Russia Is Building Huge Amounts Of Unspendable Rupees

The Daily Escape:

Sunset, Rio Grande Bridge, Taos, NM – June 2023 photo by Auggimage

Over the year that Russia has been at war in Ukraine, the west triggered sanctions to isolate Russia from getting access to hard currency. One result is that the sanctions have forced Russian to sell crude at discounted rates. At the cheap prices, India emerged as a major buyer of Russian oil. The discounts have led to India importing more oil from Russia than ever before. Here’s a chart:

According to data from Vortexa, the increase amounts to about 500k barrels/day since November, 2022. Russia now supplies India more crude than Iraq and Saudi Arabia combined. Prior to the Ukraine war, the chart shows that India bought very little oil from Russia. But as the sanctions cut off major Russian banks from much of the West’s payment systems, finding other markets that would trade for oil in currencies other than the dollar became a challenge.

India’s buying Russian crude made sense because India is a major buyer of Russian weapons. Since 2017, Russia has accounted for $8.5 billion of the $18.3 billion New Delhi has spent on weapons imports. Business Insider reports that India has been buying Russian oil using rupees since Moscow has been shut out of the USD-denominated global payments system.

Snapping up discounted Russian crude has also widened India’s substantial trade deficit with Russia. This has left Russian oil companies and banks with billions of rupees in their Indian bank accounts.

Russia is now amassing $1 billion worth of Indian rupees each month and it’s struggling either to use in India or to convert into rubles to repatriate the currency. Bloomberg estimates that the total of Russian assets in built up in India since 2022 equals $147 billion. And it’s not like Russia can send the rupees back home, because India has restrictions on capital outflows by foreigners. So, Russia is looking at $2 to $3 billion more rupees stuck in India every quarter.

Bloomberg quoted Russia’s Foreign Minister Sergei Lavrov during a Shanghai Cooperation Organization meeting in India in May:

“We need to use this money. But…these rupees must be transferred in another currency, and this is being discussed now…”

Nandan Unnikrishnan, a Russia expert at the Observer Research Foundation (ORF) in New Delhi, told DW:

“Russia wants a currency that it can use to buy goods that it requires for its economy… the question is identifying that currency…Russians would be happy to use the yuan,”

That’s because the Russia-China bilateral trade is worth hundreds of billions of dollars. OTOH, New Delhi would not be comfortable allowing trade settlement in the yuan, given the tense relations between India and China due to their border disputes. Reuters news reported that the Indian government had asked banks and businesses to avoid using the yuan to pay for Russian imports.

So Russia has a big problem. They would like to use the proceeds of oil exports to finance the Ukraine war. Putting how big the stranded rupees are in context, Russia spent $68 billion, on defense in 2022, according to Reuters. As Alexander Isakov, Russia economist at Bloomberg Economics says:

“There are no alternative oil importers of India’s caliber on the horizon for Russia, so exporters and banks will gradually accept settlement in rupees…”

Western pundits and economists have talked endlessly about how the sanctions weren’t doing much to close off Russia from the rest of the world. But the sanctions that cut off major Russian banks from most of the West’s payment systems, have created a real challenge to Russia finding ways to get paid for their crude so that they can finance their war in Ukraine.

Facebooklinkedinrss

China’s Triangulation Of Russia And The West

The Daily Escape:

Joshua tree in bloom, Joshua Tree National Landmark SW, UT – March 2023 photo by Lisa Simer

We’re back at the Mansion of Wrong after a few lovely days in St. Helena, CA. Surprisingly, it seems that lots of things happened while we were away. From Heather Cox Richardson:

“So, for all the chop in the water about the former president facing indictments, the story that really seems uppermost to me today is the visit China’s president Xi Jinping made today to Moscow for a meeting with Russia’s president Vladimir Putin.”

In 2015, shortly after Russia intervened in the Syrian Civil War, Wrongo asked a visiting Russian author who spoke at our local library whether Putin wanted to move Russia closer to the west or to the east. He said unequivocally that Putin was a product of the west and would keep Russia in the west’s orbit.

It’s clear that he was wrong. Russia has moved away from the west, possibly permanently. Earlier in March, Wrongo said the following:

“The US is attempting to isolate both China and Russia. With Russia, we’re using ever-tightening economic sanctions. With China, we’re building a geographic containment strategy among our allies in Asia.”

And on Monday, Chinese President Xi met with Russian President Putin in Moscow. Here’s a meeting summary from the blog Institute for the Study of War:

“… [the meeting]…on March 20…offered a more reserved vision for Russian-Chinese relations than what Putin was likely seeking. Xi and Putin touted the strength of Chinese-Russian relations in their meeting…but offered differing interpretations of the scale of future relations….on March 19 Putin published an article in Chinese state media in which he argued that Russia and China are building a partnership for the formation of a multipolar world order in the face of the collective West’s seeking of domination and the United States pursuing a policy of dual containment against China and Russia.”

