Part VIII: Keystone and the Method to Trump’s Madness

Trump is turning the government his own personal shade of orange and it may take decades to get the dye out.

President Donald Trump formally signed off on the Keystone XL pipeline on March 24.

While there will undoubtedly be ongoing legal and environmental wrangling (that’s just the nature of pipeline politics these days), the presidential waiver was the final formal step of the approval process. Construction will begin in short order, with completion likely in about two years.

Three things come to mind:

1) The economics of Canadian crude in a world of U.S. shale is questionable, but at least now they aren’t so ridiculous.

U.S. shale is very low in contaminants. In a normal system it would sell for a massive premium, but the speed at which shale crude has come on-line has overwhelmed not just American infrastructure, but global energy trends. From-scratch, shale wells can now begin production in less time than OPEC states take to bring pre-existing spare production back online. The result is that despite its sky-high quality, U.S. shale actually sells for a slight discount to international norms.

Canadian oil sands is more traditional from a pricing point of view. It is thick and gooey and packed with sulfur; it’s one of the lowest quality crudes in the world and as such sells at a steep discount. It also gets sold almost exclusively into the U.S. Midwest, the same area that is awash with U.S. shale crude. The result is that Canadian crudes typically sell at a $10 a barrel discount to U.S. shale at least, and more than that to global norms.

The real problem (for Canadian crude) is production costs. U.S. shale oil full-cycle costs are now below $40 a barrel. Canadian heavy is about double that… and that’s before you consider that Canadian heavy often needs to be railed because there isn’t sufficient pipe transport capacity. The transport difference alone adds $5-10 a barrel more to Canadian heavy’s cost. Keystone XL will reduce that shipping cost to the $2-3 range, in theory making Canadian heavy more competitive over the long term. The production cost differential is still wide enough to likely dissuade any new volumes of Canadian heavy coming online anytime soon, but at least the economics of production will be a bit less out of whack vis-à-vis shale.

2) U.S. industry needs to formally adjust for new crude mixes.

Ten years ago everyone knew that crudes like Canadian heavy were the future, and so everyone retooled their refineries to run on heavy, sour crudes. Then shale popped up and wrecked everyone’s well-laid and expensively-funded plans. Now in some ways U.S. refiners faces the best and worst of all worlds. Best in that the two major input streams — Canadian heavy and shale — can be purchased at discounts to the global norm. Worst in that the two crude streams are about as far apart as concerns quality as is possible and so cannot be run in the same facility.

The solution is blending facilities that mix the two along with a few other inputs to make something a bit more regularized, preferably with enough flexibility that refineries can custom-order a blend that matches their technical requirements as well as the market needs of the day. The problem isn’t just tank farms and dedicated pipelines, but those “other inputs” that help the blend remain blended. Otherwise the mixed crude tends to separate like salad dressing. Spoiler alert: Keystone XL guarantees that such blending facilities are going to be a big growth industry for the next decade.

3) Trump is not a normal president, and he’s becoming less so by the day.

That Trump moved quickly on Keystone XL doesn’t surprise me. What surprises me is that the announcement today came without Trump’s Elon-Musk-style leadup and fanfare. While many media like to lampoon him as, well, eminently lampoonable, the fact is that he is a shifting target who shows no sign of establishing a normal order of business. In the meantime, he is forcing the government to work the way he wants them to.

My contacts in the refining world have already detected a 180-degree shift in the way the Environmental Protection Agency operates. Under Obama, EPA inspectors would drop in unannounced and demand to see everything. Now they are giving weeks of notice for information requests and volunteering that even these looser reporting deadlines are more like squishy guidelines…and that’s before Trump’s 30%+ funding cut to the Agency kicks in.

The State Department has had minimal contact with its own Secretary, Rex Tillerson, who has emphasized personal diplomacy over institutional diplomacy. Both styles have pluses and minuses, but the Trump team is very clearly laying the groundwork for a broad-scale elimination of many of the levers of government power. People criticize Trump for seeming to still be floundering after two months on the job, but I see the greatest civil deconstruction in the history of the Republic. At the speed Trump is moving, it would take a generation of effort to rebuild the bureaucracy should future presidents attempt to turn back the clock. Trump may well have the greatest impact of any president on the structure of government since the New Deal.

And Trump’s efforts are hardly limited to the executive; Congress is firmly in his sights. After some rough back-and-forth with the Republican caucus on the Obamacare replace/repeal, Trump threw up his hands last night and directed Congress to vote up or down on the bill as it stands. His message to conservative and moderate Republicans opposing the reform bill in its current form is a stark one: you campaigned on repealing Obamacare, but now you’re all bitching about the details. So either do it and let’s move on to other things, or break your pledge and reap the whirlwind from your constituents. It’s a stark reminder that Trump isn’t just not really a Republican, but that he ran against the Republican Party.

Trump is merging the Obama’s strategy of direct executive orders that can only be challenged via multi-year lawsuits with the Reagan strategy of building and abandoning Congressional alliances issue-by-issue with a Clintonesque predilection for going direct to the people in order to force everyone’s hands. Yet Trump is governing without a support infrastructure, so he’s both difficult to influence or to hold to account.

It is far too soon to say that Trump will be successful, but considering the enervated nature of the U.S. parties, betting against the new president would be most unwise. Love him or hate him, President Trump doesn’t just have his own style, he is going to rule.

