Tag Archive for: United States

A very Trumpian year

At the end of 2017, US President Donald Trump’s administration and congressional Republicans rammed through a US$1 trillion cut in corporate taxes, partly offset by tax increases for the majority of Americans in the middle of the income distribution. But in 2018, the US business community’s jubilation over the handout started giving way to anxiety over Trump and his policies.

A year ago, US business and financial leaders’ unbridled greed allowed them to look past their aversion to large deficits. But they are now seeing that the 2017 tax package was the most regressive and poorly timed tax bill in history. In the most unequal of all advanced economies, millions of struggling American families and future generations are paying for tax cuts for billionaires. The United States has the lowest life expectancy among all advanced economies, and yet the tax bill was designed so that 13 million more of its people will go without health insurance.

As a result of the legislation, the US Department of the Treasury is now forecasting a US$1 trillion deficit for 2018—the largest single-year non-recessionary peacetime deficit in any country ever. And if that wasn’t bad enough, the promised increase in investment has not materialised. After giving a few pittances to workers, corporations have funnelled most of the money into stock buybacks and dividends. But this isn’t particularly surprising. Whereas investment benefits from certainty, Trump thrives on chaos.

Moreover, because the tax bill was rushed through, it is filled with mistakes, inconsistencies and special-interest loopholes that were smuggled in when no one was looking. The legislation’s lack of broad popular support all but ensures that much of it will be reversed when the political winds change, and this has not been lost on business owners.

As many of us noted at the time, the tax bill, along with a temporary increase in military spending, was not designed to give a sustained boost to the economy, but rather to provide the equivalent of a short-lived sugar high. Accelerated capital depreciation allows for higher after-tax profits now, but lower after-tax profits later. And because the legislation actually cut back on the deductibility of interest payments, it will ultimately increase the after-tax cost of capital, thus discouraging investment, much of which is financed by debt.

Meanwhile, the US’s massive deficit will have to be financed somehow. Given the country’s low saving rate, most of the money will inevitably come from foreign lenders, which means that the US will be sending large payments abroad to service its debt. A decade from now, total US income will most likely be lower than it would have been without the tax bill.

In addition to the disastrous tax legislation, the Trump administration’s trade policies are also unsettling markets and disrupting supply chains. Many US export businesses that rely on Chinese inputs now have a good reason to move their operations out of the US. It is too soon to tally the costs of Trump’s trade war, but it is safe to assume that everyone will be poorer as a result.

Likewise, Trump’s anti-immigrant policies are encouraging companies that depend on engineers and other high-skilled workers to move their research labs and production facilities abroad. It is only a matter of time before we start seeing worker shortages elsewhere in the US.

Trump came to power by exploiting the broken promises of globalisation, financialisation, and trickle-down economics. After a global financial crisis and a decade of tepid growth, elites were discredited, and Trump emerged to assign blame. But, of course, neither immigration nor foreign imports have caused most of the economic problems that he has exploited for political gain. The loss of industrial jobs, for example, is largely due to technological change. In a sense, we have been the victims of our own success.

Still, policymakers certainly could have managed these changes better to ensure that the growth of national income accrued to the many, rather than the few. Business leaders and financiers have been blinded by their own greed, and the Republican Party, in particular, has been happy to give them whatever they want. As a result, real (inflation-adjusted) wages have stagnated, and those displaced by automation and globalisation have been abandoned.

But if the economics of Trump’s policies weren’t bad enough, his politics are even worse. And, sadly, Trump’s brand of racism, misogyny and nationalist incitement has established franchises in Brazil, Hungary, Italy, Turkey and elsewhere. All of these countries will experience similar—or worse—economic problems, just as all are facing the real-world consequences of the incivility on which their populist leaders thrive. In the US, Trump’s rhetoric and actions have unleashed dark and violent forces that have already begun to spin out of control.

Society can function only when citizens have trust in their government, their institutions, and one another. And yet Trump’s political formula is based on eroding trust and maximising discord. One can only wonder where this will end. Is the murder of 11 Jews in a Pittsburgh synagogue the harbinger of an American Kristallnacht?

There is no way to know the answer to such questions. Much will depend on how the current political moment unfolds. If the supporters of today’s populist leaders grow disillusioned with the inevitable failure of their economic policies, they could veer even further towards the neo-fascist right. More optimistically, they could be brought back into the liberal-democratic fold, or at least become demobilised by their disappointment.

This much we do know: economic and political outcomes are intertwined and mutually reinforcing. In 2019, the consequences of the bad policies and worse politics of the last two years will come more fully into view.

How American poverty became ‘fake news’

Under the administration of the incontinently mendacious President Donald J. Trump, everyone should worry about the integrity of America’s official statistics. They should worry about much more under Trump, particularly the fate of democracy in the United States. But without credible official data, there can be no genuine accountability—and thus no democracy.

Consider the Trump administration’s reporting on poverty in the US. It seems that the baseline numbers produced by the US Census Bureau are (so far) intact, but there has been a flurry of misinterpretations that go beyond the usual partisan spin.

Commentators on the right like to quote Ronald Reagan’s 1988 claim that in the war on poverty, declared by Lyndon B. Johnson in 1964, poverty won. That claim, perennially used as a cudgel to beat the social safety net that was expanded under Johnson’s ‘Great Society’ reforms, is consistent with official poverty estimates, the methodology of which has not been updated since the 1960s.

Because that methodology ignores taxes (including the earned income tax credit) and programs like food stamps (now called the Supplemental Nutrition Assistance Program, or SNAP), their effects are not counted, no matter how successful they are in reducing want. Such a widely acknowledged statistical flaw invites commentators to fill the hole with their prejudices, as Reagan did.