….Xi offered a less aggressive overarching goal for Russian-Chinese relations in his article published in Russian state media….in which he noted that Russia and China are generally pursuing a multipolar world order but not specifically against an adversarial West. Xi instead focused…on presenting China as a viable third-party mediator to the war in Ukraine….

David Ignatius concluded in the WaPo that the meeting was about:

“A strong China…bolstering a weak Russia….The Chinese aren’t providing weapons (yet), but Xi certainly offered moral and psychological support in what might be described as a get-well visit to an ailing relative….The paradox of the Ukraine war is that Putin’s bid for greater power in Europe has made him weaker. This diminished Russia will fall increasingly under China’s sway….Maybe that’s the biggest reason for Xi’s…visit: He is bolstering a flank against America and the West.”

China’s dominance over Russia will grow if Russia cannot find a way to end the war in Ukraine. Russia has lost its energy markets in Europe because of the invasion, so it must depend heavily on demand from China. China’s growing economic power in Asia coupled with its capabilities in space, cyber, and artificial intelligence will increasingly dwarf Russia’s.

Russia’s economy is concentrated on exports of energy. It also has a major population problem. The Economist reports: (emphasis by Wrongo)

“Over the past three years the country has lost around 2million more people than it would ordinarily have done, as a result of war, disease and exodus. The life expectancy of Russian males aged 15 fell by almost five years, to the same level as in Haiti. The number of Russians born in April 2022 was no higher than it had been in the months of Hitler’s occupation.”

More:

“…the life expectancy at birth of Russian males plummeted from 68.8 in 2019 to 64.2 in 2021, partly because of Covid…Russian men now die six years earlier than men in Bangladesh and 18 years earlier than men in Japan.”

And the Economist says the exodus of well-educated young people at the start of the Ukraine War also hurts Russia’s future. According to its communications ministry, 10% of IT workers left the country in 2022. Many were young men, further skewing Russia’s unbalanced sex ratio. In 2021 there were 121 females over 18 for every 100 males. More:

“Demographics is rapidly making Russia a smaller, worse-educated and poorer country, from which young people flee and where men die in their 60s.”

As Wrongo said, separating China from Russia used to be a central goal of US foreign policy. The Biden administration tried that strategy in reverse: Warming relations with Moscow at the June 2021 summit in Geneva in part to concentrate on the challenge China presented.

How did that work out?

Now it’s China trying the role of triangulator. Xi’s playing off the split between the US and Russia, helping Putin, but also keeping some distance while building China’s bona fides with the third world.

Xi’s also used China’s close relations with Iran to make a diplomatic breakthrough between the Saudis and the Iranians, something that the US could never achieve.

We seem powerless to blunt what’s happening before our eyes.

And all the while, the Republican Party of the world’s greatest superpower argues about drag queens and wokeness.

Wake up America! Check out what China, Russia, Iran and Saudi Arabia are building for us. You’re not going to like it.

Facebooklinkedinrss

The Looming Russia-China Alliance

The Daily Escape:

Peach trees in bloom, Low Gap, NC – March 2023 photo by Donna Johnson

Springtime brings hope after a dark, cold winter. The clocks leap forward this Sunday. It’s also a time to take stock of the old assumptions that our recent geopolitical strategies are built on. The US is trending in what may be an unsustainable direction in our global politics.

A year ago with Russia’s invasion of Ukraine, America sought to make Ukraine a proxy for the fight between authoritarianism and democratic forms of government. The Ukraine war caused several major changes within Europe and NATO:

  • Germany moved away from its strategic energy supplier, Russia.
  • NATO became more clearly unified than at any time since its founding.
  • The Eastern European members of NATO became the drivers of military engagement on the side of Ukraine.
  • The US and NATO have found they do not have the production capability to continue providing military weapons and ammunition at the rate Ukraine is using them.
  • This has made it clear that the US and NATO aren’t prepared for a major confrontation with a great power such as China or Russia.

The Ukraine war has precipitated other global consequences. While Russia has become a pariah to Europe, China has become one of Russia’s most important allies.

Many readers won’t remember that 60 years ago, there was a fundamental split between the Soviet Union and China, largely over differences in communist ideology. Over the years, they have slowly moved closer together, driven in part by US policy and by their shared quest for a global reset of geopolitical power.

Now they are willing to work together to dismantle or blunt the US-led world order.

This “alliance of autocracies,” is built on China’s and Russia’s belief that the US’s supremacy is waning. And they are entitled to rule within their own spheres of influence. And to use force if necessary to control those spheres. An alliance between China and Russia brings advantages to both countries. Recent US intelligence says that China may supply Russia with weapons to aid in its war against Ukraine. There is talk of China building a drone factory in Russia to supply its war in Ukraine.

Russia also desperately needs China to stabilize its economy by importing more below-market cost oil, a boon to China’s economy. In June 2022, Russia became the PRC’s largest oil supplier, eclipsing Saudi Arabia. While Russia is betting that Western fatigue will hand them a victory in Ukraine, China is sizing up America’s ability to engage in a faraway battle should China decide to invade Taiwan.