Part VII: Ms Merkel Goes to Washington

How Merkel and Trump get along (or don’t get along) will determine the world’s path for at least the next three decades.

Here it comes.

German Chancellor Angela Merkel will meet with U.S. President Donald Trump tomorrow (March 15). These are the leaders of the two branches of the free world, and how they get along (or don’t get along) will determine the world’s path for at least the next three decades. I’m not hopeful. Two weeks ago the Trump administration issued its new trade guidance, which calls for nothing less than the unravelling of the global trade order.

The key institution is the World Trade Organization, a grouping formed by the United States expressly to manage global trade, most notably by adjudicating trade disputes. The WTO isn’t just some gathering like the G20, but instead a Senate-ratified treaty at the heart of U.S. economic law. In Trump’s new policy outline, which at a few hundred pages is by far the most detailed anything I’ve seen out of the Trump White House so far, Trump asserts that U.S. citizens are subject to U.S. law, not WTO rulings. When the two clash, U.S. law takes precedence. More than the travel ban or the Dakota Access Pipeline or Russians having conversations with the Attorney General, it is the implementation of this decision that will determine how our world will (d)evolve in the months and years to come. The WTO — indeed, the entire trade order — cannot function without the world’s largest market being open, and without the world’s largest navy making imports and exports of everything from iPods to Toyotas to French cheese to Kuwaiti oil safe for everyone.

I warned in the Accidental Superpower that it didn’t really matter to the United States how things unraveled, but that for everyone else “it truly matters whether the American shift from Bretton Woods occurs slowly over a decade of neglect or deliberately in a single [moment] of panicked fury” after the Americans have a really bad hair day. We are very clearly seeing the latter—no Trump jokes intended.

There are few countries with more to lose than Germany, and Merkel must be preparing for her summit with palpable dread.

Germany is not a normal country. Its territories are cobbled-together statelets that historically have had stronger local and regional, rather than national, identities. But whenever those statelets do start to act as one, their sheer heft tends to scare the bejeezus out of everyone else. A fractured Germany is one that falls prey to its neighbors; a unified Germany is one that its neighbors feel forced to tear down. Most of German (which is to say, European) history has obsessed with how to manage the German Question, and the answer has always been either grueling war or equally grueling occupation.

Except when the Americans were in control, that is. The whole point of the Bretton Woods system of free trade was to unify the world’s once-warring countries under a single rubric in order to contain, beat back, and destroy the Soviet Union. In this order Germany was no longer isolated target, but instead an integrated bulwark. With Germany and France and Spain and Italy and Britain and Sweden and Turkey and more all on the same side, the Germans could for the first and only time in their history expand economically without risk of invasion (except from the Soviets, of course). The time since the Bretton Woods era kicked off has not “simply” been the greatest period of peace and prosperity in human history, but it has been the only period of peace and prosperity in German history.

I say this without hyperbole: without Americans underwriting Bretton Woods, there is no free trade. No free trade, no EU and NATO. No EU and NATO, and suddenly Germany is once again exposed to the broad-spectrum competition that is Europe — a competition that Germany is by default the most powerful player, but equally by default cannot possibly win.

Merkel faces the impossible task of somehow convincing Trump that everything that he knows and believes spells disaster for Germany, Europe, and the global system. And that somehow that makes it bad for the everyday Americans, US strategic goals, and Trump himself as well. And to do so without triggering something worse. After all, it isn’t like it is Trump’s goal to deliberately and explicitly tear Germany down. He just doesn’t care.

I do not envy her that conversation.

The timing for Merkel couldn’t be worse. The entire European fabric is shredding, even before the Americans set sail in the other direction.

  • The United Kingdom is leaving the EU, giving fact to the fear that the EU is not Europe’s inevitable future. As London has already launched free-trade talks with the Americans, Canadians, Turks, Indians, Australians, Kiwis and the European Free Trade Association, there is a building horror that the Brits might not be destroyed by Brexit, and should that happen, then what is stopping other rich members from leaving?
  • Relations within the EU have turned acrimonious. A Polish internal spat is throwing a veritable troop of monkeys (and their wrenches) into EU workings, with Warsaw threatening to upset the entire EU order. At issue is the EU’s decision to override a Polish objection to a change of the EU president (the sitting Polish government is angry that the EU’s titular head is a former Polish prime minister from their domestic political opponents). The last time something like this happened, it was Margaret Thatcher using her anger at EU budgeting to stall all things EU for the better part of a decade.
  • The Dutch government — by far the most effective party at patching together EU unity in trying times — is likely not just to fall in elections this Wednesday, but might actually get replaced by the strongly Euro-skeptic party of Geert Wilders, a man who makes Donald Trump look positively calm and inclusive. Similar firebrands have already taken power in Hungary and Poland, seem posed to assert command in Italy, and that doesn’t even broach the topic of Marine Le Pen’s likely first round victory in France’s upcoming presidential elections.
  • Turkey is on the warpath, both figuratively and literally. First, figuratively: A big topic in current European politics is to prevent Turkish politicians from holding political rallies across Europe (typically with anti-European themes). It has gotten so bad that the Dutch government denied the Turkish foreign minister the ability to land his plane last week. As such, the notoriously prickly Turkish government is screaming it will cancel or subvert every single deal the Europeans have made with the Turks in the past decade—President Erdogan has even accused the Dutch of behaving like “Nazi remnants”. Now for the literally: Anti-ISIS efforts in Syria and Iraq are coming to a head outside of ISIS’ capital of Raqqa, Syria and its largest city of Mosul, Iraq. In both cases the U.S. and Europeans have become deeply involved in alliances that involve Kurds, something that so infuriates the Turks that it cannot help but impact Western-Turkish relations more broadly — and Turkey controls how many Syrian refugees can swarm up from Europe’s southeast.
  • Russia is reinforcing its positions not just in the Ukraine border region, but in Ukraine itself. A serious military effort may well be imminent. Putin sees a government in Washington that is testing the NATO alliance even more than he does, and Putin likes what he sees. Others have noticed. In late February the Swedes formally abandoned their post-Cold War optimism, reinstituting the draft.