More recently, Trump’s Council of Economic Advisers, in a July report arguing for work requirements to be attached to social benefits, claimed that, thanks to the American safety net, the war on poverty ‘is largely over and is a success’. This argument hinges on abandoning traditional metrics, which measure income, and switching to consumption.

Consumption is arguably (but only arguably) superior to income as a welfare measure, but it is unclear how many of the very poor participate in a burdensome and intrusive survey that has a 40% non-response rate. More worrying still is the essentially arbitrary ‘correction’ to the consumer price index (CPI) that reduces the poverty line so that there are fewer people beneath it.

Perhaps the official CPI doesn’t adequately capture quality improvements in goods and services. The consequences of this have been addressed in the scholarly literature, notably by a National Academy of Sciences panel that argued against a mechanical correction. But debating that issue is very different from abandoning the official CPI in favor of a more politically advantageous one that comes close to eliminating poverty.

A more egregious case of data manipulation concerns a report by the United Nations Special Rapporteur on extreme poverty and human rights. At the invitation of the US government, the Special Rapporteur, Philip Alston, examined extreme poverty in the US. He reported his findings to the UN Human Rights Council in June 2018.

The result makes for dreadful reading. Documenting the extraordinary depths of poverty in parts of the US, the report includes tent camps on the streets of Los Angeles, yards awash in untreated sewage because local authorities refuse to supply services, and the widespread use of fines and confiscations levied on poor people that many towns and cities are using to finance themselves. Whereas Johnson declared a war on poverty, parts of America are now waging a war on the poor.

Many of us believe that, because the US social safety net is so imperfect, extreme poverty is more prevalent there than elsewhere—and certainly among developed countries. Welfare reform that encouraged work has been good for some of the poor, but bad for the poorest, expanding inequality within the poor population and hurting the worst off.

Books by Kathryn J. Edin and H. Luke Shaefer and by Matthew Desmond have documented in detail the miseries of life at the bottom in America, and Shaefer and Edin argue that several million children in the US are living on less than two dollars a day. In a New York Times commentary in January, I noted that the World Bank now publishes estimates of global poverty that include the rich countries, and that those estimates show 5.3 million people in the US living on less than the equivalent of the world’s global poverty line.

In my argument, I used US$4 per person per day for rich countries as roughly equivalent to the global poverty line of US$2 used for poor countries. There are more ‘globally poor’ people in the US than in Sierra Leone or Nepal, and the poverty rates in the US and China are similar, despite the more than threefold difference in per capita income.

The World Bank’s calculations that I reported were widely denounced—by both the right and the left. The Heritage Foundation argues that if one uses consumption, not income, there are only 250,000 globally poor people in the US. Never mind whether the parents selling their children’s social security numbers to survive, or risking their children’s safety to find a place to live, have time to participate in the consumption survey. Many on the left, meanwhile, refuse to believe that any American is as poor as the poorest in Africa or Asia. Whereas the right wants to decrease domestic transfers, the left wants to increase foreign transfers.

The story then turns surreal. Alston’s report drew an angry rebuke from the US ambassador to the UN, Nikki Haley, who claimed that ‘it is patently ridiculous for the United Nations to examine poverty in America’, and an official US response saying that Alston’s numbers were wrong. Yet the only numbers Alston used came from the US Census Bureau, an estimate described in the response as ‘the exaggerated figure cited by the Special Rapporteur’. The response then approvingly cited the Heritage calculations, which are based on my $4-per-day poverty line.

And then, perhaps only coincidentally, the Trump administration pulled the US out of the Human Rights Council, with the result that Haley didn’t attend the report’s presentation. She, like the Council of Economic Advisers, noted that the Trump administration knows how to tackle deep poverty, which is to force people to work.

That may or may not be true, but denouncing the Census Bureau’s estimates in favor of those from the Heritage Foundation (there is evidence that agency officials objected) or conveniently tampering with the CPI, and then treating the alternative numbers as superior to the official statistics, is surely well beyond the pale. Trump’s administration showed in 2018 that it will admit no blemishes, whether extreme poverty or the unconscionable death toll following Hurricane Maria in Puerto Rico. And there is no reason to believe that further distortions of the truth, and the threat to democracy that such behaviour implies, will not appear in the coming year.

Midterms show both Republicans and Democrats need to focus on 2020

In the wake of the congressional midterms, the United States remains divided electorally and the primary issue continues to be President Donald Trump.

American differences are now clearly in evidence in Congress, with Democrats having won a comfortable working majority in the House of Representatives and the Republicans having kept control of the Senate. This result wasn’t unexpected, but what was unusual was the high level of voter turnout and a shifting mosaic of candidates who nominated for office.

A record number of women were on the ballot, with some 256 candidates running for House or Senate seats. Of these, 197 were Democrats, suggesting that Republicans still have some way to go in addressing the gender balance.

What is more important is that candidates represented a broad swathe of groups, including Native Americans, Muslims and people from a range of other minorities. The candidacies of Stacey Abrams and Andrew Gillum for the gubernatorial mansions in Georgia and Florida, respectively, signalled an enormous step forward in the South. Both these talented African Americans lost narrowly, but they have broken ground for future contests and the diversity of electoral representation.

Turnout was very high, especially compared with the dismal voting pattern of 2014, when only 37% of eligible Americans went to the polls. On this occasion, nearly 107 million voters (49.3%) turned up at the ballot box.