The US is attempting to isolate both China and Russia. With Russia, we’re using ever-tightening economic sanctions. With China, we’re building a geographic containment strategy among our allies in Asia. Containment has been helped by North Korea’s bellicosity against South Korea and Japan, who recently decided to partner militarily, much to China’s distress. The Pentagon has also expanded its bases in the Philippines while shrinking our military footprint in the Middle East.

With US/Russian relations basically clinging to life, prudence should have indicated that the US adopt a more friendly stance toward Beijing. However, we’ve prioritized support for Taiwan over better relations with China. Both the Trump and Biden administrations embraced high tariffs on Chinese imports.

In 2022, Biden added sweeping tech restrictions on China, including a provision barring the PRC from using semiconductor chips made with US tools anywhere in the world. That’s the harshest economic measure leveled against China since the normalization of diplomatic relations in 1979. This hasn’t gone unnoticed by China. China’s new foreign minister said:

“The more unstable the world becomes, the more imperative it is for China and Russia to steadily advance their relations.”

It’s clear that the Russia‐​PRC relationship isn’t yet a full‐​fledged military alliance, but it’s moving in that direction. And both are friendly with Iran and North Korea, which have also supplied weapons for Russia’s war in Ukraine. It isn’t a great stretch that these four could create a new “axis of evil” that could lead to the West needing to plan to fight two faraway wars simultaneously.

This is at a time when we cannot find enough munitions and weapons to fight one proxy war in Europe.

The odious Henry Kissinger once cautioned that it must be a high priority for the US to make certain that our relations with both Moscow and Beijing were closer than their relations are with each other. But our policy makers have done just the opposite.

While the argument for not continuing a proxy war in Ukraine has merit, Wrongo has argued that Ukraine is a war of necessity because democracy in Europe is what’s really on the line. And, with the 2024 presidential campaign about to start, Republican opposition to the war is growing.

Biden needs to keep what political capital he has, but he also needs to improve our ability to sustain our military support for Ukraine. That may be difficult because America hasn’t developed a solid military strategy for tomorrow’s battles which may well be with one or more of the great powers.

It is more difficult because we’ve spent the last 20+ years using $80 million-dollar planes to drop $400,000 bombs on $25 tents, while still wondering why we didn’t win any of our wars in the Middle East.

Ironically, our geopolitical strategy and the supporting military strategies may have the US in the position of being the midwife bringing a newborn Russia‐​PRC military alliance into the world.

Facebooklinkedinrss

Saturday Soother, Taiwan Edition – August 6, 2022

The Daily Escape:

El Morro National Monument, NM – monsoon rains have turned the brown landscape green – July 2022 photo by Kirk Shoemaker

We need to talk about Taiwan. China said that they wouldn’t tolerate a visit to Taiwan by House Speaker Nancy Pelosi (D-CA), and that there would be severe consequences if she failed to heed China’s warning. But she ignored China, and went anyway.

China then launched a comprehensive set of war games, showing clearly how they might invade and take over Taiwan militarily at some point in the future. China then announced it sanctioned Pelosi and her family. Now, according to the BBC, China has said all dialogue between US and Chinese defense officials would be cancelled, while co-operation on returning illegal immigrants, climate change, and on investigating international crime would be suspended.

You know the broad outline of the issues: China viewed Pelosi’s visit as a challenge to its claims of sovereignty over Taiwan, even though Taiwan is self-ruled, and sees itself as distinct from the mainland.

As China has become a global leader, their abilities and ambitions have shifted. A 1997 trip to Taiwan by then US House Speaker Newt Gingrich, was met with little opposition, while the Speaker Pelosi visit has been met with missiles. This is a complicated issue. China doesn’t control Taiwan; it doesn’t issue travel visas for it, either. In April, a group of US Senators visited Taiwan. At the time, China’s Foreign Ministry condemned the visit in a series of tweets and press statements, but nothing more.

The US has wanted to keep Taiwan in its orbit at least since the 1950’s when General Douglas MacArthur, then the Supreme Commander of allied powers in Japan, sent a top secret “Memorandum on Formosa” to President Truman (Back then, Formosa was the name of Taiwan). To contain communism, MacArthur insisted that Truman consider the strategically located Formosa (Taiwan) as a counterbalance to the Soviet and Chinese regional expansion:

“Formosa in the hands of the Communists can be compared to an unsinkable aircraft carrier….”

He argued that Taiwan should instead be an unsinkable US aircraft carrier, projecting American power in the Pacific. As China grew in power and importance, the US adopted a policy of strategic ambiguity with respect to the two countries, wanting good relations with both and wanting to finesse the question of political control of Taiwan.

But lately, the US has been slowly walking away from the doctrine of strategic ambiguity, increasingly signaling to China that it considers Taiwan a core US interest in North Asia. That’s why the Chinese reacted so strongly to a high level politician like Pelosi visiting Taiwan.