And while normally I prefer to leave aside personality issues, they are depressingly relevant here. Merkel has a (well-earned) reputation for being methodical, slow to commit, pensive and in general reserved. Trump has an (equally well-earned) reputation for being the exact opposite. If ever there was a time that personal styles would be needed to help make impossible talks possible, it would be now. Instead, we have the opposite.

About the only thing Merkel (and Europe, and the world writ large) have going for them is the slim reed of hope that Trump’s anti-trade policies might not be finalized. Leaks out of the White House point to a “civil war” within the core Trump team between nationalist/isolationist/anti-trade personalities like Steve Bannon and Peter Navarro and more nuanced pro-business personalities such as Gary Cohn of the National Economic Council.

But the emphasis is definitely on the “slim”. The complete absence of strategists such as National Security Advisor HR McMaster or Defense Secretary James Mattis from the conversation, much less the broader debate, is crushingly telling. The United States is the least integrated major economy into the global system. For Washington the creation of the trade order was a strategic gambit with understood economic costs meant to underpin the Cold War alliance, not a plan perceived to generate economic gains. If Trump’s military advisors don’t see themselves as having a role in this trade debate, then that slim reed of hope is just the proverbial last flash before light vanishes from the sky.

Part V: Watch Mattis, Not Flynn

While the news focuses on the Flynn scandal, Mattis puts NATO – and the global system – on notice.

So apparently whenever I go on vacation the rest of the world has a busy week.

Let’s focus on the United States.

While I was kayaking in Milford Sound, National Security Advisor Lt. General Michael Flynn was excused from his 24-day-old job. Flynn has a reputation for being a bit…volatile and monochromatic, so his departure from what I consider to be the job in the U.S. government that requires the most calm, far-reaching and level-headed thinking isn’t something I consider to be all that bad.

The political issue surrounding Flynn’s dismissal is that he allegedly discussed national security matters with the Russian ambassador, and then lied to now-Vice President Mike Pence about it. If Flynn indeed told the Russians that a Trump administration would take a softer line on all things Russian over the course of a series of conversations, then this may indeed have altered the Kremlin’s response to the Obama administration’s sanctions. Among Democrats in general and more national-security-minded Republicans, this is certainly the biggest foreign policy issue of the new President’s term.

Under normal circumstances I’d agree wholeheartedly, but as I’m sure everyone with a pulse has noticed, we’re not exactly in normal circumstances these days. Instead, a far more critical evolution is taking place.

A personality I take much more seriously than Flynn is the Defense Secretary, General James Mattis. At a NATO defense minister’s summit the day after Flynn’s dismissal (when I was hiking the Kepler Track near Te Anau), the good general put the entire alliance on notice. He flatly warned the allies that they must raise their defense spending – quickly and sharply – or face the Americans backing away from their alliance commitments. Specifically he noted with a degree of subtlety that only a Marine general could muster: “No longer can the American taxpayer carry a disproportionate share of the defense of Western values. Americans cannot care more for your children’s future security than you do.”

In my opinion, Mattis is deadly serious – hell, in my opinion Flynn was deadly serious – and both were/are executing policy not only with the full knowledge of President Trump, but are doing so because it is policy, not because of some quid pro quo with the Kremlin. The Americans are getting out of the global management business, and a rationalization of its alliance commitments – Europe included – is simply par for the course. All that remains is to see how quick and how deep the changes will be.

We might not have to wait long.

It was also reported in the past days that the Russians have deployed the SSC-8 medium-range missiles in violation of the landmark Intermediate-Range Nuclear Forces Treaty (or INF) signed between President Ronald Reagan and Soviet leader Mikhail Gorbachev. The creatively-named treaty bans all short-to-intermediate range (500-1000 km, or roughly 300-600 miles) nuclear and conventional missiles by either party. The agreement served as a stepping stone to more aggressive nuclear arms reductions, and in no way is it an understatement to say that the INF remains the lynchpin of all post-Cold War U.S.-Russian relations.

Looking at a map, it’s easy to see why. The primary beneficiary is Russia (and its predecessor state, the USSR). After the agreement, U.S. military bases sprinkled throughout NATO countries can not serve as launching pads for missiles designed, essentially, to reach Russia; similarly, the removal of such missiles from Russia’s arsenal directly impacts the security of the United States’ European allies. But these missiles simply cannot reach the continental U.S.