Much of the increased voter interest can be sheeted home to Trump, who has converted the White House into a roiling campaign rally. The president draws strength from the faithful as he excoriates his opponents, especially among the media. The imbroglio over CNN journalist Jim Acosta’s White House press credential is merely a continuation of Trump’s war on the ‘enemies of the people’ who constitute the fourth estate. Expect more of this over the next two years.

Both Democrats and Republicans turned out en masse. This rising tide of voter engagement delivered some surprises at both national and state levels. In Texas, for example, the campaign of Democratic Congressman Beto O’Rourke against Republican Senator Ted Cruz saw voter turnout in the Lone Star State rise from 28% in 2014 to some 46% this year. O’Rourke campaigned in every county in Texas and, while he lost narrowly, the Democrats scored significant wins locally in Dallas and Houston. O’Rourke is someone to watch for the future.

So too is Kyrsten Sinema, the new Democratic Senator for Arizona, who won a seat held by the Republicans for some 30 years. Sinema’s life story reads like that of the young Abraham Lincoln. She lived for a time with her family in an abandoned garage without running water. Her campaign emphasised the fact that she actually personified the American dream.

Out in California, the Republicans struggled to hold their electoral assets in Orange County, which has been so reliably red for generations that Ronald Reagan once observed that this was the place where good Republicans went to die. In November 2018, a blue wave struck and seven House seats were won by Democrats.

The fact remains, however, that Republican control of the Senate affords the Trump administration some degree of insulation against Democratic pressures from the House and the potential consequences of Special Counsel Robert Mueller’s looming report. Trump’s relentless attacks on Mueller seem not to bother the special counsel in the slightest. Mueller has remained focused on his investigation and it would be very surprising indeed if his painstaking endeavours did not produce something serious for the administration. Midterm voters appeared unconcerned about Russian intrusions in their democratic processes but, make no mistake, the focus in Washington will soon shift back to Russian involvement in the 2016 election and related matters.

At this point, however, Trump remains the most favoured candidate to win the presidential election in 2020. This is simply because no Democrat has emerged as a viable alternative for the presidency. In the midterms, the Democrats’ primary standard-bearers were Barack Obama and Joe Biden. This illustrates the simple reality that, since November 2016, the Democrats have failed to renew.

Within the Democratic leadership ranks, Nancy Pelosi is 78, Steny Hoyer is 79 and  Dianne Feinstein is 85. The party needs serious injections of new blood and talent.

On the Republican side of the aisle, the party is now a wholly owned subsidiary of Donald Trump. Trump’s interventions in certain Senate races, especially in Missouri and Texas, were critical in ensuring Republican wins. Beginning in the primaries of the summer of 2016, Trump mounted an insurgency to capture the Republican Party. He now owns it.

Some pundits are predicting governmental gridlock and the possibility of a shutdown. Certainly, the arguments over the border wall will not lessen, particularly now that the Central American migrant caravan has reached the Mexican city of Tijuana. But on issues such as infrastructure spending there’s likely to be a bipartisan consensus. Pelosi has held out an olive branch on this, and infrastructure spending will be as crucial to Trump in 2020 as tax cuts were in 2018.

On China, there appears to be a developing consensus in Washington that US policy needs to be robust and that Beijing needs to understand that the US is committed to deterring China’s encroachments in the South China Sea and the South Pacific and is increasingly unwilling to accept China’s current approach on trade and investment, and on intellectual property.

Finally, there were some interesting results at the state level. Several races were more competitive than expected, and there were some surprising defeats in places such as Kansas and Wisconsin, where Republicans Kris Kobach and Scott Walker fell short, despite presidential backing. But Republicans can take comfort from strong performances from governor-elect Mike DeWine in Ohio and Governor Rick Scott in Florida.

To conclude on a positive note beyond partisanship, the disgraceful gerrymandering of electoral districts for the House has now become an issue. Redistricting is a partisan affair and both sides have been guilty of some appalling electoral mapping. As the Republicans control more state houses, they have been the principal beneficiaries of gerrymandering over recent years. The courts have increasingly shown a constitutional interest and gerrymandering is now in the spotlight in a number of places as a consequence of ballot initiatives. This is not before time and hopefully will bring on reform.

The midterms have delivered results that mean both major parties have to consider carefully their congressional profiles and policy positions for the immediate future. 2020 is already in sight.

Blue wave fails to wipe out Republicans

Not so long ago, the media consensus was that the Democrats would ride a ‘wave’ akin to the Republican routs in 1994 and 2010. Back then, the party under Bill Clinton and Barack Obama had spectacularly lost control of both chambers of Congress.

Shell-shocked Democrats emerged from those midterm elections in very bad shape, and it was widely believed Republicans would endure the same kind of humiliation in 2018.

After all, the strong turnout among Democrats during the primaries suggested a more motivated base than their Republican rivals. Democrats were raising money at record levels. More than 40 GOP House incumbents had retired—most from congressional districts where President Donald Trump’s approval ratings were low. The Mueller probe into allegations of collusion with Russia was handing out indictments of former Trump advisers.

Moreover, history showed that, with rare exceptions, the president’s party suffers big setbacks in the first midterm elections of his tenure. Some seasoned observers of Washington politics believed Democrats could win the Senate.

This week was the American electorate’s first opportunity to render a national verdict on Trump’s presidency, and the national vote did not follow the aforementioned script. Turnout and enthusiasm were high, but the results were mixed: although the Democrats have won enough seats to regain the House of Representatives, Republicans have strengthened their hold on the Senate. The result just confirms and extends America’s current political divisions.

