, and economic powerhouse. It turned out to be a pretty sound business plan.
And as coincidence would have it, the next country on America’s trade renegotiation list is none other than Japan. Think of what is about to happen like the global Order in reverse. Instead of Americans paying everyone to be on America’s side in an American security fight, Japan has to pay America to keep America involved in Japan’s security fight. As such we don’t expect the trade talks to be all that onerous.
Japan’s security needs trump its economic needs. So far, Abe has gone to great lengths to stay on Trump’s good side. He has largely acquiesced to the demands of the administration, which include steel and aluminum tariffs and a series of oh so fun looking buddy montages between Trump and Abe. We know that Japan will stomach a lot because from the Japanese point of view the talks aren’t actually about trade. That means the Americans will largely get their way on the economic issues they care about most – agriculture, automotive, energy and currency policy to be specific.
What’s that saying? Oh yeah… wars have been fought for less.
In the pre-industrial period that littoral’s layout kept the locals apart, but naval tech has come a long way since 1800. Now, with the proverbial cruise missile out of the bag, the shared littoral area puts all the region’s competitors within easy reach of one another. Even mildly threatening behavior looks a lot like an existential threat. Because it is. It takes little imagination to see how a combination of fear, national pride, strategic maneuvering, and economic desperation will push Japan and China (and others) into conflict.
I’m going to do something I loathe and quote something I read on Twitter June 24. In a pair of posts U.S. President Donald Trump asserted:
Diction and statistical issues aside, these tweets comprise the 92 most important words used by anyone in the past three decades. Trump just made clear the days of America protecting global shipping – particularly of oil shipping in the Middle East – are over.
There is an easy argument to be made that the United States’ shale revolution will make the United States a net exporter of crude oil in the current calendar year, but to understand just how critical that is for the Americans we must first pick apart just how horrible that is for everyone else.
Let’s talk importance:
In the pre-Order world if you couldn’t obtain fossil fuels yourself, first coal and later oil, you failed to industrialize. Your manufacturing would at most be a step above cottage industries, so no mass education and no consumer goods (aka peasantry and mass poverty). Lack of fuel condemned you to having an at-best rudimentary transport system meaning your cities were very small, only able to exist in regions that could grow their own food (aka high living costs and low quality of life).
The handful of locations that could secure fossil fuels – either by producing it locally or by seizing it from others – could advance into something we today recognize to broadly mean “civilization,” which includes among other things homes that don’t leak and gadgets and full bellies.
This all changed in the late 1940s. After World War II the Americans created a global Order – a mix of security and trade guarantees which they used as a bribe to induce others to join their side in the Cold War against the Soviet Union. With global security now a thing, oil could be shipped safely and at volume without military escort, meaning that countries that didn’t have a military capable of escorting could now access fossil fuels. BAM! Civilization goes global.
Remove the Order, remove global oil markets, and civilization itself goes into screaming reverse in any location that lacks either the ability to produce oil locally, or the ability to venture forth and secure someone else’s.
Let’s talk vulnerability:
Crude tankers are huge. A modern supertanker can shuttle around oil weighing more than four Nimitz-class aircraft carriers. They are so big expressly because of the Order.
Pre-Order, merchant shipping used small, fast vessels because they needed to be able to scatter and hopefully outrun predators whether those predators wore eyepatches or naval uniforms. The Order ended such predation under the watchful eye of the U.S. Navy. Instead of commercial advantage coming as a result of speed and distributed risk, it instead came from efficiencies and economies of scale. Ships evolved to became slower to save on fuel costs, and bigger to get more bang for the buck. Today’s oil tankers are the slowest and biggest of them all and are nearly 50 times the size of some of the biggest cargo ships of the WWII era.
A similar logic holds with ports: size generates economies of scale. In addition, as ships have gotten larger, ports had to expand to match – a city with a small dock simply cannot handle a ship that is longer than the Empire State building is tall. Bigger, slower ships forced fewer, larger ports. Disrupt anything within the system and the damage quickly becomes extreme.
Between oil’s criticality to and ubiquitousness in modern life, oil is by far the most commonly traded product on Earth comprising some 18% of all maritime shipping traffic (by volume). About a third of all waterborne crude and product shipments originate in the Persian Gulf.
Let’s talk stickiness:
There are no shortages of politicians out there who agitate for relocating manufacturing capacity to their countries, provinces or cities. Making a speech is one thing, but actually building industrial plant and infrastructure is another. It costs billions and takes years for large industrial shifts, and even then there is no guarantee that a new industrial park will prove economically viable.