While slight mention was made within American media about the Russian’s violation of the INF, the message is being heard loud and clear by NATO. But for all of the prodding and threats by Mattis and the White House, the reality is clear: as the United States remains determined to reduce its global military footprint, Europe faces a Russia already well into its operational mobilization while most of Europe remains functionally disarmed to respond to such a threat.

This weekend is the Munich security conference. The Munich conference involves leading defense and foreign policy thinkers from both the NATO and greater European communities. It has no direct, formal impact – it’s  just a talk shop – but it has a reputation for not only candid discussions, but being a place where top government leaderships announce fairly startling policy changes. In the past German, American and Russian leaders have indicate shifts that fairly dramatically adjusted the regional centers of power.

And this weekend Vice President Mike Pence will be in attendance.

Part IV: Bribes, Trade and the European Union

Some countries are adapting to Trump and some don’t know the rules of the global system have changed. 

The Japanese government leaked a provisional policy document to Reuters late Jan 31 titled “U.S.-Japan Growth and Employment Initiative,” which noodles over how Japan can invest more heavily into the United States in a variety of economic sectors. The policy was supposedly read out loud to Reuters staff, and it is very clearly in the under-development stage with a great many gaps.It is expressly meant to pave the way for Japanese Prime Minister Shinzo Abe’s upcoming summit with Donald Trump on Feb. 10. Among the document’s noodling includes possible investments into various infrastructure projects and the shale sector. The leaker indicated that the investment would be on a scale that could generate “hundreds of thousands” of American jobs.

(Before you discount that “figure” as ludicrous, keep in mind that the Japanese economy has been so moribund for so long thatthe Japanese regularly force the near-entirety of their pension system — with a huge dose of flat-out printed money — to invest in Japanese government debt, an asset with a zero percent return. It is well within the BOJ’s purview to instead purchase foreign assets if that serves Tokyo’s purposes, and to do so in a volume that quite literally reaches the high hundreds of billions of dollars.)

If this feels like a bribe, you’re thinking about things the right way.

The United States is backing away from the world writ large, a development that spells utter disaster for the many countries that designed their economic, political and military systems around the central concept of American engagement. Every bi- and multi-lateral relationship that the Americans have is in the process of being obviated. That includes everything from the UN to the WTO to NATO … to the Japanese alliance.

In Accidental Superpower I noted that in the coming Disorder there would only be a very short list of countries with which the Americans would choose to remain entangled, largely because the Americans perceive unmitigated benefits. If your country isn’t on that list, and you want to retain American engagement, you have to come to Washington and plead your case. And if you come empty handed the answer will almost certainly be “no”.

Abe apparently intends to try and flat out purchase American involvement. A bit crass for my tastes, but that doesn’t mean it won’t work.

The Japanese understand what’s happening. They know full well that their exposure to global energy markets and the fragility of their manufacturing supply chains makes them vulnerable. The Brits get it as well. The Canadians are desperately hoping that they are on the “unmitigated benefits” list (they probably are). The Mexicans are twisting in the wind, unsure if what’s coming out of the White House is rhetoric, policy or a negotiating strategy (it’s probably the latter). The Chinese are having problems coming to grips with just how bad things are about to get for them.

And the mainland Europeans are in flat-out denial.

American security involvement and American trade access are what ended the European civil war of roughly 1800 thru 1945, and generated the past 70 yoears of peace and prosperity. Europe is only able to import raw materials and export finished products because of American global overwatch, to say nothing for Europe’s (in)ability to defend itself (or in general get along with itself). In fact, without swap lines and loans from the Federal Reserve, it isn’t much of a stretch to assert that the Euro would have failed already. Without express U.S. involvement and strategic sponsorship, there is no European Union.

Rather than start tweaking themselves towards a system that might be sustainable without American overwatch and largess, most European politicians right up to the German and French premiers are engaging in a (not entirely) diplomatic back-and-forth with the Trump administration. It isn’t that I’m taking Trump’s side on any particular ethical, legal, constitutional, economic, strategic or practical issue, but instead that continental Europeans are acting as if the old rules still applied.

And unlike a week ago when the issues at stake didn’t hold immediate implications for the EU, now they do.

Apparently I was wrong. National Trade Council chair Peter Navarro is indeed aware of the existence of countries that are not China. Specifically, he knows where Germany is. On the same day the Japanese were testing the waters with their…consulting fee suggestion, Navarro laid into German trade policy. Specifically, he noted that the euro in essence functions as means of depressing the cost of German exports, constituting an unfair trade advantage.

Navarro is both wrong and right. Wrong in that the German intent for the euro isn’t to facilitate exports outside of the eurozone, but instead to induce economic convergence among the eurozone’s members and thus bulwark all of them against international volatility, and strengthen all of them as an internal trade bloc

But that’s not what has happened. The Europeans have proven completely incapable of grinding down financial, fiscal and political barriers within the bloc, so instead of helping everyone converge, the euro has instead established a dependency system in which Germany is the indisputable center of gravity. Since this is done in the context of a currency union, the weaker members have the effect of dragging the currency’s value down. And here’s where Navarro is dead-on correct: the failure of Europe to federalized has devolved the euro into an “implicit deutschemark that is grossly undervalued”. That was never the Germans’ intent, but it is most definitely the outcome — and will remain so until Portugal and Greece look more like the Frankfurt (which isn’t going to happen in our lifetimes).

