US Secretary of Defense, General Jim Mattis, gave a speech at the annual Shangri-La Dialogue, a security summit held in China. The speech gave a very straightforward assessment of the US view of Chinese military activities in the South China Sea:
“Yet China’s Policy in the South China Sea (SCS) stands in stark contrast to the openness our strategy promotes; It calls into questions China’s broader goals.
“China’s militarization of artificial features in the SCS includes the deployment of anti-ship missiles, surface-to-air missiles, electronic jammers and, more recently, the landing of bomber aircraft at Woody Island.
“Despite China’s claims to the contrary, the placement of these weapon systems is tied directly to military use for the purposes of intimidation and coercion.
“China’s militarization of the Spratleys is also in direct contradiction to President Xi’s 2015 public assurances in the White House Rose Garden. “
Secretary Mattis’s Speech at the Shangri-La Conference
The US vetoed a Kuwaiti Resolution at the UN Security Council that “urged the Council to consider ‘measures to guarantee the safety and protection” of Palestinian civilians and requests a report from the UN Secretary-General on a possible “international protection mechanism.’” The resolution received 10 affirmative votes and four abstentions, but the US veto was based on its view that the resolution was “one-sided” and did not condemn the violence of the Palestinians at the Gaza-Israeli border. The US then offered a resolution that “called on Hamas and Islamic Jihad to ‘cease all violent activity and provocative actions, including along the boundary fence.’” That resolution had 3 negative votes and 11 abstentions with only the US voting in favor of its resolution. The vote is an index of the US isolation on the Israeli-Palestinian issue.
North Korea invited news correspondents, but not arms control experts, to witness its “destruction” of its nuclear test site at Punggye-ri. However, arms control experts are raising serious questions about whether the explosions were sufficiently large to actually destroy the facility. 38North, which is the most reliable source of information about North Korea, has published a number of before and after satellite photographs of the site and pointed out specific inconsistencies in the story that the facility was irreversibly destroyed. The photo opportunity may simply be a sleight of hand designed to persuade the world to reduce some of the sanctions against North Korea.
President Trump announced that he will be meeting with North Korean leader, Kim Jong-un, on 12 June in Singapore. He met with Kim’s advisor, General Kim Yong-chol, at the White House and General Kim hand-delivered a letter from Leader Kim. President Trump said the letter was “interesting” but admitted he had not yet read the letter. President Trump indicated that the summit might lead to a series of negotiations, suggesting that the US goal of immediate denuclearization is no longer the US objective. I am not sure whether to believe that the meeting will still take place, but I continue to be certain that the two sides will not be able to agree on the meaning of the word “denuclearization”. If the meeting does take place, two things should be kept in mind. First, a lot depends on how Mr. Trump engages South Korea, Japan, China, and Russia in the negotiations. None of those parties will take being excluded very kindly, and they may decide that sabotaging the meeting is better than being left out. Second, we need to keep a close eye on the specific details of the meeting–small signs will tell us a lot.
Autoweek is reporting that US President Trump wants to place a tariff on imported German luxury automobiles essentially to price them out of the US market. The move would affect Volkswagen, Mercedes-Benz, BMW, Porsche, and Audi. According to the report:”Reuters cites Germany’s auto industry association figure of 657,000 vehicles having been exported to the U.S. in 2017, versus 804,000 vehicles produced by German automakers in the U.S.” It is not clear why Mr. Trump has singled out German automakers, but the move against one of the US’s most important allies would be nothing short of bizarre.
The US imposed tariffs today on imports of aluminum and steel from from Canada, Mexico and the European Union. For weeks it has been unclear whether President Trump would follow through on the threat of tariffs, but they were imposed using the trade exemptions offered by a national security clause in US tariff laws. It is hard to believe that Canada, Mexico, and Europe are national security threats to the US and the tariffs are clearly inconsistent with the trading rules which have guided foreign economic policy for the US since 1945. The tariffs will undoubtedly lead to retaliatory tariffs by the affected countries. According to some economists, the 150,000 jobs that will be protected by the tariffs will be offset by the loss of nearly 2 million jobs due to higher costs for steel and aluminum, components of many products manufactured in the US. The heat of the matter was best expressed by Justin Trudeau, the Prime Minister of Canada:
“‘Let me be clear: These tariffs are totally unacceptable,’ Trudeau said. ‘Canadians have served alongside Americans in two world wars and in Korea. From the beaches of Normandy to the mountains of Afghanistan, we have fought and died together.’
