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A Second Great Recession?

Ten years ago this month the financial services firm Lehman Brothers filed for bankruptcy protection, triggering the 2008 Crash and the subsequent Great Recession from which the world’s economies have still not fully recovered. Will we look back on this month as the turning point when Donald Trump’s trade war with China unleashed the Second Great Recession?

In the past week the slow dribble of tariffs and counter-tariffs has rapidly grown into a full-fledged confrontation between the world’s two greatest economic powers.

In July the US imposed tariffs on $34 billion worth of Chinese exports to the United States, extending them to another $16 billion of Chinese goods in August. China responded cautiously, announcing roughly comparable tariffs on $50 billion of US exports to China in August.

Trump deemed that unfair, and on Monday he slapped a 10 percent tariff on another $200 billion of Chinese exports to the US, due to go into effect at the end of this week. He warned that if China retaliated again, he would impose a similar tariff on all the rest of China’s exports, another $267 billion.

Trump also threatened to raise the rate of the tariff to 25 percent if there is no US-Chinese deal that meets US requirements by the end of the year. Did he imagine that this threat would force an autocratic regime like China’s to back down and lose face? Who knows?

The Chinese replied hard and fast, announcing on Tuesday a new tariff on all the rest of America’s exports to China, worth some $60 billion. So if Trump fulfills his threat and hits the remaining $267 billion of Chinese exports as well, by next Sunday ALL America’s imports from China and ALL China’s imports from the United States will be paying tariffs.

China, trying to lower the temperature, is keeping its tariffs on US goods down to 5 percent for the moment, but it can’t hold that line forever if the US goes on ratcheting up the ones it has imposed on China. Trump has got the trade war he was clearly itching for, and it’s a much bigger deal than his spat with the European Union or his bullying of Canada.

We’re still not talking about cataclysms here: China’s trade to the US accounts for less than a quarter of its total exports, and its exporters will still get paid for what they sell. (It’s the importer who pays the tariffs.) The same goes for US exports to China, which are only one-sixth of total American exports.

In the long run higher prices for Chinese goods in the US might damage its market share there, with negative effects on employment in China, but that’s a slow process. The same applies to potential US job losses due to declining exports to China: they won’t happen fast enough to have any impact on November’s mid-term elections in the United States.

It’s the long term that counts, and this trade war will probably not be settled for a long time. Multi-billionaire Chinese businessman Jack Ma predicts that it could last 20 years, which sounds a bit pessimistic, but as long as it lasts, it will poison relations between the world’s two greatest powers.

Trump seems to think that China’s economy is now so wobbly that the tariffs will push it over the edge, forcing it to come to the US begging for mercy. It’s true that the Chinese economy is growing very slowly, if at all: nobody believes the official figure of six or seven percent annual growth. It’s also true that the Chinese financial system is as overloaded with bad debts as American banks were in 2008.

But China is only a sham capitalist economy. If lost exports to the US trigger a financial collapse in China – an unlikely but imaginable outcome – Beijing would slam the doors closed on international capital flows, bail out the Chinese banks, and flood the domestic economy with cheap credit. In this scenario, it’s international trade that would collapse, which wouldn’t be in anybody’s interest.

Meanwhile, Xi’s regime would be stoking Chinese nationalism and blaming the United States for all the domestic misery. Indeed, Xi and the Communist Party hierarchy are coming to the conclusion that Trump’s trade war is designed to “thwart China’s rise.” There can be no compromise with the United States if that is the case.

That’s not just Chinese paranoia. There really are those around Trump (and elsewhere in Washington) who are encouraging his obsession with the American trade deficit with China for exactly that reason. Yet his obsession is completely misplaced: 85 percent of the seven million American manufacturing jobs lost since 2000 were eliminated by automation, not by trade.

This nonsense is going to go on for a long time, and everybody will end up at least slightly poorer, but it probably won’t bring on the Second Great Recession. It may, however, start the Second Cold War.
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To shorten to 700 words, omit paragraphs 8 and 9. (“We’re…States”)

No More Palestinian Refugees

Who said this? “The weak crumble, are slaughtered and are erased from history while the strong, for good or for ill, survive. The strong are respected, and alliances are made with the strong, and in the end peace is made with the strong.” Nietzsche? Goebbels? You-know-who?