It is highly unlikely that the Trump administration will be impressed with a “U.S.-Germany Growth and Employment Initiative”, even if Berlin had the political and economic bandwidth to fashion one. The accruing nature of everything threatening Europe is simply so multi-vectored, entrenched and damning that the Continent is now exactly the sort of commitment that the Americans are not interested in.

Yet if anything, that understates the challenge that Europe now faces.

The primary responsibility of the National Trade Council that Navarro leads is to prosecute trade wars. Which means it isn’t just that the European Union cannot exist without express U.S. support, but now also that the United States seems about to actively kick out the Union’s scaffolding.

After The Election

I try to avoid commenting on U.S. politics – anything I say tends to anger at least one-third of the room. But from time to time the United States takes a turn that elevates its internal issues to international import. Of late, evolutions in the American political system has taken such a turn. So here we go …

The American governing system isn’t small. U.S. local, state, and national governments are the country’s first-, second-, and third-largest employers. Combined, their staff is more than 22 million. So long as Americans disagree over how to do things, parallel structures are required to manage those disagreements in the context of the governmental apparatus. Those parallel structures are the Republicans and Democrats. With people constantly moving in and out of office at various levels, the parties need their own deep bench of support personnel to bulwark candidates-turned-mayors and representatives and senators and governors and presidents. The American parties are not traditionally tools of ideology, but tools of governance.

One, among many, outcomes is that various private interests get involved in building that bench of support. That way they can influence government decision-making both indirectly (via lobbyists) and directly (via elected officials and their staff). That takes money, and for decades the folks with the most money in the political system were those in the business community. The result was a somewhat revolving door of business leaders giving cash and staff to the parties to get people into government. When those people left government they returned to business to make more money. Some of that money then flowed back into influencing the political parties and government, and so the wheel turned. It was pretty rare for a stark-raving-mad politician to rise to the top. Business hates risk and likes continuity. Staffing choices reflected that.

Critics called this corrupt — and they had a point. Throughout the 1990s a consensus built that there was too much money in politics. The campaign finance reform effort was designed to minimize, and ideally eliminate, large donations to political campaigns, and thus root-out the perceived corruption. This weakened the business community’s connection to the political process to the point that it really didn’t have a candidate in the 2016 presidential run. This is the first piece of the parties’ unravelling: the single-largest and most cohesive and most status-quo-vested wedge of the political system was shown the door.

The second piece was even more disruptive: technology. In the pre-PC and smartphone age your options for contributing to campaigns of any sort were limited. You could give your time, or you could write a check and send it via snail mail. Checks of $20 or less were barely worth the man hours required to process them, so not a lot of effort went into bushbeating. In 2000 the landscape started to shift. Electronic checks, online bill pay, and money-by-text steadily reduced processing costs to nearly zero, even as social media techs enabled fundraising campaigns to be spread by email, SMS, Facebook, and Twitter at negligible cost. There’s now room for the masses to play politics with their cash.

The third factor almost seems prosaic: redistricting. State legislatures dominated by single parties would redraw their congressional districts’ boundaries, excising or including this or that population to build up their party’s electoral presence in the House of Representatives. The majority of such districts are now “safe” seats.

This all makes American politics loud and messy.

  • Courtesy of redistricting, the real competition for most House seats is no longer at the general election, but instead at the primary level among party stalwarts. That pushes the debate from the center to the edges.
  • At those edges, single-issue-voter money comes hugely into play. While businesses are interested in stability and continuity, individuals have axes to grind. Most Americans find it sexier to donate to specific causes and issues than to political parties and general platforms.
  • Single-issue penetration into both party and government politics polarized the system away from the consensus-building required to get on with the business of governing, and into razor-sharp disputes on issues of principle. Disagreement didn’t lead to bargaining and compromise, but was instead perceived as treasonous or flat-out evil.
  • Social media’s presence in the news cycle enabled people with a lot of extra time to prat on endlessly about this or that issue, blissfully unmoored from social trends, economic developments, decorum, facts, or reality. Biased or even fake “news” — much of it generated by folks outside of journalism — is now par for the course.

In such an environment the parties are largely incapable of appealing to the political center (by definition the political center is made up of people who are not single-issue voters). The parties have devolved from being tools of governance to vehicles for narrowly defined ideologies. America has become a great place to have an argument, but without functional parties it is almost impossible to have a debate.

American political candidates now break along a simple line.

On one side are those who cater to the ideological extremes to harness the increasingly-radicalized party structure: people like Ted Cruz, Elizabeth Warren, Bernie Sanders, and Michele Bachmann. On the other are those who can exist independent of the party structure and run their own campaigns: the Bush family, the Clinton Foundation, Trump Inc., and even Barack Obama. For them the parties were useful in a supporting role, but all of them succeeded because of their independent wealth and/or gravitas. W. Bush won by coalescing the evangelicals into a voting block independent of the Republican Party. Hillary Clinton manipulated the Democratic Party machinery, not the other way around. Barack Obama’s popularity was built on a social media network that co-opted the Democrats; once he was in office his connections with “his” party were cool at best. Trump could not only self-fund, he succeeded despite the Republican party.

At first the Republican Party got the worst of these changes. As a rule the business community is pro-Republican, so campaign finance disproportionally impacted their bottom line. In a double-blow the Democratic Party’s coalition is a much broader sweep of the American electorate. Reduce transaction costs and the Democrats’ larger party base can funnel a larger number of small donations. Before 2010 the Republicans were always the party that could raise more money. That’s now flipped, and Democrats have been able to use their superior financial position to fund ever-larger campaigns.