It’s also true that the South China Sea and the Taiwan Straits are among the world’s busiest seaways, and that’s where China’s military exercises are now taking place:

Source: Bloomberg. The dots are vessels, the polygons are China’s military drill areas

The NYT’s Tom Friedman connected Pelosi’s trip to the Biden administration’s previous efforts to keep China from getting involved in Ukraine on Russia’s side:

“There are moments in international relations when you need to keep your eyes on the prize. Today that prize is crystal clear: We must ensure that Ukraine is able, at a minimum, to blunt — and, at a maximum, reverse — Vladimir Putin’s unprovoked invasion…”

Biden had held a series of tough meetings with Xi, trying to keep Beijing out of the Ukraine conflict. Friedman says that Biden told President Xi that if China entered the war in Ukraine on Russia’s side, Beijing would be risking access to its two most important export markets — the US and the EU. More from Friedman:

“By all indications…China has responded by not providing military aid to Putin — at a time when the US and NATO have been giving Ukraine intelligence support and a significant number of advanced weapons that have done serious damage to the military of Russia, China’s ostensible ally.”

So why mess with Biden’s Ukraine power play, Nancy? That’s Friedman’s question. OTOH, everyone knows that the minute we bend a knee to China is when we lose our ability to defend Taiwan and hold on to the unsinkable aircraft carrier.

China hasn’t proven itself capable of dealing with Taiwan except through threats since Chiang Kai-Shek left the mainland and took over in Taiwan in 1950. If China wants to control Taiwan without a fight, it has to stop threatening to rape her if she doesn’t want to date. Every Chinese threat increases Taiwan’s separate national identity, and decreases the chance of a peaceful Chinese takeover.

Time to leave geopolitics behind, it’s time for our Saturday Soother, where we focus on clearing our minds for the week to come. Here on the fields of Wrong, we have a crew rebuilding a stone wall by the road that was hit by a large truck a few years ago.

Let’s start by finding that one last can of nitro cold brew in the back of the refrigerator and grab a seat by a large window. Now put on your wireless headphones and listen to “Danse Bacchanale” by Camille Saint-Saëns from his opera “Samson et Dalila”, played here by the Orquesta Sinfónica Juvenil de Caracas, Venezuela in 2010:

This is played at a very quick tempo, and with passion!

Facebooklinkedinrss

China’s Torpedoing the Supply Chain

The Daily Escape:

Spring snow, Mt. Princeton, CO – April 2022 photo by Haji Mahmood

For the past two years, Covid has thrown the global supply chain into a tailspin. Even though the cargo industry’s ships, trains, trucks, and planes worked full-time, we still have shortages. Now, China’s zero Covid policy is increasing both the uncertainty and costs of efficiently operating the still-choked global supply chain.

From Bloomberg:

“We expect a bigger mess than last year,” said Jacques Vandermeiren, the chief executive officer of the Port of Antwerp, Europe’s second-busiest for container volume, in an interview. “It will have a negative impact, and a big negative impact, for the whole of 2022.”

Bloomberg says that China accounts for about 12% of global trade. It’s recent Covid lockdowns have idled factories and warehouses, slowed truck deliveries and exacerbated container logjams. And since US and European ports are already swamped, this new outage will leave them vulnerable to additional shocks.

China is home to six of the world’s 10 largest container ports. It’s the global economy’s most important manufacturing hub. While most countries have decided to learn to live with the Covid, Beijing has maintained its Zero Covid policy, where even small outbreaks can shut down large population centers and slow economic activity.

It’s taking an average of 111 days for goods to reach a warehouse in the US from the moment they’re ready to leave an Asian factory. That’s similar to the record of 113 set in January 2022 and more than double the time that the same trip took in 2019, according to Flexport Inc., a freight forwarder.

Julie Gerdeman, CEO of supply-chain risk analytics firm Everstream Analytics says:

“Once product export activities resume and a large volume of vessels make their way to the US West Coast ports, we expect waiting times to increase significantly…”

You’d think that after more than two years into this pandemic, America would have realized that single-sourcing much of our industrial production to a dictatorship is a bad idea. One with enormous consequences when something goes wrong.

But we haven’t. US Treasury Secretary Janet Yellen has advocated for what she calls “friend-shoring” meaning reducing our dependence on China and Russia. Brian Ehrig, a partner at the consulting firm Kearney is co-author of a report that found 78% of CEOs are either considering reshoring or have done it already. He says that relocating supply chains:

“…might cost more, but if you can make smaller quantities that you can then sell at closer to full price, you can actually completely change the game…”

Le Monde reminds us that capitalism has created hidden dependencies in Ukraine. It is the main producer of the wiring harnesses that hold together the many electrical cables in a car. They quote Christine Lagarde, president of the European Central Bank (ECB) in a speech in Washington, DC: (brackets by Wrongo)

“Ukraine produces one fifth of Europe’s [harness] output,”

These parts are low value added, but essential in the construction of cars, a perfect outsourcing target for capitalism. Globalization isn’t going to die; but maybe it can evolve. Much of that possible shift hinges on convincing consumers to accept higher prices for the certainty of supply.

