Category Archives: China and Asia Pivot

War with North Korea over its nuclear ambitions is now a very real possibility

Such is the concern about the mad, cruel, despotic regime of Kim Jong-Un of North Korea that recently an internet falsehood spread that sounded just crazy enough to be true.

According to the apocryphal tale, the untested Kim—chafing under the patronising tutelage of his uncle, Jang Song-thaek—decided he had had enough. Jang was dramatically arrested by the young dictator, stripped naked and fed to a pack of starving dogs.

While this Bond villain ending proved to be untrue (Jang was more prosaically merely executed by firing squad), the simple fact that the hoax was so believable highlights the problem of the West in dealing with North Korea over its nuclear programme. Deterrence only works if the other side is rational. In the case of Kim’s leadership, this is a highly dubious proposition.

As America’s most underrated modern President Dwight D. Eisenhower put it, nuclear deterrence is only effective if the other side doesn’t want to die. Ike gauged that Stalin, for all the rivers of blood he caused to flow, was rational to this extent. As such, a peaceful nuclear stalemate was possible. For all the modern world’s many twists and turns, until the advent of the North Korean nuclear programme, Eisenhower’s test has precariously held: no state with nuclear weapons has been open to committing suicide.

However, given the fundamental irrationality of the hereditary communist despotism there, relying on this in the future amounts to more of a hope than a certainty. Indeed, both the outgoing Obama foreign policy team as well as Israeli intelligence have alerted the Trump White House to the rising danger from Pyongyang, stressing that it is the most immediate peril facing the world.

For North Korea’s nuclear programme has not been standing still. In 2016, it conducted two nuclear tests and more than 20 missile tests, in an effort to expand its nuclear missile reach. In his past New Year’s speech, Kim boldly announced North Korea is in the final stages of developing an Inter-Continental Ballistic Missile (ICBM) capable of carrying nuclear warheads, which could theoretically reach the American mainland for the first time. Further, many regional experts expect North Korea is preparing yet another nuclear test for the near future, perfecting its ballistic missile programme.

Were this to prove so (Kim’s regime notoriously tends to overstate its capabilities), it would do nothing less than change the basic global strategic equation, constituting a primary threat to the United States. North Korea, equal parts malevolent and incompetent, is playing with fire in thinking that this further exercise in brinksmanship will not elicit the strongest response from the US, as this jarring strategic shift may be something Washington is simply not prepared to live with.

In the end, America and the West have only two basic policy alternatives to halt these very alarming developments: negotiate or take military action to stop the programme, very likely risking a renewal of the Korean War and catastrophically destabilising the volatile Asia-Pacific region, even risking armed confrontation with China.

The obvious, logical, least bad policy alternative would seem to be to talk to the North Koreans. And that is what all recent American administrations have done, achieving absolutely nothing, as the outgoing Obama administration has glumly admitted.

The only real outside driver who can leverage North Korea to halt its grandiose nuclear ambitions is China, whose vibrant economy just about keeps its economic basket case ally going. However, so far Beijing has preferred to tacitly support its difficult friend, rather than joining the rest of the world in standing up to Pyongyang and risking its implosion on the Chinese border. And if negotiations did not work during the time of the Obama administration, they are far less likely to do so now, as the new Trump White House is far more antagonistic towards China than its predecessor.

All this makes for the most dangerous of potential crises, and is a wholly underrated political risk roiling the world. North Korea is dangerously aiming to alter the global strategic nuclear balance. Negotiations to curb its ambitions have failed over many years, and are even less likely to work now that the US and China are at daggers drawn. But if negotiations show no chance of success, don’t expect the US to meekly accept the alarming development of an effective, accurate North Korean ICBM which can hit the mainland US.

War, and all the peril it could bring, is very much a possibility. It is past time the world woke up to the growing political risk over North Korea.

Published in City AM London, February 6, 2016

Forget Russia: Trump’s China trade war risks breaking Asia’s fragile peace

 

“I see myself as an instrument of the Almighty and go on my way, regardless of transient opinions and views.”

–Kaiser Wilhelm II, 1910

While he was diabolically poor at follow-through, former President Barack Obama has the makings of a first-rate political risk analyst. Early on in his term, Obama keenly saw that Asia was where most of the future global growth in the world would come from, but was also the region where most of the global geopolitical risk lay. This basic insight was the motivation for Obama’s ill-starred Pivot to Asia, where the region was to rightly receive more strategic involvement from America.

Risk has been dangerously bubbling up in Asia for two basic reasons. First, and unlike in Europe where Russia is kept at bay and Germany caged, there is no multinational military organisation like NATO that both deters revisionist powers (in this case China) and keeps possibly frightening allies (in this case Japan) on the reservation.

This is largely because of the hugely counter-productive insistence of Japan’s elite to regularly pray at what my staff have come to call ‘The War Crimes Shrine’ at Yasukuni. Japan’s grudging failure to come to terms with its barbarism in World War II has alienated would-be allies such as South Korea, making the formation of a NATO-like organisation to keep the peace—and to keep America’s allies on the same page–impossible.

Second, the rise of China has created a state of being problem in East Asia; the United States is the dominant power there, and the Chinese wishes to re-claim its traditional historical dominance in the region. This basic fact—and the obvious tensions that flow from it—can simply not be wished away.

In typical business-like fashion, the Chinese leadership commissioned a study to look at historical examples over the past 500 years of what happened to the world when an emerging power (such as the China) collided with a status quo power (such as the US).

The doleful conclusion of the Thucydides study—so named for the geopolitical rivalry between Athens and Sparta that ignited the Peloponnesian War—was that, in 12 of the 16 past cases, the result has been bloodshed. Given that historical reality, the structural peril to the present world is so great only a statesman of great ability and subtlety is likely to buck the odds.