The Democrat Party stalwarts looked at this turn of events and got very excited about the 2016 presidential race. As America’s leftists tell it, American conservatives are a bunch of old white rich dudes who lord over the world. Campaign finance largely ejected them from the election process, which stripped the Republican party down to its racist, sexist, homophobic dregs. Beating those dregs in a general election would be child’s play because every single minority group in the country combined with the liberal Millennials would be able to sweep the field, eliminate the Republican position in Congress, and usher in a socialist utopia.

The Democrats got it completely right. Except how blacks would vote. And gays. And Hispanics. And unions and Millennials and women. They were wrong about everything. As a result Trump captured every single swing state except Virginia, and several blue states to boot. The Republicans now control both the presidency and Congress for only the second time since World War II. Barring some truly impressive breakthroughs in geriatrics they’ll also control the Supreme Court for another couple of decades.

What is fundamentally revolutionary in my mind isn’t what has changed, but what hasn’t. The technology has changed, dispersing political power far and wide. The way money is raised has changed, enabling the issue of the moment to dominate the Internet and airwaves and national debate. The parties have changed to the point of near irrelevance. But what hasn’t changed is that most Americans are still centrists.

Fully 42% of women, 30% of Hispanics, 45% of Millennials, and 33% of Californians voted for Trump. On the other side, 41% of men, 34% of rural inhabitants, 45% of people without high school diplomas, 25% of Mormons, and 43% of Texans voted for Clinton. The American political center endures, it is just now completely unmoored from the political selection and reporting process. And so it will remain until the American political parties can regenerate themselves.

That will take a lot of soul-searching. I hear encouraging bits. For the Democrats who aren’t part of those single-party factions, it has really sunk in that every election of the past generation that their candidate lacked charisma, they’ve lost. All those single-issue voters just can’t deliver success, because their screaming pisses off left-leaning moderates (not to mention everyone else). And since all but a half dozen of the Senate seats that will be up for grabs in the 2018 bi-elections are held by Democrats, they’d best get a move on unless they want to risk a generational blow out. For the Republicans willing to stand up to Trump, there’s already a realization that a party led by those rebelling against the order can’t rebel against their own order. The Trump election is a one-shot deal.

So it isn’t as bad as it seems…in the United States anyway. In the meantime, things are looking horrible for the rest of the world. The United States is the country that guarantees global security, global trade, and global energy. There are no single-issue voters who are interested in global management. America’s bandwidth to understand — much less discuss — what is going on in the wider world is nil until such time that the American political parties can regenerate themselves. Until then, the superpower that makes the world work is simply absent.

Scared New World

This isn’t a brag piece.

Many have credited me with predicting the Trump rise. To be clear, I never predicted Trump’s entry into politics, or that he’d win the Republican party nomination or that he’d carry the presidency.

But this is still a bit of an “I told you so.”

Everything about the American position in the international system is based upon the Americans holding together what we currently call the international order. Americans have been doing this since 1944. At that point the Americans re-forged the global system, shifting it from a series of warring imperial networks into a global system they personally managed. The Americans imposed global order — the first global order — and created free trade as a means of purchasing the loyalty of the Western and Asian allies, the defeated Axis powers, and in time Communist China. It was all about paying for alliance networks to contain and defeat the Soviet Union. When the Cold War ended the Americans neglected to shift their policies. The Americans continued to provide global security and empower global trade, but did so without the requisite security quid pro quo.

People noticed. The Brazil/Russia/China/India boom could only happen in such a strategic moment in time. The euro could only exist when economics were protected and security was free. But it wasn’t just in the wider world that people noticed. Free trade isn’t really free. Free trade requires someone providing the physical security and global ballast and market access to indirectly subsidize the rest of the system. The Americans have provided that for seven decades, and for the last three decades they have done so without asking for anything in return. With the Trump rise, this whole thing is now in its final years. Perhaps in its final months.

The reason for the accelerated timeframe isn’t just temperament, although I agree TrumpTantrumsTM will certainly play a role. It is far more structural than that. The entire webwork of elite relations that maintains the free-trade system just found itself without access to the leader of the free world. It’s not so much that the new American president is populist, although that is definitely a piece of it, but that he is not really affiliated with either American political party or the overall American business community or any other institutions that are linked into international trade. Trump is a purely domestic entity, disconnected from U.S. governance at all levels. Presidential history isn’t my strong point, but I think the United States hasn’t had one of those since Andrew Jackson, another strongly populist president who didn’t think all that highly of the wider world. But Jackson didn’t inherit responsibility for the global system. Trump has. And if there is one point on which Trump has been consistent, it is that that responsibility will be abandoned.

Yet this isn’t all Trump. The United States has been moving this way for a good 25 years, and I’ve little doubt that even a President Hillary Clinton would have ended the global system one way or another. I have been saying for months that the primary difference to the international order of Trump versus Clinton is timeframe. Clinton would move the United States away from the international order in a relatively slow manner. Probably 4 to 8 years. Trump would do it in 4 to 8 months.

To me the timeframe never really mattered. One way or another the global system was going to breakdown and we would find ourselves in the Disorder. This allowed me to view the world from afar and focus on the structure. The details would take care of themselves in time.

