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Archive for July, 2018

Iran: No Plan B

The extraordinary thing is that there is no Plan B. If Donald Trump’s re-imposition of American sanctions on Iran does not cause President Hassan Rouhani’s government to buckle at once (which is almost unimaginable), there is nothing else he can do short of going to war with the country. And he couldn’t even win that war.

Iran is entirely within its rights in condemning Trump’s action. All the other signatories to the deal that hobbled Iran’s nuclear programme – Britain, France, Germany, Russia and China – agree that Tehran is in full compliance with its terms, as do the United Nations, the International Atomic Energy Agency, and US Secretary of Defence Jim Mattis.

All of Trump’s complaints about the deal are about things it was never intended to cover, and it does not contain those things because Iran would never agree to terms that effectively gave the United States control over its foreign policy. If Trump wants to try to negotiate that kind of deal anyway, it is not necessary to terminate the nuclear treaty in order to do so.

But it’s a mistake to apply rational analysis to Trump’s action, because this was an emotional decision, not a rational one. It is part of his obsession with expunging every single achievement of the Obama administration: healthcare, the opening to Cuba, the Trans-Pacific Partnership trade deal, the Paris climate treaty, and now the Iran nuclear deal.

You can, however, apply rational analysis to every other player’s reaction to Trump’s tantrum, starting with President Rouhani. He will try very hard to keep the deal alive because his own political fate depends on it. If he cannot succeed, the Revolutionary Guard and other hard-line nationalists will gain the upper hand domestically and his entire reform policy will be paralysed.

Rouhani probably only has a few weeks to get public commitments to continue trading with Iran from the other parties to the deal, and that will require them to defy the United States. Trump’s declaration on Monday only requires American banks and companies to stop trading with Iran within 180 days, but the US may also apply so-called ‘secondary sanctions’ against foreign companies that trade with Iran.

Brexit: No Turning Point Yet

Even with Donald Trump scheduled for a brief visit to the United Kingdom this week amid massive protests, it’s still ‘all Brexit, all of the time’ in the sceptred isle – and the long struggle over the nature of the deal that will define Britain’s relationship with the European Union post-exit allegedly reached a turning point last weekend.

“They had nothing else to offer. They had no Plan B. She faced them down,” said a senior government official about the hard-line Brexiteers after Prime Minister Theresa May got them to sign up to a so-called ‘soft Brexit’ at a crisis cabinet meeting last Friday. But the armistice between the ‘Leave’ and ‘Remain’ factions in her fractious Conservative Party lasted less than 48 hours.

On Sunday morning hard-line Brexiteer David Davis, the ludicrously titled Secretary of State for Exiting the European Union, reneged on his short-lived support for May’s negotiating goals and resigned in protest. Then Foreign Secretary Boris Johnson followed suit, claiming that May’s plan meant “the (Brexit) dream is dying, suffocated by needless self-doubt.”

The sheer fecklessness of the ‘Brexit dream’ is epitomised by Johnson, who first compared May’s negotiating plans to “polishing a turd”, then came round to supporting them for about 36 hours, and finally resigned, saying that they would reduce the UK to a “vassal state” with the “status of a colony” of the EU. Yet at no point in the discussion did either of them offer a coherent counter-proposal.

And what is all this Sturm und Drang about? A negotiating position, devised by May with great difficulty two years after the referendum that yielded 52% support for an undefined ‘Brexit’, which could never be accepted by the European Union. Its sole virtue was that it seemed possible to unite the ‘Leave’ and ‘Remain’ factions of the Conservative Party behind it. But the unity imposed by May broke down before the weekend was over.

All four of the great offices of state – prime minister, chancellor (finance minister), foreign secretary and home secretary (interior minister) – are now held by Conservative politicians who voted Remain in the referendum. Yet they are unable to persuade their party to accept even a ‘soft Brexit’ that preserves Britain’s existing access to its biggest trading partner, the EU.

The Brexiteers’ power lies in their implicit threat to stage a revolt that overthrows May, fatally splits the Conservative Party, and precipitates an early election that brings the Labour Party to power. They may not really have the numbers to do that – it’s widely assumed that a majority of the Conservative members of parliament secretly want a very soft Brexit or no Brexit at all – but May dares not test that assumption.

So, horrified by the prospect of a Labour government led by Jeremy Corbyn (who is regularly portrayed by the right-wing media as a Lenin in waiting), the Conservatives are doomed to cling desperately to power even though they can probably never deliver a successful Brexit. And the time is running out.

The United Kingdom will be leaving the European Union on 29 March of next year whether there is a deal that maintains most of its current trade with the EU or not. In practice, the deadline for an agreement is next October, since time must be allowed for 27 other EU members to ratify the deal. If there is no deal, the UK simply ‘crashes out’, and chaos ensues.