What happened? How to account for the mixed midterm results?

Start with the controversy over Brett Kavanaugh. By common consent, even conservatives and Republicans who didn’t much like Trump unified behind his Supreme Court nominee. In their view, Kavanaugh had been subjected to the most unfair and baseless scrutiny over alleged sexual assaults from 35 years ago. Suddenly, the enthusiasm gap closed.

Then there’s the divided nature of America: the rising partisan hostility; the widening divisions between urban and rural America; the record gender gap; the fault line of education.

All this was on display this week. Women, metropolitan voters, and university graduates are far more likely to vote Democrat; men, remote and regional Americans, and people without a college degree are more likely to support Trump.

Nothing demonstrates the divisions better than the nature of the House and Senate races. Although his name wasn’t on the ballot, Trump tried to nationalise the midterms by running hard on import tariffs and especially tough border controls. That helped in states where Senate races were conducted. However, it backfired in House races.

Indeed, what worked for Republicans in motivating the conservative base in red states—and even a few Democrat states (such as Indiana, Missouri and North Dakota)—boomeranged in urban districts where the House majority was determined. These are swing electorates in which moderate and college-educated Republicans and independents determine who wins.

There are anywhere between 30 and 40 of these seats, and they are primarily based in the suburbs of Philadelphia, Denver, northern Virginia and Miami-Dade.

Think of these seats as America’s versions of Wentworth, the inner-city Sydney seat that recently voted out the Liberals. Nativism does not resonate here. In the 2016 presidential election, Hillary Clinton carried 23 of these moderate Republican seats; and most of them—and some more—voted for the Democrats this week.

What lies ahead?

First, Trump is unlikely to be fazed by these results. If anything, he may well double down on his nativist message, because it didn’t hurt the Republican campaigns across many states. And it is the states that determine the electoral-college vote, which in turn determines the presidential election.

True, Republicans were helped in 2018 because many Democrat senators were running in pro-Trump states. But ‘America First’—taken together with tax reform and deregulation, which helped create today’s booming economy and record-low unemployment—resonated in many parts of conservative America.

Although Ronald Reagan would be aghast at Trump’s protectionism and exclusionary nativism, the GOP is now Trump’s party. The Donald shouldn’t be underestimated in 2020.

Second, in the wake of their House victory, Democrats are likely to be more confrontational and subject Trump to more scrutiny. However, there is a danger in over-interpreting their mandate. They received none. At best, they were merely rewarded for acting as the people’s proxy in placing checks and balances on Trump’s presidency.

Moreover, Democrats lack dominant national leaders and have no clear agenda beyond bagging Trump to take into the 2020 presidential election.

Finally, get ready for Washington to become even more partisan and polarising in coming years. Robert Gates once said the ‘greatest national security threat’ to the US ‘is the two square miles that encompasses the Capitol Building and the White House’.

The former defence secretary made those remarks in 2014, well before Trump arrived on the scene. If he thought congressional gridlock and infighting was a big problem then, it is bound to become an even bigger problem during the next two years.

Hyper-partisanship, toxic polarisation, lack of bipartisanship—the midterm elections have reaffirmed these trends.

Defining diplomacy down

Some 25 years ago, Daniel Patrick Moynihan, a Harvard professor who in the course of his career served as United States ambassador to the United Nations and a US senator from New York, coined the phrase ‘defining deviancy down’. The phrase was meant to describe a social trend in which behavioural standards declined over time to the point that what was once intolerable became broadly acceptable.

I am reminded of Moynihan’s phrase when I consider the state of diplomacy aimed at bringing about North Korea’s denuclearisation. Increasingly, the parties involved, including the United States and South Korea, appear to be relaxing their requirements for what is expected of North Korea. Call it ‘defining diplomacy down’.

All this has taken on more than a little urgency, because it is now more than four months since the Singapore summit and there is talk that US President Donald Trump and North Korea’s Kim Jong-un will meet again soon.

As is always the case with diplomacy, the question arises as to how to define success. Peace is one possible answer. And to be sure, peace is well worth preserving on the Korean peninsula, given the enormous human and economic costs that any war would entail.

But if avoiding war takes precedence over all else, there is the danger that other important interests could well be compromised. There is the danger, too, of arrangements that would lessen tensions over the short term but threaten peace over the long term by requiring real compromises and constraints in exchange for promises and possibilities.

Already there is evidence that neither South Korea nor the US is anxious to demand from North Korea a full accounting of all its nuclear materials and weapons, without which real denuclearisation cannot be carried out and verified. The concern appears to be that North Korea would baulk at such a request, causing a crisis.

Instead, South Korea has suggested that it ought to be enough for the time being if North Korea simply destroys one or another nuclear facility. The US, for its part, is counselling patience and advising sceptics not to demand too much of North Korea too soon. In both cases, what we are seeing is a reluctance to give North Korea a test that it might fail.

At the same time, the ‘maximum pressure’ campaign has effectively ended, with calls to relax sanctions and a reluctance to enforce fully those on the books. The US and South Korea have also cancelled military exercises and relaxed their force posture, respectively, easing the pressure on the Kim regime. This is what defining diplomacy down is all about.

This reluctance to press North Korea, however, points to the danger that Kim’s regime will be allowed not just to keep but to increase its nuclear arsenal. Indeed, North Korea could close or destroy facilities yet never denuclearise if it continues to build capacity at the same time.