Well, that mode of operation is now about as relevant as the Clinton family.

With a shorter runway, a few things have clarified.

  • Almost everything from the Obama presidency will be undone by the end of January 2017. Obama has shown next to no ability/interest in having conversations with Congress, even with members of his own party. The only large law passed during his entire tenure is Obamacare, so only it cannot be undone with a few strokes of a pen. How that law is modified or unwound requires Congressional involvement, and since Congress remains in the hands of the Republicans, that too is on deck — it will just take a bit more time. Any international treaties negotiated by Obama — whether they be the Paris Climate Accords or the TransPacific Partnership — are dead.
  • The World Trade Organization has less than a year to respond to what will undoubtedly be a tidal wave of U.S. cases. Should those cases not be dealt with in adjudication at a pace and in the way the new White House desires, the United States will start taking unilateral moves which will, in essence, obviate the global trade order.
  • One of those first moves — which might not even wait for the WTO to try and act — will be to declare China a currency manipulator as well as revoke its status as a free market economy. Any countries that attempt to relabel Chinese goods are likely to be caught in a dragnet. This one push should be enough to throw China into its first recession in 30 years. The question now is whether or not President Xi’s political consolidation efforts have progressed enough that China can weather the resultant internal political and economic explosion.
  • NATO is for all intents and purposes dead. Russia’s moves into Ukraine will increase, and broadscale Russian plans for its entire western periphery — everything from Latvia to Poland to Romania to Azerbaijan — will accelerate. The only way forward for Europe is for Sweden and Germany to massively rearm.
  • Formal talks between the United States and the United Kingdom on some sort of post-Brexit trade deal will open. (Technically these are illegal under EU law, but what is Brussels going to do? Kick the Brits out?) The only question is whether these talks herald British entrance into NAFTA.
  • The alliance with Korea and Japan will no longer require U.S. troops in those countries, and even that assumes the alliance isn’t ended outright. Both countries will have little choice but to beef up their power projection capabilities, which is highly likely to include nuclear weapons. A much more aggressive Japan ends China’s creeping power projection to the northeast.
  • Alberta may have just gotten a fresh lease on life. One of those Obama executive orders that will be scratched out is the Keystone pipeline. Its construction will enable Albertan crude to access the U.S. refining network where it will be blended with light/sweet U.S. shale crude. The resultant blend will save U.S. refiners a couple hundred billion in refinery overhauls, resulting in lower cost gasoline for the country. It also just might provide Alberta with enough income to climb out of what would have otherwise been a multi-year recession. The question now is how much of that income will Ottawa take, and how Alberta will respond to the forced transfer.
  • Mexico now has no choice but to work with Donald Trump. Since most of the migration that comes into the U.S. actually comes from Central America and not Mexico, the most constructive path forward will indeed be a border wall that Mexico will indeed pay for…but on Mexico’s southern border rather than its northern one. How Mexico City handles this issue will determine the future success of both Mexico and NAFTA.

And now if you’ll excuse me, I’d better get back to that book writing. Apparently I have less time to get these projects out than I had thought.

RNC And U.S. Domestic Politics

Think November will bring an end to the shenanigans of the 2016 election cycle? Don’t hold your breath.

If there is one thing that drives editors batty, it’s an author who can’t keep his grimy fingers out of the editing process. So for the past three weeks I’ve been backpacking through Yosemite and the Thorofare while my team beats the text of Shale New World into shape. We’re aiming for an October release. (BTW – free case of books for anyone who can come up with a sexier title. I’m dry.)

Anywho, I hiked in to my taxi-out lodge this morning, did some laundry (mostly throwing away clothes that should never be worn ever again), and started getting caught up on the world. All y’all have been busy: a near-coup in Turkey, a devastating attack in Nice, the Brits throwing yet more spanners into the European project, the Chinese economy in a nose dive, India’s central bank chief stepping down, Japan’s prime minister looking particularly wounded, Justin Trudeau’s hair still rockin’ and so on. So much to work with! (The world has been so very good to me this year!)

But by far the most notable item of the past three weeks happened just yesterday when Texas Senator Ted Cruz addressed the Republican convention. His supporters gave him a hero’s welcome, and when it became apparent that he was not going to support Donald Trump, the nominee, a giant auditorium full of Republicans…booed him off stage.

You can parse this dozens of different ways, and I’m certain that the pro-Trump crowd did everything they could to whip the crowd into a frenzy once it became clear that an endorsement wasn’t going to materialize — but the bottom line is that a speaker being jeered to stage left hasn’t happened at a Republican convention in the past several decades.

Most pundits are making hay about the disunified nature of the Republican Party and the impact it will have on the general election. I certainly agree this adds a bit more gravel to what is already a gritty process, but let’s be honest here. Did anyone really expect Senator Cruz, the person in the sitting Congress with the blackest track record for throwing anyone and their grandmother under any available mass transit vehicle if it served his personal interest of the moment, to not be an ass at the convention?

Get real. In this election such is par for the course.

Instead, there are three other things that I’m thinking.

First, as a national political figure, Ted Cruz is likely dead. You just don’t come back from a convention rejection. Unless the Tea Party splits off from the Republicans formally, we are done hearing from Mr Cruz at the national level. Your personal politics will tell you whether this is fabulous or disastrous.