“Noting that Canada purchases more U.S. steel than any other nation, Trudeau lambasted the Trump administration for initiating the tariffs under the guise of confronting a threat to national security.
“‘Canada is a secure supplier of aluminum and steel to the U.S. defense industry, putting aluminum in American planes and steel in American tanks,’ Trudeau said. ‘That Canada could be considered a national security threat to the United States is inconceivable.’
“‘These tariffs are an affront to the long-standing security partnership between Canada and the United States, and in particular, to the thousands of Canadians who have fought and died alongside American comrades-in-arms.'”
Trade as a Percentage of US GDP
Spanish Prime Minister Mariano Rajoy is likely to lose a confidence vote in the Spanish Parliament tomorrow as the Basque Nationalist Party (PNV) indicated it would support a vote of no-confidence. If the motion passes, then it is likely that Pedro Sánchez, leader of the Socialist Party will become Prime Minister. Rajoy has been implicated in a corruption scandal within his party as Spanish voters have indicated their disdain for the traditional parties over the last few years leading to the emergence of new parties such as Podemos and Ciudadanos. If the Spanish government falls, then it will amplify the current political turmoil in Italy on the stability of the European Union.
The United Nations has announced an agreement with the government of Myanmar to work toward the return of about 700,000 Royinghas who fled the country because of persecution at the hands of the Buddhist majority population. The Royinghas are a minority Muslim group in the western province of Rakhine who have lived in the region for many years. But the Myanmar government does not grant the Royinghas legal status in the country because it regards them as immigrants from neighboring Bangladesh. The atrocities committed against the Royinghas have largely been ignored by the international community, but they clearly constitute a crime against humanity.
Supporters of an independent Biafra breaking off from Nigeria have led a shutdown of economic activity in the southeastern part of the country. Biafran independence was declared in 1967 and the secession led to a three year civil war in which more than a million people died, primarily of starvation. The region is populated to a large extent by the ethnic Igbo community which believes that the central government has ignored the concerns of the people in the area. According to The Vanguard, a Nigerian newspaper, the shops in the region were largely closed and it appeared as if the Igbo are fairly united in expressing their displeasure with their treatment. The secessionist movement seems to have support within some parts of the Igbo community but it is not clear how widespread that sentiment actually is.
Financial markets seem to have stabilized after a rough day yesterday on the news that an Italian government could not be formed soon and may require a new election. The fears were that Italy was inching closer to leaving the euro as well as concern over whether Spain and Portugal would be negatively affected by the turmoil in Italy. We still do not have a sense of how a government will be formed and I suspect that some compromise situation will ultimately be found–the Italians have a long record of putting together governments at the last minute. But the coalition of the 5 Star Movement and the League is not one that has much internal consistency except for disdain for the euro, and a crisis for the European Union cannot be discounted yet. After all, the British exit from the Union was largely unanticipated.
Researchers from Stanford University have published a letter in the science journal Nature which estimates the economic benefits of adhering to the Paris Climate Accords in comparison to the costs of reducing carbon-based energy sources. It is not an easy read, but the conclusions are significant. According to ThinkProgress, the study asserts that “inaction could cause a stunning 30 percent loss in future global economic output — whereas the world’s scientists and governments have concluded that even the most aggressive climate action costs under 0.1 percent of GDP.” But even the Paris Accords, to which the US has signaled it will not adhere, low-ball the economic consequences of inaction so the rewards of action might be even higher. Think Progress concludes that the “‘Stanford study projects “15%–25% reductions in per capita output by 2100’” if we allow 2.5–3°C total warming, and a 30 percent drop in economic output if we allow 4°C total warming.”
The United States will impose a 25 percent tariff on $50 billion of goods imported from China containing industrially significant technology, including those related to the “Made in China 2025” program. The final list of covered imports will be announced by June 15, 2018.
USTR (the US Trade Representative) will continue WTO (World Trade Organization) dispute settlement against China originally initiated in March to address China’s discriminatory technology licensing requirements.
The United States will implement specific investment restrictions and enhanced export controls for Chinese persons and entities related to the acquisition of industrially significant technology. The list of restrictions and controls will be announced by June 30, 2018.
I am not at all certain how this press release should be interpreted. Ten days ago, the US Secretary of the Treasury said that the proposed actions against China were “on hold”. The press release, however, gives dates certain for the implementation of the new tariffs against Chinese products. China was certainly caught off guard and reacted angrily to the news. At some point, I suspect a decision will be actually made. Roncevert Ganan Almond, of the think-tank called The Wicks Group, has an excellent article in The Diplomat on the infighting in the Trump Administration which has made making trade policy virtually impossible.