North Korea will perhaps understandably resist a negotiation in which it is asked to do everything before it receives anything. It will demand compensation, most likely in the form of relaxing economic sanctions, if it were to eliminate any nuclear capacity. China and Russia would surely support such a request. But rewarding North Korea generously for partial measures reduces its incentive to take additional steps, much less complete the process of denuclearisation.

The Kim regime is also certain to want to avoid being forced to choose between giving up its nuclear and missile programs, which it sees as essential for its security, and improving its economy, which is essential for social and political stability. It wants to have its cake and eat it: both continued security and greater prosperity.

North Korea has been pressing for a declaration of the end of war, an aspirational statement that would signal a common desire to replace the armistice that has existed since the Korean War ended 65 years ago with a formal peace treaty. Again, the question arises as to what North Korea would require in return. Already, its suspension of nuclear and missile testing has brought about an end to large US – South Korea military exercises. At some point, North Korea is likely to ask for a reduction in US troop levels in South Korea.

This risk is related to the focus on denuclearisation. Achieving it is an understandable priority for the US, but South Korea must worry as much, if not more, about North Korea’s non-nuclear or conventional military forces that threaten Seoul, home to roughly 20% of South Koreans. The danger is that differing priorities drive a wedge between the two allies, benefiting North Korea.

Despite Trump’s tweets and statements, denuclearisation is neither a fact nor a certainty. On the contrary, it remains a distant and unlikely goal. The challenge for the US and South Korea is to bring the goal closer without growing apart.

The best way to achieve this is through close consultation, a commitment to avoid surprising each another or entering into separate deals, and the forging of a comprehensive agreement on what diplomacy must achieve and what it would require in return. Existing military exercises and economic sanctions should be sustained, until there are significant changes that reduce the North Korean threat. Think of it as defining diplomacy up.

The end of America’s China fantasy

A long-overdue shift in America’s China policy is underway. After decades of ‘constructive engagement’—an approach that has facilitated China’s rise, even as the country has violated international rules and norms—the United States is now seeking active and concrete counter-measures. But is it too late to rein in a country that has emerged, with US help, as America’s main geopolitical rival?

From Richard Nixon to Barack Obama, successive US presidents regarded aiding China’s economic rise as a matter of national interest; indeed, Jimmy Carter once issued a presidential memo declaring as much. Even as China defied world trade rules, forced companies to share their intellectual property and flexed its military muscles, the US held onto the naive hope that, as China became increasingly prosperous, it would naturally pursue economic and even political liberalisation.

America’s ‘China fantasy’, as James Mann calls it, was exemplified by Bill Clinton’s argument in favour of allowing China’s admission to the World Trade Organization. Citing Woodrow Wilson’s vision of ‘free markets, free elections, and free peoples’, Clinton declared that China’s WTO entry would herald ‘a future of greater openness and freedom for the people of China’.

That is not what happened. Instead, China established itself at the centre of global manufacturing value chains, as countless companies moved their production to the country—including from the US—while keeping its markets, politics and people under tight control. In fact, China’s dictatorship has become even more entrenched in recent years, as the Communist Party of China has used digital technologies to build a surveillance state. Meanwhile, the US has run up trillions of dollars in bilateral trade deficits.

Nonetheless, America’s China fantasy endured, leading Obama to look on as the country created and militarised artificial islands in the South China Sea. At the height of the Chinese government’s island-building, Obama argued that ‘we have more to fear from a weakened, threatened China than a successful, rising China’. As a result, China seized de facto control of a highly strategic sea corridor through which one-third of global maritime trade passes—all without incurring any international costs.

Over the last couple of years, however, the China-policy debate in the US has begun to reflect more realism, with a growing number of voices recognising China’s ambition to supplant its American benefactor as the leading global superpower. The US finally called China what it is: a ‘revisionist power’ and ‘strategic competitor’. And, just this month, Vice President Mike Pence bluntly accused China of ‘using political, economic, and military tools, as well as propaganda, to advance its influence and benefit its interests’ in the US.

This rhetorical shift is being translated into action. President Donald Trump’s trade war, in particular, has grabbed headlines, though many observers have failed to discern the strategy behind the tariffs.

Whereas Trump has used tariffs against allies as leverage to secure concessions and clinch new trade deals, US tariffs targeting China—which could endure for years—are intended to bring about more fundamental and far-reaching change. Even the revised deals with US allies are intended partly to isolate China, thereby forcing it to abandon its mercantilist trade practices, such as forced technology transfer.

But what the Trump administration has initiated goes beyond tariffs; it amounts to a structural change in America’s China policy that promises to reshape global geopolitics and trade. Because this change aligns with an incipient US bipartisan consensus in favour of more assertive action to constrain China, it is likely to outlast Trump’s presidency.

To be sure, this does not mean that the US is going to adopt an overtly confrontational China policy. Nor does it necessarily mean that, as many speculate, a new cold war is in the offing. For example, China still gets a free pass on human rights abuses, from holding up to a million Muslims from Xinjiang province in internment camps to effectively kidnapping Interpol President Meng Hongwei. And, despite his assertions that the Obama administration’s response to China’s activities in the South China Sea was ‘impotent’, Trump has done little to counter Chinese expansionism.

Instead, the US seems to hope that it can use primarily economic levers to weaken China—a kind of death from a thousand cuts. But will it be enough? Or is the US effectively shutting the stable door after the horse has bolted?

China is already challenging the US for technological and geopolitical primacy, and flaunting its authoritarian capitalism as an alternative to democracy. Communism couldn’t pose a credible challenge to liberal democracy, but authoritarian capitalism might. In that sense, China’s model represents the first major challenge to liberal democracy since the rise of Nazism.