For example, once the CDC finally gave us unambiguous advice about wearing masks, there was a huge rush to open mask production facilities in the US. But now they’ve all closed, because it’s cheaper to make masks in China.

Dictatorships can ensure that labor remains cheap. That’s great for capitalists, not so good for people who needed masks in 2020 when China decided to keep most of them for their population. Or, now, when China is still willing to shut down its economy to stop a Covid outbreak.

And, despite all the good will in the world, nobody will make masks in the US if it means their five-dollar boxes of masks go unsold because everyone is buying the one-dollar boxes. Instead, they will complain about how the company asking five dollars is a bloodsucker.

We’re told that capitalism works. That it just does. That just-in-time supply cuts costs for consumers. But does it?

Art installation by Steve Lambert – 2013, Times Square, NYC

It’s proven not to work during an emergency. But what are the chances of re-shoring ever happening? Business school really only teaches one thing: Short-term profits rule and everything else is irrelevant.

After all, America is a business, not a country.

What should be readily apparent is that despite the CEO poll above, our corporate masters are certainly not thinking about systemic change to supply chains. Nor will they, as long as the focus is reducing costs as low as possible for maximum shareholder gain.

The point is that unless business is incentivized otherwise, don’t expect the supply chain to get any better. That incentive must come from the government in the form of tax policy or subsidy.

Facebooklinkedinrss

China’s Reaction to Putin’s War

The Daily Escape:

Snow on the Fields of Wrong, March 10, 2022                 Sand on the beaches of Florida, March 2022

(This is the last column for the week. New content next week will be light and variable as Wrongo and Ms. Right make our annual pilgrimage to Florida to visit Wrongo’s sisters.)

Subsequent to the meeting between Putin and Xi Jinping in Beijing at the start of the Winter Olympics, the Chinese government’s statements and actions about Putin’s War in Ukraine have been a kind of doublespeak.

With its public statements, China’s been supportive. The foreign minister has referred to Russia as its “most important strategic partner.” China hasn’t endorsed Russian sanctions and its state media seems to repeat a lot of Russian disinformation about Ukraine.

On the actions side, the Chinese government has called for an end to violence and has promised to send humanitarian aid to Ukraine.

One thing that hasn’t been public is Chinese financial institution’s hesitancy about new deals with Russia. Chief Investment Officer magazine (CIO) quotes Yuan Jiang, a Chinese PhD candidate at Queensland University who specializes in Russia-China relations:

“Currently, the risk is simply too huge…”

Jiang said that traditionally, only state-funded institutions or large corporations would transact or directly invest in Russia, but even these institutions were wary of Russia:

“Russian markets are full of political corruption and other dangers…”

China’s financial sector has been leery of being caught up in the Western sanctions. Two major Chinese state-owned banks are now restricted from financing Russian commodities, according to Bloomberg. Reuters reports that the Bank of China in Singapore stopped financing Russian oil trades.

CIO also reports that some banks with partial Chinese state ownership have also been backing out of Russian deals. The Asian Infrastructure Investment Bank, which has many Asian governments as shareholders, suspended its business in both Russia and Belarus after the invasion. Similarly, the Shanghai-based New Development Bank, which has China as one of its founding members, also has terminated its business with Russia.

Now Russia is barred from participating in SWIFT, the global financial messaging system. In the past, China’s large banks have complied with American sanctions against Iran and North Korea because of the importance of clearing via SWIFT. The Chinese distancing from Russian transactions makes it clear that Beijing intends to continue complying with this Western sanction.

The Russians are looking to China as a lifeline in the midst of the sanctions. And the Chinese government is providing some help. China’s UnionPay card service will serve as an alternative for credit and debit card holders now that MasterCard and Visa have ended the ability of Russian citizens to use their cards abroad. UnionPay is accepted in 180 countries.

But China is shying away from a full rescue. Former US Treasury official Peter Piatetsky said in an interview with RadioFreeEurope:

“China can essentially do one thing here, which is to buy more Russian goods, but they don’t seem to be willing to do that….Russia doesn’t have that many different goods that China is willing to buy….The relationship between Russia and China is very transactional….They both dislike the US and dislike the US-led world order, but aside from that, I don’t think there’s much there.”

China could buy up Russia’s oil that’s no longer going to Europe if it wanted, but it doesn’t appear to be doing so, at least not yet. According to Jiang, ultimately the US has much more to offer China economically:

“Investing in the West is much simpler and more secure. No more unnecessary economic risk, not many political factors, and more transparent…”

And importantly, the US is China’s largest trading partner. The US buys 16.75% of all Chinese exports, creating a relationship that the Chinese government can’t afford to lose. Although ideological differences might dominate headlines, the US-China relationship is strategic for both.

It’s likely China will continue to keep Russia close and expand the relationship should relations with the West shift. And since the stated US strategy is to use Ukraine to destabilize Putin’s hold on power, China worries that it’s next.