Second, a deeper question is what does this mean for Cruz’s Tea Party movement? I’ve never considered a billionaire like Mr Trump to be a stable representative of a group that prides itself on being less well-off than the average American (and living nowhere near Manhattan). The illuminating item for me was when Trump supporters were so nearly-physically hostile to Mr Cruz’s wife, Heidi, that security had to escort her from the convention floor under the assault of jeers of “Goldman Sachs”. Needless to say, the Tea Partiers are having a bit of a leadership crisis. I’d expect an identity crisis to follow shortly.

But the true geopolitical issue is the third one: Cruz’s fall isn’t exceptional, but instead representative of the in-flux nature of the entire American political spectrum.

The two American political parties are in reality coalitions of coalitions, and the stability of those coalitions of coalitions has proved remarkably stable since 1935-1945.

Let’s start with the Right.

The Republican coalition is comprised of five pieces: national security conservatives, evangelicals, the business community, populists and pro-lifers. At first blush this doesn’t seem like a very large grouping. But what it lacks in size it makes up in cohesion; These five groups don’t contradict each other. Folks who use religion to guide their votes don’t tend to stress about business regulation, while voters who shoot from the hip (figuratively and literally) tend to not have strong opinions on abortion. It’s easy to construct a political platform that addresses the pet issues of all five groups without alienating any of them. As such the Republican coalition is a reliable one that tends to carry the day.

The Democrat crew is more motley: greens, socialists, unions, gays, unmarried women, blacks, under 30s and pro-choicers. They disagree on pretty much everything. Greens and unions fight over every aspect of industrial policy. Gays and blacks have wildly different views on what the term ‘civil rights’ actually means. The under-30s and socialists expect single mothers to help pay for their college debt. And there’s always the threat that if the rest of the Democrats manage to cobble something together, the pro-choicers will blow it up if their single-issue voting style isn’t respected. Now if a charismatic personality — say, a Barack Obama — can inspire the lot, the Democrats will breezily walk away with the election. Their numbers are simply so much bigger than the Republicans. But shy of such a unifying candidate the biggest obstacle to the Democrats is themselves.

This is how things have been for decades. Yet in this election cycle it has all blown apart.

Within the Republican coalition the pro-lifers simply don’t trust Trump, as he was pro-choice just two years ago. The national security conservatives remain furious with Trump for insulting U.S. military’s poster boy, veteran Senator John McCain. (The same crew also views Hillary Clinton, in her role of Secretary of State, to be the only person in the Obama administration to really “get it”.) The party loyalty of the evangelicals — who considered Ted Cruz to be their man — to Trump is, at best, suspect. And because of campaign finance reform the business community never had a candidate in the race in the first place. (Ironically by taking money out of politics we Americans have replaced it with a hefty dollop of crazy.) That just leaves the populists running the show and so that’s what Trump has ridden to the nomination.

If anything the damage is even deeper, if less obvious, on the Left.

The gays got most of what they were after with the Supreme Court settling the gay marriage issue, and in the aftermath of the Orlando attacks are thinking of immigration and national security in ways new and terrifying. Pro-choicers look at Trump’s record on abortion and don’t see all that much at stake this time around. Trump’s anti-free trade rhetoric is a siren song for organized labor, particularly in light that Hillary Clinton’s husband presided over the greatest expansion of free trade in recent memory. Working-class white men and unions—once the backbone of the party—seem to be favoring Trump over Clinton in several swing states. The socialists and under-30s were so vehemently pro-Bernie Sanders (and vehemently anti-Hillary Clinton) that many walked out of the rally when Sanders bowed to the inevitable and endorsed his rival. Many won’t bother to even show up to vote (I even have a pro-Sanders buddy who is considering emigrating not over the possibility the Donald moving into the Oval Office, but over “Crooked Hillary” sitting there.)

This motion isn’t bad for American democracy. In fact, it is perfectly normal. Parties change. They evolve. Sometimes they even die. Before 1935 it was the Republicans, not the Democrats, who favored big government. Anyone remember the Whigs? Life moves on.

But new coalitions do not form overnight. The last time the Democrats and Republicans swapped factions it was the Great Depression and World War II, and that reshuffling took the better part of a decade. No matter who wins the election in November, the new president will neither have a functional party to rule with nor a function party across the aisle to negotiate with. U.S. politics are about to stall for a while.

Now spackle that atop what’s going on in the rest of the world.

The American security and economic commitment to the free trade era is what has enabled the world to evolve into its current form, making everything from the European Union to independent Africa to global energy markets to the Chinese Communist Party possible. It made this commitment to bribe up an alliance to confront the Soviets. The Cold War ended in 1989 and American foreign policy has been on cruise control ever since. Now, for reasons geographic, military, economic and demographic the United States is finally backing away from these commitments — a process on vivid display on both the American Left and American Right. As the scaffolding that supports the broader global system is pulled away, global structures big and small will collapse while the Americans ride off into the sunset, blithely unaware of the consequences in their self-contained continental system.

Even if Americans were internationally-minded, even if they were convinced that their economic and physical security were dependent upon international engagement, even if they could appeal to their better natures, the simple fact remains that for the next few years they will be obsessed with their domestic political restructuring.

In this light, whether the next president is someone with bad hair or Donald Trump just doesn’t matter very much. The Americans are going out to lunch — and it is going to be a long lunch.