After Midterms, Will Trump Go On Risking World Trade and the Off-Shore Dollar Sphere?

After Midterms, Will Trump Go On Risking World Trade and the Off-Shore Dollar Sphere?

The midterms are done. A ‘blue wave’ did not materialise, but rather, the close result is claimed by both major parties as somehow a ‘victory’. The real outcome is that there was no one’s decisive victory (though Trump fared better than many had expected). Rather, we will see more popular polarisation and a vengeful Congressional insurgency – which means greater difficulty in conducting the nation’s business, and a heightened atmosphere of crisis and siege within the White House. The promise of more tax cuts now seems a chimera, but so too is any further big uplifts for military spending (goodbye to a new intermediate missile boondoggle?). Managing the US fiscal deficit financing becomes no easier, and interest rate increases (now more likely) will crowd out Federal discretionary expenditure – as the interest payment on debt at 106% of US GDP inexorably rises – or, if ignored, create the conditions for a severe funding crisis.

There is an old ‘rule of thumb’ that when leaders are stymied in their programme at home, they embark on foreign initiatives, which though may seem easier, at first sight, than dealing with their own fractious legislatures, often prove to be painfully ‘otherwise’. Will Trump then, reorient his foreign policy in wake of the elections?

He is known to have been initially frustrated by the Pentagon’s ‘Times Square’ doctrine. This refers to an answer reportedly proffered by General Mattis when Trump asked (at a Situation Room briefing) simply, why the US had so many troops in Afghanistan (after 16 years of failure), why so many in Korea, and why was the US still in Syria? "You guys want me to send troops everywhere," Trump reportedly said: “What's the justification?". Mattis merely told Trump that the US presence in those places was needed "to prevent a bomb from going off in Times Square …Unfortunately, sir, you have no choice," Mattis added; "You will be a wartime president”.

Already Trump has moved to sort out one long-standing frustration: He has sought the resignation of Jeff Sessions. It seems that he intends to put a finish to the so-called ‘Russiagate’ meme. Whilst Trump doubled-down during the campaign on his rhetoric against China’s economic malfeasance – and Xi reciprocated, warning against US hubris – might we see some shift occurring toward Russia and in the Middle East too? Does Sessions’ exit make some new space for détente with Russia in the wake of the midterms?

Dmitri Trenin, writing from Moscow, says:

With a short, high-profile meeting between [Putin and Trump] possibly happening this weekend in Paris and a more comprehensive session later this month in Buenos Aires, many in Russia are asking the question, why meet at all? After all, each of their previous meetings — in Hamburg in 2017 and then in Helsinki last July — seemed to leave Russian-American relations in even worse shape than before. Some are advising the Kremlin to stay clear of Trump’s White House, and not be drawn into America’s fractious and ruthless domestic politics. The operative theory behind that counsel appears to be: Let America’s cold civil war blow over before re-engaging with the winner of 2020. Yet, Putin is determined to continue his face-to-face contacts with Trump. Why such seemingly illogical behavior?

Trenin’s comment is right. Russians are understandably angry and frustrated at what they perceive as an almost daily litany of fantastical allegations of every imaginable type of Russian ‘malignity’ made against them. Patience is exhausted: Why even bother to respond? But, more substantively, the Russian public knows that Trump has his hands tied on sanctions. Sanctions remain the almost exclusive preserve of the now-Democrat ‘House’, and that furthermore, Trump has been – at least until now – boxed in by the Pentagon’s ‘Times Square’ axiom and by a coterie of neo-con advisers obsessed by an historic antipathy towards all things Russian.

Trenin’s answer to this paradox is interesting:

“The Russian leader’s investment in the US president has little to do with Congress, or with the US’s Russia policy, or whether or not the Republican Party gets a drubbing in the midterms. To Putin, Trump represents a new departure in US foreign policy. What Putin considers positive for Russia is the disruption that Trump is creating for the global system that the United States has underwritten since the end of the Cold War.”

In other words, that which Putin appreciates is that Trump – by design – is set on dismantling the full panoply of American ‘empire’, and with it, crucially, the notion of a de-cultured, cosmopolitan, utopian, hegemony. 

The latter represents the antithesis to Russia’s own cultural re-sovereigntisation and Eurasian path, and is therefore, a main obstacle to the Russo-Chinese desired shift toward a multi-polar world. Trenin adds: “Trump, for all his idiosyncrasies and inconsistencies, [therefore] is the most avowedly Russia-friendly American leader Putin is likely to encounter”. But more important than Trenin’s last point perhaps is Trump’s way of achieving MAGA – which is essentially through individual, transactional, power-plays: That is to say, Trump is no longer a purveyor of a global ideology, (as in the Cold War), and ‘national interests’ are always mutable.

So far – so clear: And of course, the Russian leadership cannot have failed to notice that Trump’s twitter ‘missiles’ are also opening up Europe, in a new – as yet undefined – way. So, there we are: Trump and Putin are transactional ‘gents’. But what that does not imply is that there is something or anything transactional to be transacted.