The Venezuelan economy is in total collapse. Many Venezuelans have fled the country and those who lack the means to leave are experiencing starvation and lack of medical supplies. It is hard to believe that such a potentially rich country could be ripped apart by such a corrupt political system as that imposed by President Maduro. The current annualized rate of inflation in the country is 14,000% per year–a rate that makes ordinary life impossible. And yet there still remains complete unwillingness on the part of the international community to help the people of Venezuela.
“The Parties agree that an armed attack against one or more of them in Europe or North America shall be considered an attack against them all and consequently they agree that, if such an armed attack occurs, each of them, in exercise of the right of individual or collective self-defence recognised by Article 51 of the Charter of the United Nations, will assist the Party or Parties so attacked by taking forthwith, individually and in concert with the other Parties, such action as it deems necessary, including the use of armed force, to restore and maintain the security of the North Atlantic area.
Apparently, Poland wishes a more visible commitment and its proposal states that
” Aggressive Russian actions, as seen in Georgia in 2008 and most recently in Ukraine in 2014 to the present, is destructive for international stability and international legal principles. As shown in Ukraine, Russia is capable of effectively deploying hybrid warfare through its annexation of Crimea, cyberattacks on Ukrainian infrastructure, and fueling separatists in eastern Ukraine. Russia is seeking to strengthen its political and economic relations with key European countries at the expense of U.S. national interests. An increased U.S. permanent presence in Poland will give America the strategic flexibility it needs to confront and deter these threats. It will help secure American interests it shares with its European partners in the region and preserve western values of freedom and democracy.” (pp. 3-4)
The proposal identifies the Suwalki Gap as a particular concern. It is a slice of territory that separates Russian forces based in Belarus from the Russian enclave of Kaliningrad which is not contiguous with the Russian state. Kaliningrad was known as Konigsberg prior to World War II and the territory was given to Russia from Germany as reparations for the war. Needless to say, the Russians are quite upset by the Polish proposal which it regards as provocative. According to Reuters:
“Asked about the move, Kremlin spokesman Dmitry Peskov said it was every country’s sovereign right to take such decisions, but that it would harm the overall atmosphere on the continent.
“’When we see the gradual expansion of NATO military structures towards our borders…, this of course in no way creates security and stability on the continent,’ Peskov told reporters on a conference call on Monday.
“’On the contrary, these expansionist actions of course lead to counter-action from the Russian side in order to balance the parity which is violated every time in this way,’ Peskov said.”
The NATO summit is scheduled for next month and we will see what its response to the Polish proposal might be,
• the SCO comprises eight member states, namely the Republic of India, the Republic of Kazakhstan, the People’s Republic of China, the Kyrgyz Republic, the Islamic Republic of Pakistan, the Russian Federation, the Republic of Tajikistan, and the Republic of Uzbekistan;
• the SCO counts four observer states, namely the Islamic Republic of Afghanistan, the Republic of Belarus, the Islamic Republic of Iran and the Republic of Mongolia;
• the SCO has six dialogue partners, namely the Republic of Azerbaijan, the Republic of Armenia, the Kingdom of Cambodia, the Federal Democratic Republic of Nepal, the Republic of Turkey, and the Democratic Socialist Republic of Sri Lanka.
It is clear that both China and Russia are endeavoring to maintain the Iranian nuclear agreement even without US participation and the SCO meeting will be a real test of whether they can counterbalance the US opposition to Iran. The US decision to withdraw from the nuclear agreement has opened up a tremendous opportunity for Russia and China to reorient Iran toward South and East Asia. The geopolitical significance of Asia continues to grow at a rapid pace as Europe and the US continues to shrink.
Italian President Sergio Mattarella vetoed the choice of Paolo Savona for an important Economic Ministry position and the Prime Minister-designate Giuseppe Conte promptly ended his attempt to form a coalition government of the 5 Star Movement, a populist party, and the League, a right wing party. The decision turned the process of forming a government into complete turmoil and it is unclear how a government can now be formed. It is likely that a short-term technocratic government can be created, but the parties involved will not support that alternative for very long. Conte wanted a strong voice to remain in the euro currency in order to calm the financial markets and Savona was an ardent opponent of the euro. Given the collapse of the talks, it is probable that financial markets will punish Italy tomorrow by demanding very high yields on Italian bonds, a move that the Italian economy could not support with higher taxes or lower government spending, both of which are opposed by the two parties forming the coalition. The European Union will be greatly strained by the turmoil in Italy, which also holds out the possibility of spreading to Spain.