Thanks to its great strides in strengthening its technological prowess and geopolitical clout, China is in a strong position to withstand US pressure to change its ways. It will have to sacrifice some economic growth. But for President Xi Jinping, such a sacrifice would be worth it, if it meant protecting not only his own position, but also his ‘Chinese dream’ of global preeminence. Even if US pressure escalates significantly, China will likely adopt a ‘two steps forward, one step back’ strategy to keep progressing towards its ambitious goals.

This is not to say that US efforts are for naught. On the contrary, its policy shift amounts to its last chance to stop China before it secures the critical technologies it needs to gain the upper hand geopolitically in Asia and beyond. Even if it is too late to force China to respect international rules and human rights, it is never too soon to end China’s damaging free ride.

Operating left of launch

Three weeks before Christmas 2001, the energy company Enron went bust. It was the largest bankruptcy in American history. In 2002, Malcolm Gladwell told the story of what went wrong: on the advice of bright McKinsey consultants, Enron’s management dived headfirst into corporate America’s ‘talent culture’, recruiting only the top performers who could think outside the box.

Strategists commonly imagine conflict in boxes. We divide it into distinct domains contested by armed services wearing distinct uniforms. We adapt to change by creating more boxes—new domains (cyber), new uniforms (the new US space force) and new theatres (the Indo-Pacific).

In the boxes of war—everything ‘right of launch’—the US is dominant and likely to remain so for some time. Faced with this reality, other states are achieving strategic objectives by all means short of war—everything ‘left of launch’. This pattern of adaptation to the modern strategic environment is leaving the US and allies struggling to think outside the box of conventional solutions.

So what exactly does ‘operating left of launch’ look like? In short, it means bringing multiple arms of state power to bear on a localised objective while avoiding a reaction threshold that might cause the opponent to declare war. Take Beijing’s goal to ‘reunify’ Taiwan. If the PLA were to invade the island tomorrow, it would risk bringing the US into a war that China would likely lose.

To stay below Washington’s reaction threshold, China has used fishermen and oil rigs in radio contact with domestic law enforcement to gradually occupy surrounding maritime spaces, eventually followed by permanent military installations.

At the same time, Chinese state-owned media have cooperated with the PLA to shape foreign news coverage of specific events. Targeted economic sanctions have caused other states to withdraw military forces from specific positions, and diplomatic ‘lawfare’ has contested the regional jurisdiction of international bodies. This strategy is steadily isolating Taiwan from US naval assets, particularly aircraft carriers, and eroding the credibility of US deterrence. It is shaping the terrain to suit Beijing.

Russia is also adept at using its left-of-launch toolbox to shape the battlefield in its favour. Moscow used fake news to politically agitate Russian-speaking minorities in Crimea prior to occupying the peninsula using motorcycle gangs, unmarked soldiers, hackers, Cossack nationalists, and criminals. The effect was to facilitate a swift tactical victory, deter NATO intervention, and present Ukraine with a strategic fait accompli: attempt to retake lost territory at extreme cost, or accept the conquest. Some argue that Iran has employed similar tools to shape the battlefield in Syria while avoiding a significant US response (although Israel has been targeting Iranian positions).

Operating left of launch, to be clear, is not a new idea. It might come with many new names—hybrid warfare, diathetical warfare, memetic warfare, political warfare, non-linear warfare—but the principles underneath are timeless (see Sun Tzu). Repeated use of the word ‘warfare’ is misleading; if all we see is another nail, we’ll still reach for the hammer. Yet this is also not foreign policy. It is the art of blurring the line between war and peace in a geographic space. It is thinking on a spectrum while opponents think in boxes.

It’s worth emphasising that operating left of launch doesn’t equate to winning. The absurdity of Russia’s narrative following the MH17 tragedy, for example, arguably strengthened Western unity, lengthened sanctions, and may have even distracted separatists from defending entrenched positions. Other states are not defenceless: Australia has brought in sweeping new powers targeting foreign political interference. And, importantly, not all Chinese fishermen, Russian-speaking minorities, or Cossack nationalists are pawns on a chessboard.

Overall, however, Washington and allied states like Australia have shown a limited capacity to respond. A NATO report found that Russian media began preparing the battlefield in Crimea at least a year in advance with no measurable resistance. The US regularly sends warships in response to Chinese maritime expansion, yet a senior American military officer recently told Congress that China now has de facto control of the South China Sea. This is Sun Tzu for the modern age: ‘Subdue the enemy’s troops without fighting; capture their cities without laying siege; overthrow their kingdom without a war.’

The question raised for the Australian security community is certainly not whether conventional capabilities are necessary. The question is whether they are sufficient. While the US remains dominant on the right, rivals will naturally operate on the left. Their general success so far suggests that thinking in right-of-launch boxes isn’t enough for solving left-of-launch problems. Hence the parallel with Enron: in Gladwell’s words, if everyone Enron hired had to think outside the box, maybe it was the box that needed fixing.

Reclaiming American internationalism

To watch the debate play out in America’s news media, it would seem that the opposite of ‘America First’ is American interventionism: a chronic penchant for leaping, to no apparent end, into wars of choice and demonstrating America’s unrivaled military power. But interventionism is not the same thing as internationalism. Conflating the two collapses the distinction between quick and decisive use of force and thoughtful engagement with the world and its problems.

In America’s ‘get ’er done’ transactional Weltanschauung, international disputes tend to be viewed as military challenges that are merely masquerading as political issues. In fact, they are usually the opposite, which is why the world’s most complex conflicts are rarely resolved by intervention.