No, it was Binyamin Netanyahu, prime minister of Israel and newly minted philosopher of power. He and his ally Donald Trump are on the brink of erasing the Palestinian refugees from history, or at least they think they are, and he was allowing himself a little moment of self-congratulation.

He said it last Saturday at the renaming ceremony for the Shimon Peres Negev Nuclear Research Center, where Israel makes its (unacknowledged) nuclear weapons. It was no coincidence at all that just the previous day President Trump had announced that he was ending all US financial support for the United Nations Relief and Works Agency.

UNRWA is the agency that has looked after the health, education, and sometimes even the feeding of the Palestinian refugees who were driven from their homes during what Israelis call their ‘Independence War’ in 1948-49. It is funded by the voluntary contributions of UN members, and until this year the United States has been picking up about a third of the bill.

It has done a good job in difficult circumstances, with half of its clients living in the Israeli-occupied West Bank and the besieged Gaza Strip, and the other half in refugee camps in Jordan, Syria and Lebanon. Palestinians are the best-educated population in the Arab world, and since 1948 their population has grown from 700,000 to 5 million.

This is not as fast as Israel’s Jewish population, which has grown from 550,000 in 1948 to about 6.5 million in the same period, but if all these Arab refugees were to go home it would return the country to the half-Jewish half-Arab balance that prevailed in early 1948. For this reason, the Israeli government has always been adamant that the Palestinians cannot return, no matter what international law says.

Israeli officials even insist that the Palestinians are not real refugees unless they were actually living in what is now Israel before 1948. Their children and grand-children should not inherit their status, and are therefore not entitled to claim either the ‘right of return’ or compensation for giving up their rights.

You can see why Israeli governments might favour this view, since by now only Palestinians over the age of 70 would qualify as refugees. There’s only about 20,000 of them left, and they’ll all be gone soon. However, Zionists might want to think twice before elevating this way of thinking about refugees into a general principle.

The Jewish claim to Palestine is based on the idea that the ancestors of today’s Jews were made refugees by the Romans about two thousand years ago. If the rights of Palestinian refugees can be legitimately extinguished after the first generation, the Jewish claim becomes equally invalid. But this is just lawyers’ talk, of course.

What really matters is power, as Netanyahu helpfully pointed out, and he and Trump believe they hold all the cards. Trump recognised Jerusalem as Israel’s ‘eternal capital’ last year, cutting the Palestinians out, and Netanyahu is convinced (probably correctly) that the rest of the world will come along eventually.

Now they are going to starve the Palestinians out. In the same week that Trump ended US funding for UNRWA, he also cut off the $200 million annually that the United States gives to the Palestinian Authority, the almost-puppet government that administers the occupied Palestinian territories under Israeli supervision. When they are all hungry enough, he assumes, they will accept Israel’s terms.

Maybe so, but there is a flaw in the grand plan. US funding covered only a third of the UNRWA’s budget and even less of the PA’s. Other countries will continue to cover the rest, and are promising to raise their contributions to replace at least part of the American contribution. The Palestinians will definitely be hungry, but probably not hungry enough to surrender unconditionally.

If there was ever a time when such a radical strategy could succeed, it is now. Syria is off the board, as is Iraq, and most of the other Arab states near Israel are so caught up in their obsession about the alleged threat from Iran that Palestine has dropped to the bottom of their priorities.

But even now the Palestinians cannot simply be magicked away by some tricky redefinition of their rights, and even now there is a limit beyond which no Arab regime can go in terms of abandoning the Palestinians to Israel’s and America’s tender mercies. Nobody in the Arab world loves the Palestinians, but nobody wants to be the first to sell them out.
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To shorten to 700 words, omit paragraphs 8 and 9. (“You…course”)

Syria: The Autumn Offensive

“Idlib Province is the largest al-Qaeda safe haven since 9/11,” said Brett McGurk, Special Presidential Envoy for the Global Coalition to Counter ISIS, so you wouldn’t think that the United States would object to the Syrian government reconquering it. Especially since US forces in Syria have no way of reaching Idlib, in the country’s northwestern corner, and neither do America’s Kurdish allies.

