Category Archives: China and Asia Pivot

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

Donald Trump is snatching defeat from the jaws of victory in powder keg Asia

Donald Trump is off to a surprisingly good start. While his enemies in the Democratic party and the American press (which is largely the same thing) froth at the mouth, enraged that their world view has been found wanting, the President-elect has assembled a thoroughly solid cabinet up to now.

While there are some (to coin a phrase) deplorable picks–such as alt-right guru Steve Bannon as political adviser and the monomaniacal General Michael Flynn (everything is about ISIS and radical Islam) as National Security Adviser—on the whole this is a cabinet Mitt Romney, or for that matter President Eisenhower, could have chosen.

Easily the best choice so far has been General James ‘Mad Dog’ Mattis to be Secretary of Defence. Despite his colourful nickname and near-legendary status as a fighting Marine, Mattis is blessedly more George Marshall than George Patton. Thoughtful, well-read and well-travelled, Mattis—a man with Marcus Aurelius by his bedside, which counts for a lot—has already convinced the emotional President-elect that there are better ways to get information from prisoners than waterboarding. Mattis could well be, following in Marshall’s footsteps, the next great Secretary of Defence.

All this good news has led to Trump’s favourability numbers soaring. Last week’s Bloomberg poll gave him a favourable rating of 50%, stratospherically up from a mere 33% in August of this year. The President-elect is enjoying an Indian Summer in a country that has made it clear it is hungry for a new direction.

Saying this, the iceberg of governing looms ahead, when Trump’s many inconsistencies and unpredictability will prove more a hindrance than the help they have been in making him the ultimate elusive moving target in American politics. Nowhere is this truer than in Asia, where the President-elect is in the muddle-headed process of snatching defeat from the jaws of victory.

During the Obama years, America’s geostrategic position in East Asia has gone from strength to strength. While China under Xi Jinping has counter-productively bullied the region by its throwing its weight around in the East China and South China Seas, America has been the ultimate beneficiary. At present, US ties to old allies Japan, South Korea, and Australia have rarely been closer while links to new and pivotal allies such as India, Vietnam, and other Asean states have never been better.

Capping all this off is the Trans-Pacific Partnership (TPP), the jewel in the crown of the Obama administration’s Asia pivot. TPP is a free trade deal which is about far more than free trade; in essence it economically locked in this burgeoning alliance, nurturing America’s ties—both strategic and economic–with the fastest growing region in the world. By planning to withdraw from TPP, Trump, in his protectionist know-nothingism, has undone eight years painstaking work in a matter of weeks.

The consequences are sure to be dire. Not missing a beat, the very effective Chinese have made the rounds of the region, noting that America, following its abrogation of the TPP deal, is not to be trusted. Instead, Beijing has sensibly enough offered its own trade deal as an alternative, pointedly excluding the US much as TPP side-lined China. Erratic Philippine President Rodrigo Duterte, in his pivot to Beijing, may amount to the canary in the coal mine, the first of many putative American allies now set to desert Trump’s unpredictable and irrational America.

It is in this context that Trump’s phone call to Taiwanese President Tsai Ing-Wen must be viewed. There is nothing wrong with shaking up the status quo with China in theory; for it is true that Beijing has yet to fully open its market to American goods in a reciprocal fashion. There is also nothing wrong making it clear to China that old shibboleths (such as pretending long-time American ally Taiwan does not exist) are up for debate.

Indeed, this is not necessarily a bad opening negotiating position with Beijing in general. But Trump’s bold new posture becomes folly as it has been done unilaterally without consulting America’s allies in the region, nervous about American inconstancy in the first place.

This is because, as much as Trump might wish the multipolar world away, it exists as a fact. In mindlessly abrogating TPP, Trump has cost America the sure-fire support of the Asian allies who are absolutely essential to have on board if a harder line with China is to be successfully pursued. In throwing in Obama’s winning hand in East Asia, Trump has been neglectful of alliances which are the only chance for the US to strategically prevail in the long term.

Published in City AM London, December 13, 2016.