Jiang says that Beijing is particularly afraid of “color revolutions,” a phenomenon in which popular uprisings result in regime change:

“Moscow and Beijing share almost indistinguishable views on the potential domestic and international security threats posed by color revolutions, and both nations view these revolutionary movements as being orchestrated by the US and its Western democratic partners to advance geopolitical ambitions.”

Despite the havoc that Western sanctions have brought on the financial system, China’s strong economic relationship with the West will help it keep Russia at arm’s length. If anything, the Ukraine war has shown just how much China relies on the West for its economic prosperity.

China and the US are particularly intertwined financially, and despite ideological differences, China will continue to prioritize its economic relationship with the US.

Facebooklinkedinrss

Monday Wake Up Call – Ukraine Edition, February 7, 2022

The Daily Escape:

Winter in the Palouse, near the town of Oakesdale, WA – January 2022 photo by James Richmond Photography

We talk a lot about a nation’s credibility in foreign policy. The US strives to be credible regarding its positions with allies and foes alike. We have often failed. Russia has also proven many times over that it isn’t a credible partner.

Consider a report from Numbers Stations showing that Russia has invaded its neighbors and a couple of distant countries 58 times since 1917. One element of clear credibility for Russia is its willingness to invade others. How does knowing this history inform the current situation between Russia and Ukraine?

The world is well-aware of Russia’s ostentatious military buildup along Ukraine’s border. Putin added to the tensions by making demands requiring a new European security order. He wants Russia to be allowed its own sphere of influence that roughly corresponds to the old Soviet Union. That means NATO should certainly not expand, and possibly should contract.

Let’s look at history between the US and Ukraine:

  • In 1994, President Clinton asked Ukraine to give up its nuclear weapons. In return, Ukraine got a financial settlement and the Budapest Memorandum which provided non-aggression assurances by both the US and Russia. Ukraine shipped 1700 or so nuclear warheads back to Russia and destroyed the missiles.
  • In 2014, President Obama looked at the big, muddy land called Ukraine and asked if its strategic importance was worth war. Meaning a real war, with an enemy that could fight back. He decided on economic sanctions.
  • In 2020, President Trump attempted to blackmail the Ukrainian president into interfering on his behalf in an American election.
  • In 2022, President Biden rules out military intervention should Russia invade Ukraine, talking mostly about more economic sanctions as the consequence.

Regardless of whether Russia invades Ukraine or not, the US is walking down a perilous path. It faces efforts to divide and neutralize its alliances in both Europe and Asia.

In Europe, Russia wants to bury the post-Cold War order. Putin wants Europe to recognize its sphere of influence in the former Soviet countries. Putin wants to separate Ukraine from NATO permanently. He would like to fracture the European alliance by making Germany a more neutral party as Russia attempts to create its western buffer zone.

Europeans think that Putin won’t invade but will follow a hybrid strategy — keeping a military presence on the border, continuing weaponization of Russia’s European energy supply and increased cyberattacks — which will serve to keep NATO from becoming fully anti-Russian the way an invasion of Ukraine would. From the NYT:

“Before the crisis, Germany was America’s closest ally in Europe, boasted a special relationship with Moscow and was the most important partner for Eastern and Central Europe. Today…Berlin’s relationship with Moscow is fast deteriorating….Germany’s difficulties are a hint of what could come if Mr. Putin continues his brinkmanship, without providing the certainty of an actual invasion.”

The US and Germany aren’t singing from the same choir book right now, so Putin may be on to something.

In Asia, China would like to drive a wedge between the US and some of its Eastern allies. It already has agreed with Russia on the demand for NATO to pull back in Europe.

India tilted toward Russia at the UN Security Council meetings last week. After China and Russia cast “no” votes in the Security Council on whether to hold an official session to discuss the Ukraine crisis, Responsible Statecraft says that India abstained. It was effectively a rejection of the US attempt to hold Russia accountable.

In the Philippines, the front-runner for president says he wouldn’t accept any offer of help from the US in negotiations with China over the South China Sea if elected president in May.

Any person can see what’s coming in cold war 2.0 and should be very wary and worried. We need to learn to navigate in what has become a multi-polar world, one with worthy competitors in Russia and China.

We should remember that during cold war 1.0 in 1962, the stationing of Russian missiles in Cuba let to a great power deal. Russia took its missiles out of Cuba and the US pulled its missiles from Turkey and Italy. Back then, Soviet leader Nikita Khrushchev was willing to consider Kennedy’s fears about Moscow’s missile deployment in Cuba. That became the basis for ending the confrontation.

The enormity of how close the world came to thermonuclear war led to an easing of tensions.  The next 50 years were a period of relative calm in US/Russian relations.

Today’s warlike tensions between the US and Russia over Ukraine have most of the same elements present, with the roles reversed. Now, Putin is telling the West that Ukraine should not be allowed to join NATO. He also demands that the US should not place offensive weapons in Ukraine.

Like Cuba in 1962, is Ukraine now the chessboard for these superpowers? Is there a lesson here from that history?