Geopolitical conflicts have long, sordid histories and violence is more often a symptom of their intractability than an inherent trait. They often have something to do with identity and with claims of collective ownership of the land beneath the feet of a particular ‘nation’. The basis of political membership is usually more ethnic than civil, which is contrary to Americans’ understanding of nationhood.

Moreover, contemporary problems can be the products of flawed arrangements that were made decades or even centuries ago. Two examples that immediately come to mind are the 1916 Sykes–Picot agreement between Britain and France, which carved up the Middle East, and the 1919 Treaty of Versailles, which established national borders in the Balkans. In both cases, creating new states may have seemed like a straightforward solution, but doing so turned out to be a prescription for more war.

For the United States, international conflicts are often an occasion to demonstrate ‘toughness’ and ‘resolve’. The US airstrikes in Bosnia were meant to lend momentum to a political process that already had the support of the European Union and Russia. The air campaign was a last resort, an effort to punish those who did not support the peace process.

For many American pundits and politicians, then, the lesson of Bosnia was merely that the bad guys should have been bombed sooner. Few took the opportunity to study the region’s complex history so that judicious inter-entity boundaries could be drawn up. If they had, the final arrangement might have done more to preserve external borders and nurture a constitutional structure that would allow the new state to be integrated into the European map.

Kosovo, too, supplied more historical complexity than many were willing to grapple with. On-the-ground diplomacy to achieve sovereign autonomy for Kosovo while respecting Serbs’ emotional connection to it was derided. The implication was that military means should be the first—rather than the last—option for securing Kosovo’s independence. Never mind that many European countries objected to the creation of an independent state and had called for multilateral diplomacy to be attempted before any discussion of air strikes.

Interventionism, with internationalism as an afterthought, continued after the turn of the century, but on a much bigger stage. After the attacks of 11 September 2001, the US led an invasion and subsequent occupation of Afghanistan to root out al-Qaeda. But after 17 years with troops on the ground in that country, Americans have lost patience, with many embracing US President Donald Trump’s ‘America First’ isolationism. In Iraq, where the connection to terrorism was more dubious, the US mounted a major military effort with goals that were perplexing and shifting, insofar as they were ever clearly articulated at all.

American interventionism has often been accompanied by criticism of friends and allies, who are depicted as weak and vacillating in the face of global challenges such as Russian President Vladimir Putin’s annexation of Crimea or China’s increasing assertiveness in the South China Sea. When things went wrong in Afghanistan and Iraq, the US blamed those countries’ political leaders, denouncing them as corrupt and deserving of regime change. The Europeans, too, were denounced, not just for fecklessness in the face of evil, but for living fat and happy lives without shouldering their proper burden.

With these narratives deeply etched into American public consciousness, it is no wonder that Trump’s dystopian vision has prevailed over internationalism, which has become a byword for the endless use of force and condescension towards allies.

American internationalism will be back at some point. But those who claim to support it could hasten its revival by acting in accordance with its original meaning. Traditional internationalists show respect for the opinions of others and a willingness to accept—and even champion—multilateral structures.

What internationalism needs now is a renewed American commitment to cooperation, even when other governments require more time to secure a mandate for action from their constituencies. At the end of the day, US international leadership must rest on American values and on a broad perception of adherence to the unalienable principles underlying liberal democracy. In other words, America must lead by example. Its failure to do so in recent times—not least on the refugee issue—has undermined the influence on which its power ultimately rests.

A strategy for liberals

Has populism won? It would be easy to conclude that it has, especially in light of what is happening in the heart of Europe. Italy, one of the earliest supporters of European integration, is now led by a populist coalition with a 61% approval rating, while France’s President Emmanuel Macron, once considered to be populism’s antidote, has watched his popularity fall to 29%—the lowest since he took office in 2017.

And yet, the battle between the ‘party of reason’ and the ‘party of emotion’—progressives versus populists—is far from over. Populism can still be defeated, but only if its opponents concede the obvious: they need a new strategy.

Five themes should guide any strategic overhaul. The first is accountability. So-called elites who care about the preservation of democracy and the rule of law must come to grips with the anger, fear and despair that have plagued voters since the financial crisis of 2008–09. It has been a decade since the onset of the great recession and yet its causes have not been properly addressed.

Too many political, financial and business leaders give the impression that the only thing that matters for an economy is aggregate growth. But in a globalised and transparent world, the widening gap between rich and poor matters more. Inequality, especially when paired with corruption, is devastating for the status quo.

That is why justice—the second theme of a new political strategy—is so critical. Without economic justice, electorates will always blame their woes on the party in power. It was precisely this reasoning that led to the election of Donald Trump in the United States.

The third theme is unity. Simply put, progressives must offer a viable alternative to the divisiveness of populism. In the late 1990s, Madeleine Albright, then the US secretary of state, called on governments in Europe to support an ‘alliance of democracies’ that would reinforce Western values after the fall of the Berlin Wall and the collapse of the Soviet Union. Many countries answered the US then; we need a similar pledge of unity today.

Unfortunately, we also need new global leadership. With the US in retreat, Italy backsliding and Britain lost in the fog of Brexit, alliance-building responsibilities will fall to other players. One option is the G7’s so-called club of four—France, Germany, Canada and Japan. If the spread of authoritarianism and illiberalism is to be slowed, these liberal democracies must assume the mantle of renewing Albright’s vision.

Fourth, democracies must speak with more clarity. For example, how might the club of four defend and promote liberal values? Issues like migration are universal, but political vagueness and technocratic jargon too often cloud public debate. If liberalism is ever to out-reason populism, voters must be able to comprehend what liberals are offering.