The US has sent two naval vessels into the South China Sea to challenge the Chinese military activities in the region. According to The Guardian:
“The US officials, speaking on condition of anonymity, said the Higgins guided-missile destroyer and the Antietam, a guided-missile cruiser, came within 12 nautical miles of the Paracel Islands, among a string of islets, reefs and shoals over which China has territorial disputes with its neighbors. The US vessels carried out maneuvering operations near Tree, Lincoln, Triton and Woody islands, one of the officials said.”
The US claims to be conducting “freedom of navigation” voyages under international law which does not recognize artificially created islands such as Woody Island as sovereign territory. The Chinese claim that the South China Sea has historically always been part of Chinese territory. According to Xinhua:
“Foreign Ministry spokesperson Lu Kang said in a statement released on Sunday night that the U.S. warships trespassed into China’s territorial waters off the Xisha Islands on Sunday without permission of the Chinese government, and the Chinese navy identified the U.S. warships, warned and expelled them.
“The Xisha Islands are China’s inherent territory, Lu said, noting that in accordance with the Law of the People’s Republic of China on the Territorial Sea and the Contiguous Zone, the Chinese government promulgated the baseline of the territorial sea off the Xisha Islands in 1996.”
The Xisha Islands are also known as the the Paracel Islands in Western countries and Hoàng Sa in Vietnamese.
The Chinese Military Base on Woody Island in the South China Sea
Spiegel Online has published an interview with Joschka Fischer, the former German Foreign Minister. The interview is titled “The U.S. President Is Destroying the American World Order” and Fischer does not mince any words.
DER SPIEGEL: German Chancellor Angela Merkel said that we can no longer truly rely on the U.S.
Fischer: It’s even worse than that. The American president is deliberately destroying the American world order. I was used to NATO being attacked by the left wing of the Green Party, but not by the American president! From an economic policy point of view, Trump is challenging Germany’s business model, which has been geared toward exports from the very beginning. Many are saying that we shouldn’t put up with that. I find this reaction understandable, but also kind of cute. What can we do? Given the current balance of power, sometimes all you can do is gnash your teeth.
DER SPIEGEL: You recently wrote a book in German with the dark title “The Descent of the West.” Is the West finished?
Fischer: There is every indication that this will happen. The West was the trans-Atlantic area, and its founding fathers were Britain and the United States. The West cannot survive without them, and certainly not with a weak, divided Europe. This is why Europeans must become stronger, much stronger.
The interview is truly grim and if Germany gives up on the liberal world order, there will not be any real check on the rise of an authoritarian world order.
The New National Football League Rule on the National Anthem: Shades of 1934
It appears as if financial markets are not encouraged by the Italian coalition government being proposed. The difference between the yields on Italian bonds and those of German bonds suggests that investors fear that the Italians are likely to mismanage their economy and will hasten a move for Italy to leave the euro. Reuters explains the danger: “Italy’s 2.3 trillion euro ($2.7 trillion) debt – the world’s third-largest and equivalent to more than 1.3 times the domestic output – makes the country vulnerable.” If global economic growth slows down, there is a good chance that some Italian banks will collapse and the European Central Bank is prohibited from bailing them out.
The planned summit in Singapore between US President Trump and North Korean leader Kim has been called off by the North Koreans. The move is not at all surprising, given the wide divide between the two parties on the meaning and pace of “denuclearization”. However, Mr. Trump’s letter to Mr. Kim was astonishing. At the end of the first paragraph, Mr Trump says: “You talk about your nuclear capabilities, but ours are so massive and powerful that I pray to God they will never have to be used.” The implicit threat of nuclear war in a message that purportedly holds out the hope that “Some day I look forward to meeting you” is preposterous. The offensiveness of the letter is secondary to its complete incoherence. The South Koreans were completely caught off guard by the Trump announcement. South Korea presidential spokesperson Kim Eui-kyeom said “We are attempting to make sense of what, precisely, President Trump means.” The cancellation of the summit follows an increasingly hostile exchange of rhetoric between US Vice-President Pence and North Korea. According to CNBC:
“The latest escalation between Washington and Pyongyang came this week, when Vice President Mike Pence warned that the North Korean regime may end up like former Libyan leader Moammar Gadhafi. His government was toppled years after he agreed to give up his budding nuclear weapons program.