The volume of trade in goods and services between the United Kingdom and the rest of the EU is so great, and the preparation for documenting the safety and origins of goods and collecting customs on them so scanty, that the new border would simply freeze up.

That would cause great difficulty for many European enterprises, but for Britain it would be a catastrophe. As an example, two-fifths of the components for cars built in the UK are sourced from elsewhere in the EU. Yet most of the time available for negotiating a soft Brexit has already been wasted, and Britain still does not have a realistic negotiating position.

This preposterous situation is almost entirely due to the civil war within the Conservative Party between the Brexit faction the rest. The only reason that there was a referendum at all was because former prime minister David Cameron thought that a decisive defeat in a referendum would shut the Brexiteers up and end that war. He miscalculated.

The Brexiteers spun a fantasy of an oppressive EU that was the cause of all Britain’s troubles and sold it to the nostalgic older generation, the unemployed and underemployed who were looking for somebody to blame, and sundry nationalists of all colours.

They narrowly won the referendum with the help of a rabidly nationalist right-wing press, spending well beyond the legal limits in the campaign – and, it now appears, with considerable support from Russia. (The biggest contributor to the Brexit campaign, mega-rich investor Arron Banks, met the Russian ambassador at least eleven times during the run-up to the referendum and the subsequent two months.)

There’s still a chance that reason will prevail before the UK crashes out of the EU, of course. But the odds are no better than even.
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To shorten to 700 words, omit paragraphs 10, 11 and 13. (“The volume…position”; and “The Brexiteers…colours”)

Mexican Election 2018

Almost all the foreign coverage of next Sunday’s Mexican election focusses on the drug wars and the murder rate: 30,000 killed last year, and looking to be even higher this year. But there are 127 million Mexicans, so it’s not really all that bad by Caribbean standards.

Mexico is not even in the top ten countries in terms of its murder rate, although seven out of those top ten are in the Caribbean: Honduras, Venezuela, Belize, El Salvador, Guatemala, Jamaica and Colombia. In fact, Mexico is ranked at number 20 worldwide, behind apparently safer countries like Brazil, Trinidad, the Dominican Republic and the Bahamas.

The Caribbean is a tough neighbourhood, but Mexico is actually one of its safer places. So why is everybody, including the Mexicans themselves, obsessed with the local murder rate? It’s because the killings are so brazen and spectacular – and that is largely due to the fact that so many of them are part of the incessant wars between the rival drug gangs.

‘Cartels’ is no longer the right word for these gangs: they have splintered into a multitude of rival organisations fighting to maintain or expand their access to the lucrative US market. It’s a bloody business, but it’s not what the election is about – or at least not openly.

We already know who is going to be the president of Mexico for the next six years. It’s ‘AMLO’, short for Andrés Manuel López Obrador. The last opinion poll, with only a week to go, put him at 37% of the vote, and his nearest rival at only 20%. He has little to say about the drug war, apart from vague talk about giving some criminals an amnesty. What he concentrates on is inequality.

Traditionally a far poorer place than the other big economies in Latin America, Brazil and Argentina, Mexico is now level-pegging with Brazil in per capita income, though still trailing Argentina. Indeed, if you calculate it in PPP (purchasing power parity), Mexico is now even with Argentina and well ahead of Brazil. The problem is that the income (in all three countries) is so unevenly shared.

At least a third of Mexico’s people live in poverty, and if anything the inequality has become worse as the economy grew. Some of the slums around the big cities are such deprived and violent places that even ambulances will not go there at night. That is López Obrador’s priority: he will be Mexico’s first left-wing president.

His rivals paint him as a Chávez-style radical who will ruin the economy, but his record as mayor of Mexico City from 2000 to 2005 suggests a much more pragmatic politician: ‘Mexico’s Bernie Sanders’, as some have called him. “No expropriations, no nationalisations”, he pledges – but he does promise to address income disparity as no previous Mexican government has done.

It’s remarkable that Mexico had to wait so long for the emergence of a successful left-wing politician. The 60-year stranglehold on power of the Institutional Revolutionary Party (PRI) – what it institutionalised was corruption – was broken in the 2000 election, but the winner was the National Action Party (PAN), a centre-right, business-friendly organisation.

In 2006 PAN made the fatal mistake, at the behest of the United States, of launching the ‘war on drugs’. In the place of PRI’s policy of co-existence – you sell the drugs in the US, give us a share of the profits, and we’ll leave you alone – it set out to smash the cartels.