Time to wake up America! You aren’t uniquely qualified to run the world, and there are competitors who will work really hard to prevent you from trying to continue doing so. To help you wake up, listen to Pink Floyd perform “Dogs Of War” from their album “Delicate Sound Of Thunder” at the Nassau Coliseum, NY in 1988. While the singing is a bit muffled, the band sounds fine, and there’s a great saxophone solo by Scott Paige:

Sample Lyric:

Invisible transfers and long distance calls
Hollow laughter in marble halls
Steps have been taken, a silent uproar
Has unleashed the dogs of war
You can’t stop what has begun
Signed, sealed, they deliver oblivion

The dogs of war won’t negotiate
The dogs of war don’t capitulate

Still relevant, 34 years later!

Facebooklinkedinrss

Sunday Cartoon Blogging – January 30, 2022

Well, this was predictable. NPR reported that China’s ambassador to the US warned that the US could face a possible “military conflict” with China over Taiwan:

“If the Taiwanese authorities, emboldened by the US, keep going down the road for independence, it most likely will involve China and the United States, the two big countries, in a military conflict.”

It isn’t a coincidence that China raises the specter of war while the US is focused on a possible threat by Russia in Ukraine. This week, 39 Chinese military aircraft flew near Taiwan, including two of China’s most advanced warplanes, their J-16D jets. Military analysts think that the J-16D has capacity to interfere with Taiwan’s defense radar systems and could make a huge difference in combat.

This is more evidence of how strategically fraught America’s legacy global policies are in a multi-polar world. Russia is threatening NATO and our Western allies, while simultaneously, China threatens our strategic position in Asia. We haven’t fought a two-theater war in 77 years, and haven’t won a war since.

It’s ironic that neither Taiwan nor Ukraine are formal mutual defense treaty partners with the US, yet US defense hawks think we should defend either or both. On to cartoons.

Surviving is difficult when you live in the wild:

Some voices on the Right support Russia:

Breyer retires, but opinions differ on who owns the right to replace him:

There seems very little Republicans can do to stop Biden from filling this seat, since there’s no filibuster for Supreme Court nominees. That was taken away by Mitch McConnell, during the nomination of Neil Gorsuch.

Mitch looks for a loophole:

The never-ending Republican hissy fit:

Art Spiegelman’s Pulitzer Prize winning book, “MAUS”, is a memoir about the Holocaust. It was banned last week by a school board in Tennessee. In the book, the cats are the Germans while the mice are the Jews:

Facebooklinkedinrss

Monday Wake Up Call – September 13, 2021

The Daily Escape:

Cliff Palace, Mesa Verde NP, CO – September 2021 photo by David Milley Johnson

Daniel Byman of Georgetown University has the cover article in the WSJ’s Weekend Review: “Why There Hasn’t Been Another 9/11”. He says that while jihadism remains strong globally, the US has been spared a repeat of 9/11:

“Twenty years ago, the 9/11 attacks killed almost 3,000 Americans. Since then, the US homeland hasn’t suffered any comparable terrorist assault, nor even one a tenth of the size. The total death toll from jihadist attacks inside the US over these last two decades stands at 107…”

Byman’s point is that despite losing in Afghanistan, the US has become skilled at limited interventions: a drone strike to kill a terrorist leader here, a raid by special operations forces there, including the killing of Osama bin Laden and ISIS head Abu Bakr al-Baghdadi, among others. This has forced the terrorist leaders to hide constantly and has eliminated their ability to run large terrorist training facilities.

Our abilities to intercept terrorist phone and internet communications, monitor activity from the skies and coordinate in real time with our allies, allows us to be on top of most large-scale attacks that might be planned against us. From Byman:

“A jihadist arrested in Morocco may have made phone calls to an operative in France, who received money from a funder in Kuwait, who is tied to cells in Indonesia and Kenya and operates under the instructions of a leader in Pakistan…”

All of this is tracked. And the US then assembles this giant jigsaw puzzle, encouraging the arrests of suspects, while using drone strikes where arrests are difficult. Byman implies that we’re being kept safe because of our investment in anti-terrorist assets and technology.

He’s planting a stake in the ground for additional funding for America’s successor to the Global War on Terror (GWOT).

Adam Tooze reminds us that US military spending was driven to new heights by the GWOT. Overall spending peaked in 2010 at $840 billion. You might expect that America’s defense budget would have decreased when we got out of full-scale Iraq and Afghanistan operations, and it did. Tooze says that overall DOD spending fell to $629 billion in 2015.

With Trump in charge, the Pentagon’s budget was pushed back over $700 billion. So far, Biden is staying the course. Our withdrawal from Afghanistan in no way signals a retreat from global ambition, as the budgetary request for National Defense in 2022 is $752 billion, a 7.4% increase.

And the amazing part is that the military doesn’t seem to have an articulated strategy to combat future threats. That may explain why it took 20 years, four presidents and $ trillions for America to replace the Taliban with the Taliban in Afghanistan. As the think tank CSIS points out:

“It has been about 15 years since DoD explained, even roughly, how it calculated the force levels that it was proposing….”