But at least manufacturing can be relocated. Commodity production cannot. Either you have it or you don’t, and the Persian Gulf has the greatest concentrations and volumes of easily-produced conventional crude oil on the planet. It can never not matter.
There’s also the impossibility of substitution.
Simply put, greentech isn’t ready. Most advances in greentech have to do with electricity generation, and since so few countries burn oil for electricity greentech’s impact upon oil markets has been negligible. As a rule greentech is shit for transport. High cost combined with insufficient energy density makes electric cars little more than a niche sector for early adopters, with Tesla’s recent sales figures crash indicating that market may already be saturated.
Even if the medium for most modern batteries – lithium – was sufficiently energy-dense to provide a viable long-term improvement in capacity (it isn’t), the stuff still needs to be mined and processed and fabricated into battery assemblies. Each step along the value-chain is so energy- and transport-intensive that very little of it can even be attempted without fossil-fuel-based energy for processing and transport across the world. As counterintuitive as it sounds, we need more carbon-heavy fuels to get to a lighter-carbon world. And that means coal and oil. A lot of oil.
There’s also the issue of lifespan. Most vehicles put on the roads since 1990 have a long lifespan to the point that even if every passenger vehicle sold from now on was an EV, we’d not see an end to oil in passenger transport for another two decades. Even then, even if every passenger vehicle and light truck were an EV right now, that would only make a dent in global oil demand. About 2/5ths of oil is used for transporting people and heating. The rest is much more difficult to do away with. Another 1/3rd is used for air transport, industry, and other modes that require far more range or power than electric engines can manage. And another 1/5th isn’t going anywhere ever, as it is what makes petrochemicals as varied as paints, plastics and pesticides possible.
(None of which means greentech won’t eventually solve the petroleum problem, but all of which means technology needs another couple decades to give it a go – and even that assumes the capital and educational structures around the world which have made the Digital Revolution possible hold steady at their current historical highs.)
Let’s talk protection:
At the end of World War II every nation of consequence aside from the United Kingdom had lost its navy. The United States in essence inherited the global ocean. America’s creation of the Order gave everyone aside from the Soviets a vested economic interest in not floating a new one. Fast forward to today and the American Navy is over ten times as powerful as the combined blue water fleets of every other country combined. Putting that force disconnect at the service of the global commons is what makes the Order work, and what makes global energy shipments and markets possible.
The world’s second- through sixth-most powerful navies in terms of long-range power projection are (roughly in order) Japan, the United Kingdom, France, China, and Russia. Of these only Russia need not sail forth for oil, as it has plenty of its own. France and the United Kingdom can secure what they need from the North Sea and North and West Africa. China has only 30 combat-capable surface ships of size that can effectively operate over 1000 miles from shore; unfortunately (for the Chinese) Southern China is a cool 5800 or so miles distant from the Persian Gulf. Only India – keeper of the world’s seventh-strongest navy – is even remotely proximate.
End result? Today’s oil markets comprise the greatest concentration of risk in themost critical economic sector at the most vulnerable part of the global system and no one can do anything about it if the Americans leave.
The New York Times dropped a fun piece last week asserting a coalition of like-minded national security and intelligence professionals are neck-deep in an offensive cyber operation against the Russian electricity system. The article suggests the hacking was meant to provide a cudgel to beat Russia with should it intervene in American elections again. The real kicker was the assertion made by a host of anonymous sources that not only was U.S. President Donald Trump unaware of the operation, but that the sources were afraid to tell him for fear the White House would shut the operation down.
There’s a bit of peeling required for this particular onion:
Computerization didn’t happen all at once. At first computers were multi-billion-dollar monuments of circuitry that only major governments could afford, to be used “simply” to compute complicated math (ergo the term computer). They certainly weren’t hooked into civilian infrastructure. Besides, there was nothing to “hook” into. Pre-1980s tech was analogue and manual, not digital and automatic.
Fast forward to the 1980s and this changed rapidly. The marriage of now-more-attainable computers to telephony brought us modems long before it brought us smartphones. That linkage enabled the first computer networks to snake through the worlds of finance, media, energy, academia and manufacturing. As computers became ubiquitous, the possibility of extreme damage being inflicted upon the average American citizen expanded exponentially.
A new policy was required for this new era.