US is sleepwalking into disaster in tinderbox Asia

Give him his due. At the very least, Filipino President Rodrigo Duterte is never dull.

Beyond calling Barack Obama names that would naturally lead in another setting to a brawl behind the schoolyard, the canny if vulgar Duterte is surprisingly effectively at doing what smaller powers are supposed to do in a multipolar setting: Playing larger powers off one another.

With the Philippines long seen as being comfortably in the pocket of Washington, the country’s new leader has initiated a policy of strategic drift away from the US, moving to a more equidistant position between America and China.

Duterte being Duterte, he has done so with the subtlety of a mallet. Proclaiming (in Beijing no less) that America has lost its rivalry in East Asia with China, the Filipino President offered to immediately leave Beijing and jet off to Moscow to confer with anti-American champion, Vladimir Putin, and to definitively ally the Philippines within a China-Russia-Iranian axis. As he memorably put it, “America has lost now. I’ve realigned myself in your (China’s) ideological flow.” Was it my imagination or did the smiles at the usual diplomatic banquet in Beijing seem unusually broad that night?

But Duterte’s buffoonish facade masks a cunning Machiavellian thinker; while his strategic hedging is real, he has not moved (and does not want to move) from America’s pocket into China’s. The whole goal of the exercise is to re-assert the Philippines’ strategic independence and the material benefits that flow from it.

Proving he is crazy like a fox, Duterte’s rewards were not long in coming. During his diplomatic visit to Beijing, Chinese President Xi Jinping offered the loud-mouthed Philippine leader $9 billion in loan credits, also agreeing to $13.5 billion in trade deals, as a reward for Duterte’s ‘shift’ and for agreeing to renew bilateral talks (effectively setting aside a pro-Manilla Hague tribunal ruling) resolving boundary disputes in the South China Sea. Given that Manilla is desperately in need of such funds (particularly regarding infrastructure investment) to keep its booming economy going, Duterte’s sea change makes eminent realist strategic sense.

But there is a deeper problem lurking beneath the atmospherics here, one that does actually endanger America’s heretofore dominant strategic position in the region; a real questioning by Asian allies of Washington’s strategic dependability. Even before his shocking trip, Duterte wondered aloud whether a feckless and self-involved America would honour its 1951 Mutual Defence Treaty with the Philippines, and come to the country’s assistance in the event of an attack by China.

Obama’s feckless announcement of a red line in Syria (and then his correct decision not to enter that hellhole) has surely damaged US credibility around the world. If America’s strategic word is not to be trusted than Duterte’s strategy of strategic hedging between the US and China becomes the only sensible policy for the region as a whole to adopt.

But far worse looms ahead, a true geostrategic disaster in the making. The Obama White House has rightly called completion of the Trans-Pacific Partnership (TPP) trade deal the lynchpin of America’s Pivot to Asia, as it binds America and its allies economically to each other in the new era just as it sets regional trade rules which China must ultimately accept or be excluded (as it now is) from such a desirable club.

America’s failure to follow through on such a beneficial agreement will have doleful geostrategic consequences. And here the US is sleepwalking toward disaster. Hillary Clinton, the likely new President, has already cynically disavowed an agreement she helped negotiate, trying to fend off the clear protectionist bent of a majority of her party. Given Donald Trump’s characteristically shrill and mindless denunciation of the pact, its only hope is passage in the lame duck session of Congress, between November 2016 and January 2017. For the horrifying news is that, after that, large free trade pacts of any kind will be dead on arrival.

Imagine the US having to go back to its East Asian allies after all the laborious TPP negotiations, telling them America was just kidding about the whole thing. The very next day, China will whisper in America’s nervous Asian friends’ ears that obviously Washington can no longer be trusted. Here poisonous American domestic politics will have directly contributed to increased global risk, with Duterte amounting to just a very shrewd canary in the coal mine. For the real risk to America’s Pivot to Asia isn’t Duterte, or even China. It lies in the mirror.

Published in City AM London, October 31, 2016.