“Choe Son Hui, a North Korean official, responded by calling Pence’s remarks ‘ignorant and stupid.'”
There will likely be a big rush to obtain the “Challenge Coins” minted by the White House commemorating the historic summit meeting. They will serve as useful reminders of misguided diplomacy. It is absurd that so many people took this initiative seriously: there was no attempt to make any of the necessary preparations for such a difficult negotiations. And the history of similar discussions in the past clearly indicates that the US and North Korea have deep misunderstandings of each other’s intentions. We have taken this class before. In fact, we’ve already graduated Phi Beta Kappa from the School of Dissembling Diplomacy.
President Trump’s Letter to Leader Kim
Challenge Coin for the Scheduled, and now Cancelled, Summit
The negotiations between the US, Canada, and Mexico on the revision of the North Atlantic Free Trade Association (NAFTA) are seriously bogged down. In an attempt to force concessions from Canada and Mexico, US President Trump has threatened to raise automobile tariffs on imported cars by 25%. If those tariffs were to be implemented, the effects on both countries would be quite serious. But the tariffs would also affect other countries adversely, most of which are some of the US’s most important allies. The tariffs would also raise car prices for American consumers quite significantly–a fact that suggests that Mr. Trump’s threat is meaningless as such an increase would have profoundly negative effects on Republican chances in the November elections.
New research suggests that the nutritional value of rice–the main staple of 2 billion people on the planet–may decline due to global warming. Researchers in Japan and China have grown rice in atmospheres containing carbon dioxide concentrations of 568 to 590 parts per million (current concentrations are around 410 parts per million). They found that
“….at the high concentrations, the crop’s content of the vitamins B1, B2, B5 and B9 all declined, including by as much as 30 per cent for B9 (folate). The research also confirmed previously discovered declines in protein, iron and zinc.”
The research should be viewed along with other studies that suggest that wheat production could decline significantly in higher concentrations of CO2 as well. Many believe that more CO2 would increase crop yields because plants absorb it to grow. But plant metabolism may not be able to process the higher concentrations of carbon dioxide in ways that maintain current nutritional levels.
There are dueling ultimatums between the US and Iran. US Secretary of State Mike Pompeo issued his list of demands for an agreement between the US and Iran and Iran’s Supreme Leader Ali Khamenei has issued his own set of demands, not to the US, but rather to Europe, as a condition for continued Iranian adherence to the nuclear agreement even without US participation. Those demands include:
European powers should protect Iranian oil sales from the US sanctions and continue buying Iranian crude
European banks should safeguard trade with Iran
The UK, France and Germany should pledge not to seek negotiations on Iran’s ballistic missile programme and regional activities, both demanded by Washington
The demands put the US and Europe on a collision course. The Europeans do not wish to alienate the US, but they also know that Russia and China will continue their participation in the agreement even without the US. So the dilemma is whether Europe should placate the US knowing that their cooperation with the US will change nothing or whether Europe should risk the wrath of the Trump Administration and continue to support the agreement. As the chart below indicates, Europe does not have significant interests in buying Iranian oil, but Europe is definitely interested in Iran buying European products.
“’As an initial response to China’s continued militarization of the South China Sea we have disinvited the PLA Navy from the 2018 Rim of the Pacific,’ Pentagon spokesman Lt. Col. Christopher Logan of the Marine Corps said in a statement.
“The United States, he added, has ‘strong evidence’ China has deployed anti-aircraft and anti-ship missiles and electronic jamming systems on artificial islands in the Spratly Islands chain that Vietnam and Taiwan also claim as their territory. ‘China’s landing of bomber aircraft at Woody Island has also raised tensions.'”
The Chinese expressed anger and disappointment, but I suspect that they do not care very much.
One of the founding members of the European Union, Italy, has selected Giuseppe Conte to lead a new government composed of a slim majority of the Euro skeptic Five Star Movement and the anti EU League party. Conte is relatively unknown and undistinguished and the odd coalition promises virtually nothing in terms of an effective government. Both parties have a strong anti-German bias which augurs ill for the future of the Union. We should all keep a close eye on the health of Italian banks–they are not especially strong and could pose a serious risk to the European Central Bank which is forbidden bu EU rules to bail out national banks directly. The coalition government is likely to spend freely and tax lightly, a bad combination for an economy that is essentially sclerotic.
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