Tooze says: (emphasis by Wrongo)

“In other words, America’s grand strategists formulate goals, the Pentagon draws up lists of things it wants…but it is unclear how each of these decisions relates to the other.”

The US military is a giant professional organization run by leaders with postgraduate degrees. Like most large organizations, it is hierarchical and thrives on amassing internal power. The battle for resources between the branches of the military is intense.

The National Defense Strategy of 2018 redefined America’s future security challenge as great-power competition with China, not counterterrorism. The main arena isn’t the Middle East, but the Indo-Pacific. And Biden is doubling down on this strategic blueprint.

This requires transformative technologies: AI, robotics, cyber weapons, and new space technology. The technology will come from Silicon Valley, even though they have somewhat conflicting technological partnerships with China.

We’re no longer training military in Afghan villages in California, we’re planning on building robot submarines. All of this shows that the withdrawal from Afghanistan in no way signals a retreat from our military’s global ambitions, despite our historically mediocre military leadership.

Time to wake up America! The war hawks in each Party along with the defense contractors have no intention of taking their collective feet off the gas pedal of military spending. What animates the alliance between them are buzzwords and money.

Despite what you think, social programs will always need to be paid for by new revenue, while defense spending is always “on the house”.

To help you wake up, listen to “New York Minute” by Don Henley. While it has some deep relevance to 9/11, it was recorded in 1989 for Henley’s solo album, “The End of the Innocence”. It was one of the songs radio stations in NYC played frequently in the weeks after 9/11. The track features Toto members David Paich on piano and Jeff Porcaro on drums:

Lyrics:
Harry got up
Dressed all in black
Went down to the station
And he never came back
They found his clothing
Scattered somewhere down the track
And he won’t be down on Wall Street in the morning

Facebooklinkedinrss

Saturday Soother – Dorian Edition, September 7, 2019

The Daily Escape:

Garden of the Gods, Colorado Springs, CO – 2019 photo by ForkMan. Cheyenne Mountain is in background.

(There will be no Sunday Cartoons this week.)

Trump’s decision to change our posture toward China from free trade to trade war is one of the most significant policy shifts in recent American history. And despite the hand-wringing by corporations and politicians, there’s a grain of value in what Trump is attempting to do.

For sure, it’s unclear if he really knows what he’s doing, but it highlights whether we have a strategy for our trade relations with China. American policy makers must look at and answer a few questions:

  • Why is our industrial supply chain located within our economic adversary?
  • Doesn’t our military readiness therefore depend on that adversary?
  • Why are American companies allowed to transfer critical technologies to China in exchange for short-term market access?
  • Why is Tesla building self-driving cars in Shanghai?
  • Why should Google be running an Artificial Intelligence (AI) lab in Beijing after canceling an AI contract with the Pentagon?

Our corporate overlords’ answer? Because the market wills it.

But markets choose one global power over another only for narrow financial reasons. The market will happily move its business to a surveillance state if it means bigger CEO bonuses and higher profits. In this competition, Corporate America’s ideological commitment to free trade is as big a handicap to us as the Soviet Union’s commitment to central planning was during the Cold War.

Republicans and their corporate partners reject the idea of America having an industrial-policy to support key strategic economic sectors. China has an industrial policy. It’s focused largely on AI, integrated circuits, telecom, and steel. We no longer have high end manufacturing, and we’re losing other strategic industries.

This means that Beijing is likely to pick our “winners” for us. Corporations use the old Ricardian comparative advantage to organize their supply chains. This means that we will watch helplessly as American innovations are transformed into economic engines in China, while our corporations will reap efficiency gains by locating their engineering and management operations next to their Chinese manufacturing.

Inevitably, the innovation in which we pride ourselves will depart as well.

A recent survey of 369 manufacturers found that American firms are moving their R&D operations to China not just to take advantage of lower costs, but to be in close proximity to their supply chains. About 50% of foreign R&D centers in China are now run by American companies. This has helped China achieve first place in market share for manufacturing R&D.

If we remain neutral regarding where our supply chains are located, “we innovate, they build” will become “they innovate, they build.”

So, an unintended consequence of Trump’s tariff war is that maybe American politicians will wake up to the strategic battle underway with China, and realize how our American corporations are lining up on the side of our competitor and economic adversary.

Enough of the outside world, time for a rainy Saturday Soother if you are on the east coast of the US. Wrongo is sitting on Cape Cod, and the weather service here has announced tropical storm warnings for Saturday. So, settle back and watch the Weather Channel!

Now brew up a mug of Panama Finca San Sebastian ($12/12 oz.) with its deep chocolate notes supported by subtle but persistent sweet floral tones. It comes from the brewers at Thermopolis, Wisconsin’s Jack Rabbit Java.

Now, as you watch Dorian news over and over until your mind is numb, listen to the great 1980’s hit from the Eurythmics, “Here Comes the Rain Again”:

Those who read the Wrongologist in email can view Annie Lennox here.

Facebooklinkedinrss