Finally, anti-populist forces need courage. Without it, no amount of accountability, justice, unity or clarity will shift the populist tide. For example, Macron should be praised for his willingness to oppose the hateful politics espoused by Italy’s Deputy Prime Minister Matteo Salvini or Hungary’s Prime Minister Viktor Orbán. But true courage for Macron would be adopting policies that match his rhetoric. Migration, which is shaping up to be the defining issue of next May’s European elections, would be the obvious place to start.

Who could have predicted that 75 years after the collapse of fascism in Italy we would now have a leader in Rome acting like Mussolini? Or that in Germany—and particularly in the country’s formerly communist east—‘pogrom’ sentiment against foreigners would return? Or that in Sweden, the far right would be gaining support while disparaging Jews?

The British historian A.J.P. Taylor had a cynical view of people’s ability to learn from their mistakes. ‘History cannot teach us anything for it contains everything, with one exception’, he once wrote—‘one should not invade Russia at the end of the summer’. And yet, humanity seems forever drawn to the cold.

Today’s liberal leaders can prove Taylor wrong. Populism can still be beaten back. But to win in the current political climate, democratic forces will need to clothe themselves in a new narrative.

The transatlantic rupture

The national park of Thingvellir, 30 miles east of Reykjavik, is Iceland’s most important historical site. It is the place where the Vikings founded the first democratic parliament in 930, and where the Republic of Iceland proclaimed its independence from Denmark in 1944. It also sits on a massive geological fracture, where the small Hreppafleki plate forms a narrow rift between the tectonic plates of North America and Eurasia. In the current geopolitical environment, the symbolism is potent.

No doubt, there is a rift between the United States and Europe. The Hreppafleki plate can represent China, which has reclaimed its position in the top tier of global powers—a situation to which the US and Europe cannot seem to agree on a response. Or perhaps it is more accurate to have Hreppafleki represent US President Donald Trump, whose repeated provocations—including with regard to China—have depleted transatlantic goodwill, while undermining America’s role in the world.

The Cold War, from 1945 to 1989, was characterised by a bipolar world order in which stability depended on a balance of nuclear terror. After 1989, a more hopeful order emerged, led by a hegemonic US, though it was still destabilised by forces like international terrorism. But we have now entered a new phase, in which the US is actively alienating the rest of the world, by violating norm after norm.

In recent weeks alone, Trump imposed massive import tariffs not only on China, but also on America’s Asian and European allies; disrupted the G7’s annual summit, accusing America’s closest allies of unfair trade practices; and then met with Kim Jong-un in Singapore, where his insulting behavior towards America’s European and Canadian partners gave way to effusive praise for North Korea’s brutal dictator. And he launched (and, under political pressure, rescinded) a cynical policy of separating migrant children from their families at the southern US border.

In short, Trump has summarily divorced his allies, in political and emotional terms, as he has attacked the values on which democracy depends. In that sense, this moment amounts to the precise antithesis of the autumn of 1989, when the Soviet bloc began to collapse and democracy seemed triumphant. Now, it is not clear what the US stands for, and that uncertainty puts the entire transatlantic alliance at risk.

To be sure, this is not the first time transatlantic relations have come under strain. In the early 1960s, French President Charles de Gaulle rejected a key pillar of the relationship, NATO, by incrementally reducing France’s military and political participation. Whereas US President John F. Kennedy presented NATO as a shared roof supported by two pillars—the US and Europe—de Gaulle viewed it as a mechanism of US hegemony. In any case, France’s withdrawal from NATO did more to isolate the country than to weaken the transatlantic alliance.

The relationship was challenged again in 2003, when France and Germany, among others, refused to join the US and the United Kingdom in the (ill-advised) invasion of Iraq. But, again, the survival of the transatlantic alliance was never in doubt.

The difference today is that it is the US that is pushing back against the alliance—if not the entire Western liberal democratic model. A sheep gone astray is one thing; if the shepherd leaves, the entire herd is at risk. Yet, as ‘America First’ becomes ‘America Alone’, that seems to be precisely what is happening.

But Trump risks overplaying his hand. America’s power relative to other countries has reached its postwar nadir. With the world becoming increasingly entrenched in a multipolar order, the US can hardly afford to dispense with allies.

Of course, that is not what the Trump administration sees. The president and his allies remain convinced that hard power is all that matters; and, from a military perspective, the US remains the top dog. But this dominance is not guaranteed to last, especially in the face of massive Chinese military investment. More important, hard power alone is not enough to sustain alliances, much less exercise global leadership.

Trump seems unlikely to recognise this and change course. But even after he leaves the White House, a return to ‘normalcy’ is not assured. While Trump hardly represents all of American society, we should not delude ourselves: his victory was no accident. There was—and still is—an appetite for unilateralism and isolationism among American voters. That will not disappear from US politics, even after Trump does.

America’s traditional allies therefore cannot simply wait Trump out; instead, they must adjust to today’s reality. In the past, Europeans often diminished the value of geography, which would have demanded a closer relationship with Russia, in favour of the geography of values, which justified a transatlantic orientation.

When the US is led by an administration that is betraying those values—going so far as to rip children from their parents and put them into cages—that argument no longer applies. The only way forward is to stand up to the US in defence of our values and interests.

Trump may be good at mobilising his base at home or connecting with ideological ‘friends’ abroad. But, without the support of its true allies, America’s global influence will only deteriorate further. From a geopolitical perspective, that approach can produce only one result: ‘Making China greater faster’.