The president at the time was Ronald Reagan. His executive guidance was threefold:
First, the U.S. government would provide no cyber protection to any part of the civilian system. Individual firms and citizens were wholly responsible for protecting their computer systems from outside threats.
Second, the U.S. government would maintain an absolutely massive hacker corps with standing orders to hack everything and put malware and backdoors into every imaginable foreign system.
Third, the U.S. would deign to identify precisely where its red lines were.
These three points explain why it is so simple for Nigerians to defraud your grandmother, why the Russians could interfere in the U.S. elections with ease, and why everyone is so afraid to go after the really important stuff: infrastructure in the United States. In essence, America’s cyber policy is a lot like the rest of its armed forces: you can poke and prod the exposed flanks of the behemoth and you might or might not get swiped at for your trouble, but if you ever do something that really draws its attention, well… you’d better have a great bunker.
In the event the U.S. ever did decide to cut loose, it would have a remarkably shitty quarter. The lack of cyberdefense would ensure that power grids would fail, vulnerable city bureaucracies would be left helpless, and all the businesses that forgot to update their Windows operating system from last decade’s would find they no longer have computers. In other words, it would hurt. But whoever the U.S. was going to war with would find themselves facing off against nearly four decades of surveillance, planning, and preparation by skilled, vengeful nerds. In the best-case scenario (for the targets), they would regress a century as everything from power to water to communications to shipping simply seized up, never coming on-line again until a complete computer-free overhaul was completed.
The Reagan administration’s guidance on cyber sat broadly unchanged for the next four presidents. Offensive cyber was used rarely and the U.S. refuses to discuss it. It is only under Donald Trump that some shifts have occurred. In Trump’s early months as executive the U.S. government leaked it had done something I find hilarious:
It didn’t simply identify the specific Russian agents who had interfered in the United States’ 2016 presidential elections, it sent cease-and-desist letters to those agents at their home addresses complete with enough personal touches to drive home to the Russian hackers that the U.S. government knew more about their personal lives than the Russian government itself.
What all this makes clear is that the U.S. realized it had undersold itself and underutilized its tools, which is quite literally the last thing you want to do with a deterrent. But times are changing and so, it appears, the pace of operations is picking up.
These operations involve extremely detailed pre-operational surveillance and planning so that when the time comes, the real break-in can happen easily. It creates options. The operation can go farther and, as the Times claims happened here, an implant ready to hurt critical infrastructure can be left at the ready. It’s a line that until recently the Americans claimed they did not cross except in exceptional cases.
The problem, of course, is that none of this, right up until the attack occurs, is public. Which makes deterrence more than a little bit of a problem.
So let’s look at that Times article again:
Is the U.S. hacking the Russian power grid? Certainly. The U.S. has been hacking the Russian power grid since before Gorbachev.
Is there a conspiracy within the U.S. government against Donald Trump? Certainly not. Anyone hacking the Russian power system is simply doing their job as demanded by Reagan and HW Bush and Clinton and W Bush and Obama… and Trump. It’s about planning and, if the Times is right, prepositioning assets. Not executing a broad-scale attack.
Is Trump aware that the Russian power grid is being hacked by American agents? Of course. Everything that matters in Russia is being hacked by American agents. Ditto for China. And Iran. And a follow-on list of countries so long I’m not going to go into because of the hate mail it would generate.
Does the national security establishment dislike Trump? Well duh. Trump is upending seven decades of tradition. That’s awkward even on a good day.
As to the issue with the Times article, however, I’m going to call bullshit. If an anonymous source is concerned the president will shut down his favorite top-secret anti-Russian program, blabbing about his favorite top-secret program to the Times — which makes its bones publishing everything in a public forum — would indicate that said agent isn’t all that bright.
In fact, the only people this article seems to be alerting are the Russians. But as the author pointed out, the government raised no national security concerns about the article. That suggests this is all about sending the Russians a message.
The context of that message is one I can only guess at, but I must underline repeatedly that the United States is not on the verge of shutting off the lights in Russia. There is an enormous difference between hacking something like the Russian power system to install malware and activating said malware. The former is rude… and a normal part of state policy. The latter would crash air traffic control and shut down mass transit and darken hospitals. It would kill a lot of people and be a flat-out act of war.
It also isn’t going to happen without a change in strategic relations far more radical than anything Donald Trump has brought to the table to date.
But the Americans now have drawn a line in the sand, publicly. The question is who is going to cross it.