Instead of this, we have newly-inaugurated President Donald Trump, who so far has passed his audition to be the neurotic Kaiser Wilhelm of this era with flying colours. Whereas under Obama the US and China increasingly engaged in a strategic competition in East Asia in the South China and East China Seas, Trump seems intent on increasing the danger by adding an obviously harmful trade war to the menu.

Given that—unlike the Cold War where the Soviet and Western economies were strikingly separate—China and the US are inextricably linked economically, this is bound to hurt both countries, and nobble the world’s hopes for decent rates of growth. Beyond even this, it is pouring gasoline on the open fire of the inevitable Chinese-American competition in East Asia, making avoidance of the Thucydides trap infinitely harder.

Far worse still, Trump is heading into his showdown with China having just greatly alienated his many prospective allies in the region, in his breathtakingly counter-productive abrogation of the Trans-Pacific Partnership (TPP), an ambitious trade pact that would have welded America economically closer to key allies such as Japan, Australia, New Zealand, Vietnam, Malaysia, and Singapore.

Instead, by unilaterally walking away from the meticulously negotiated pact, Trump’s White House has allowed Beijing to whisper the poisonous words to America’s Asian allies, ‘The US is not to be trusted.’

So in his Wilhelm II audition—a vainglorious bumbler who bluffed the world into an avoidable conflict—Donald Trump seems a cinch for the part. He is taking China on over the wrong issues (macro-economics not geo-strategy), with the wrong balance of power (having just spurned America’s regional allies), at the wrong time (when the world desperately needs all the global growth that it can muster).

Under Obama, the US was firm but business-like with China, defending freedom of navigation in the seas there but working with the Chinese where it could, and furthering joint economic links that make it ever harder for Beijing to turn its back (due to its vast economic interests) on an American-dominated order. The results were impressive strategically, with much of East Asia openly and increasingly siding with the US over the neighbourhood bully.

Trump’s Kaiser Wilhelm impersonation throws all this out the window, imperilling America’s favourable strategic position. As as true when Obama came to power, Asia is once again the region in the world to watch, but for far more terrifying reasons.

Published in City AM London, January 23, 2017

Blame discredited elites for the decline and fall of the West in 2016

“The more I practice the luckier I get.”

–Golfing great Gary Player

In essence, Political Risk Analysis is like nothing so much as American baseball: there is an undoubted element of chance to the game and even the best player strikes out with soul-destroying regularity.

Saying this, it is not dumb luck that the legendary Ted Williams is the last man to hit .400, and that Yankee great Joe DiMaggio accomplished the unmatched feat of hitting safely in 56 straight games. The immortals in both political risk and baseball invariably do the best over time; there is a lot more skill than randomness driving both fields.

If the soothsaying perfection of the mythical Merlin is out of the question, mastering political risk–and putting it to use for the businesses and governments in today’s world–assuredly is not.

And yet I can say with no little amount of schadenfreude that the epoch-changing year of 2016 has confounded most of my competitors. Whether it is Niall Ferguson’s extraordinary mea culpa over Brexit (‘I left my analytical brain at the door to help my friends David Cameron and George Osborne’) or the perpetual shock of the Financial Times (‘We are surprised about the Dutch referendum on Ukraine, Brexit, Trump, the Italian referendum and everything else…’), one thing is for certain. Foreign policy and risk analysts have not covered themselves in glory this past year.

The reason for this is simple enough: 2016 was a year when the world actually and fundamentally changed. In other words, it was a year that will enter historical shorthand, like 1848, 1918, 1945, and 1989.

In this case, the obvious new global structure—a multipolarity, of a world of many powers—became clear. It is a world where the EU unspooled (Brexit, the Italian referendum), America stopped being the ordering power (the Trump phenomenon), Russia emerged as wounded (its GDP is now only the size of the state of Texas) but dangerous, and regional powers were more and more left to their own devices (Erdogan’s authoritarianism following the botched coup against him in Turkey, China’s naval build up) as there was no one about to restrain them.

All these dots on the map are part and parcel of the same phenomenon; the fully justified discrediting of the old, deeply flawed, and blithely unware Western elite. The decline of the West as the world’s ordering power came to fruition in 2016, but is the direct result of elite’s catastrophic failures to see how badly they had been discredited strategically (by the disastrous Iraq war) and economically (by the Lehman and euro crises), when they ran the world geopolitically and financially into a ditch and then walked away, seemingly scot free, leaving the rest of us to suffer.

Their fitting epitaph is what F. Scott Fitzgerald’s said of his villains, Tom and Daisy Buchanan, in The Great Gatsby, “They were careless people, Tom and Daisy—they smashed up things and creatures and then retreated back into their money or their vast carelessness or whatever it was that kept them together, and let other people clean up the mess they made.” Their demise, and that of the world they made, should not be lamented.

And what of my record? All in all, this column and my firm have had a pretty good year. We called Brexit correctly (unlike every single other major political risk firm), along with the Dutch referendum, the Italian referendum, the Farc vote, the radicalisation of Turkey and the victory of shale over the Saudis.

On the one big one we got wrong—the Trump victory—we still gave him a thirty percent chance (reportedly about what his campaign staff allowed for) and were told we were mad to do so. Even so, thirty percent is not fifty percent so it is a miss; we underestimated (if not nearly so much as our competitors) what a powerful force populism has been in the world this year. But, in American baseball terms, it has been a very good season.

In thinking about the reason for this—as my firm is having its end of the year analytical review—one thing stood out. The very first of our columns for City AM for the year was entitled, “The end of the West: 2016 is the year a new order begins to emerge.” And that is what has happened. In political risk, as in American baseball, if you get the big picture right, you will win a lot of games.

Happy holidays, everyone.

Published in City AM, December 19, 2016