It succeeded all too well. That’s when the murder rate took off, as the many fragments of the old cartels fought each other for market share. As long as the demand is there in the US, the drug trade will thrive, but now there is also highly visible carnage in Mexico. Indeed, one of the reasons that PRI came back to power in 2012 was the horror Mexicans felt at the violence unleashed in their streets.

PRI did nothing to solve the problem, however, and it will be an also-ran in this election. López Obrador’s government will be a very different proposition. It may or may not declare a ceasefire in the local drug war, but it will certainly shake up the Mexican elites.

It will also annoy Washington greatly. López Obrador is promising that all 50 Mexican consulates in the United States will help to defend migrants caught up in the American legal system.

“Trump and his advisers speak of the Mexicans the way Hitler and the Nazis referred to the Jews, just before undertaking the infamous persecution and the abominable extermination,” López Obrador wrote just after the Great Distractor’s election.

It’s quite likely that within a year the US intelligence services will be tasked with the job of finding ways to bring him down.
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To shorten to 700 words, omit paragraphs 2 and 4. (“Mexico…Bahamas”; and “Cartels…openly”)

America’s Trade War with China

The United States could probably extract major concessions from China in a carefully managed confrontation on trading issues, because the Chinese don’t want a trade war with their best export customer. But the US can’t win the trade war that Donald Trump is planning to wage, and it kicks off on Friday.

That’s when the first chunk of Trump’s new tariffs on Chinese exports to the United States – a 25% import tax on $50 billion of Chinese goods – actually goes into effect, and Beijing retaliates with similar tariffs on $50 billion of American exports to China. That’s just a drop in the bucket in terms of the size of either economy, but it’s also just the opening salvo in the war.

Trump has already said that Chinese retaliation would be ‘unfair’, and that if China goes ahead he will slap a 10% levy on an additional $200bn of Chinese goods. (He subsequently reduced that amount to $100 billion, but who knows?) And China has already said that it would respond with measures of a “corresponding number and quality” if the US goes ahead with that.

This is where the real tit-for-tat escalation starts, and it’s hard to see how it can be stopped. Trump is trapped by his own pugnacious rhetoric, and China’s President Xi Jinping is trapped in two ways.

One is that Trump has already imposed big new tariffs on exports to the United States by the European Union and by America’s closest neighbours, Canada and Mexico. They have all responded by imposing similar tariffs on American exports of equal value.

Xi can hardly do less, even if China’s real interests might be better served by not responding in kind to the new US tariffs. He would not wish to be seen as weaker than Justin Trudeau.

On 21 June in Beijing, according to the Wall Street Journal, President Xi Jinping met a group of chief executives of American and European multinationals and assured them that China would definitely strike back at US trade tariffs. “In the West, you have the notion that if somebody hits you on the left cheek, you turn the other cheek,” Xi reportedly said. “In our culture, we push back.”

The other factor weighing on Xi’s decisions is that Beijing is starting to see American trade policy as part of a deliberate attempt to stop China’s emergence as a great industrial and technological power and a real peer rival to the United States. After all, there are undoubtedly people in Washington who would like to do exactly that.

Trump himself does not think in geo-strategic terms, but the Chinese may well see his actions on trade as inspired by those who do. If they come to that conclusion, their willingness to go all the way in a trade war may be greater than the financial experts think it is.

China’s exports to the United States amount to about 40% of its total exports, whereas only 5 percent of US exports go to China, so an all-out trade war between the two countries would obviously hurt China more. President Xi, however, is far more able to ignore the resultant job losses and higher prices than Trump is – especially because the Americans who were hurting worst would be his own political ‘base’.

Or, alternatively, China’s heavily indebted economy may turn out to be even more fragile than it looks – in which case a trade war could drive the country into a deep recession (with unpredictable political consequences at home), and drag the whole world economy down with it. That wouldn’t be much fun either.

There’s a reason that trade wars went out of fashion after the Second World War, and it wasn’t just because international trade tends to enhance prosperity overall. Back when trade wars were the normal way of doing business internationally, in the 16th-19th centuries, the European powers spent almost half their time at war.

The first great era of free trade, ca. 1870-1914, was also the ‘Long Peace’, when no European great power fought any other for almost half a century. That peace was destroyed by the First World War (so free trade does not prevent all wars), but the trade wars of the 1930s certainly deepened the Great Depression and facilitated the rise of fascism and a second world war.

And then came the Second Long Peace, from 1945 to the present, when once again free trade (or at least free-ish trade) reigns and the great powers never fight one another directly.

I’m not saying that Trump’s assault on free trade is going to lead us back down the path to great-power war again. Many other factors go into making such a catastrophe possible. But he may be putting one of the key factors back into place.
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To shorten to 725 words, omit paragraph 7. (“On 21…back”)