But you might be wrong about the US stance, because the Syrian regime’s troops attacking Idlib would have Russian bombers helping them. Turkey might also object, as President Recep Tayyib Erdogan was surreptitiously helping the al-Qaeda rebels in Syria earlier in the war and has already posted Turkish troops at ‘observation posts’ inside Idlib province to protect the status quo.

We’re going to find out which way Turkey and the US jump quite soon, because Idlib is next on the list. Over the past two years Bashar al-Assad’s Syrian regime has recaptured first the rebel-held part of Aleppo, Syria’s biggest city, then the eastern outskirts of Damascus, the capital, and most recently the areas down south near Israel and Jordan where the rebellion began. Idlib is next.

It has to be Idlib, because that’s where all the jihadi fighters who surrendered after those other defeats were sent. The influx of Islamist fighters and their families has virtually doubled the province’s population to two million in the past two years. Assad will want to finish the job while the Russian air force is still in Syria, so the offensive will probably start next month.

It will require intense bombing, as the Syrian army is short of ground troops, and there are bound to be anguished international protests about civilian casualties in the crowded province. That would provide an excuse for either Washington or Ankara to intervene and stop the attack if they want, but do they?

Erdogan would have to pull the Turkish troops out of Idlib if he wants to avoid a clash with the Syrian army, which would be rather embarrassing, and he hates to be embarrassed. He is already having to eat a good deal of humble pie in the financial crisis that is crippling the Turkish economy at home, and this would be a second helping.

On the other hand, Erdogan has already had to change his line once and accept that Assad will survive as Syria’s dictator. That makes it kind of hard for him to argue now that Syria cannot be allowed to take Idlib back, especially since the real power in Idlib is Hayyat Tahrir al-Sham, the many-times-renamed Syrian branch of al-Qaeda.

Logically, Erdogan should not be getting involved in a foreign war when he is already in a shouting match with Donald Trump and the Turkish economy is in a nose-dive. But he is erratic, emotional and over-confident, so he might just dig his heels in.

As for Trump’s own decision on Idlib, national interest decrees that he should just sit back and let it happen. What’s not to love about an event that destroys al-Qaeda’s only territorial base in the Middle East at no cost in American money or lives?

But if Trump doesn’t intervene, America’s hard right will complain that he is allowing a further expansion of Russian power in the Middle East, while his Israeli allies will protest again at the use of ‘Iranian troops’ (really mostly Iraqi, Afghan and Syrian mercenaries paid by Iran) in the battle. And Trump, too, is erratic, emotional and over-confident.

If the Idlib operation goes off without a major hitch involving Turkish or American military intervention, it will be the last major battle of the Syrian civil war. There would remain the task of persuading Turkish and American troops to leave the country, but that should not involve fighting.

At that point, it will be all about the Syrian Kurds. Turkey wants to be sure that they do not get enough independence to set an example for its own Kurdish minority just across the border. It is especially concerned that an autonomous Kurdish region in Syria could become a base for attacks across the border by the PKK, the banned ‘terrorist’ organisation that seeks independence for Turkey’s Kurds.

The United States, on the other hand, has made the Syrian Kurds its main instrument for fighting ‘Islamic State’ in the eastern third of Syria. ISIS has been beaten by this alliance and the US army now effectively controls eastern Syria. It’s reluctant to just hand over the huge, sparsely populated region to Assad, and it doesn’t want to abandon its Kurdish allies to the tender mercies of the Turks either.

There is a deal that could work. The Turkish and US armies both pull out of Syria, and the Syrian army replaces them to ensure that is no comeback by ISIS and no base there for Kurdish separatists seeking to break away from Turkey. The Syrian Kurds are rewarded with limited self-government including control over education, language and local spending. And the Russians go home too, since Assad no longer needs their help.

That would be the sensible thing to do, but this is the Middle East. So nobody knows what will really happen.

To shorten to 700 words, omit paragraphs 12 and 13. (“At that…either”)

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”)