Trump’s foreign policies do not sit at all comfortably with Russian interests: Trump wants to re-establish a US unilateral, power-primacy; he wants to ‘whack-a-mole’ China (a Russian ally); his team wants to trip-up the Belt and Road Initiative, and to set up a rival; Trump’s team wants North Korea to be intrusively invaded, inspected, and its nuclear project, crated and DHL’d, to the US; he wants the Iranian state (a Russian ally) to be overthrown; his advisors seek instability in Syria (whilst Russia seeks stability); his team want Assad removed, and the Kurds to become a western ‘project’ weakening Turkey and Syria; and he wants to use Saudi Arabia’s erstwhile influence with other Gulf and Sunni states to lead a ‘war’ against Iran, and to strong-arm the Palestinians to commit to being second class citizens in an overbearing “Jewish nation-state”. Where are the transactional possibilities in this list?

No? So let’s return to Trenin’s original question: why engage? President Putin certainly knows the score. He may see too that America through ‘sanctioning the world’, and weaponising the dollar, as a neutron bomb of sanction possibilities is, as it were, deliberately risking the burning-down of world trade. 

At risk too, again consciously, is the possibility of a global renunciation of America’s huge, off-shore, dollar sphere (whose existence has served to finance America’s budget deficits, over the last seventy years). All this is being staked in the bid to restitute America as the one player at the table, holding the aces. 

The bet is that tough ‘mafia-style’ talk will cause fear. And, this fear will lead to the flight of dollars held overseas, ‘back home’, to Wall Street, thus weakening, or breaking, firstly emerging markets – with the contagion spreading to Europe (as the effects of dollar liquidity voids), moving from the periphery towards the centre. The point of course, is that America – which commands the worlds currency, and can supply (or, elect not to supply) dollar liquidity – will then hold all the aces in the negotiations for re-framing the world’s trade in America’s favour.

There is an old Chinese story dating back to around 200 BC about a boy who is sent out by his master to catch a hare (for lunch). Well, the boy goes to the woods, and almost as soon as he arrives there, he sees a huge hare running through the woods, at full-pelt. Astonished, the boy watches as the hare slams straight into the tree, knocking itself out. All the boy has to do is pick up the hare, and carry it home triumphantly, to the pot.

The original Chinese moral to the story is this: the boy, then grown to a man, spent the last 50 years standing beside the same tree, waiting for more hares to collide into it (of course, none did: moral – don’t expect history to repeat itself). Well, in a sense, the US had a similar experience. In the wake of WW2, the rest of the world had indeed run at a tree, and knocked itself economically senseless. All the US had to do, was to pick up its lunch, lying there prone on the ground. Now, 70 years later, a US President is standing by the same tree, hoping the world will again run into a tree, and knock itself senseless, butting its head against sanctions and dollar liquidity shortages – only to leave it prone for the US to pick it up, and carry it home for ‘lunch’.

This is just an allegory; it is not to be taken literally. But the point is clear. Presidents Xi and Putin ‘get it’. And if the ‘world’ manages to swerve away from Trump’s tree, then it likely will be America’s fiscal situation that will burn.

And now, in the wake of the Khashoggi murder, we have a new Middle Eastern ‘scheme’ afoot. According to reports, the UAE and Saudi Arabia are on the cusp of normalizing with President Assad’s Syria, (re-opening diplomatic missions in Damascus). Of course, this is good news for Syria. No doubt of that. But there is a twist to the story. The plan reportedly is to form an anti-Muslim Brotherhood ‘front’, consisting of a secular Syria, together with the Saudi Arabia and the UAE. Nominally, this is a front targeted at the Muslim Brotherhood, but in practice, it is clearly aimed at Turkey – and its ally, Qatar. The Turks have been warning about such a plot being hatched for some time, and have vowed to defeat it. Neither will Turkey allow Saudi Arabia, nor the US, to use the Kurds in eastern Syria, as a wedge to be driven into the soft underbelly of Turkey. Erdogan seems ‘on a roll’: He is bidding to take the leadership of the Sunni world away from Saudi Arabia (and Khashoggi’s murder gave him just the peg that he needed to set that ball rolling).

The justification for this new alliance (should it come to fruition) is the usual bromide: The ‘alliance’ will contain and weaken Iran. There are obvious flaws here: Why should such a front with Syria suddenly weaken Iran? Syria has had since 1979 – and still has – very close relations with Iran. Syria has had four rounds of its own bitter war with the Muslim Brotherhood since the 1920s, yet both Syria and Iran have common cause with the Palestinians (a major segment of whose population are sympathetic to the Muslim Brotherhood). Syria will not turn against Iran (Gulf states have tried before – to bribe President Assad to sever links with Iran, without success); neither will Syria turn its back on the Palestinians; and though Syria’s relations with President Erdogan are fraught, and veering on the confrontational, President Assad of course, recognizes that major players, and close allies such as Russia and China, have vital stakes in any Turkish ‘great game’ to which Syria must pay close attention.

Moscow may welcome the tactical advantages to such a front, whilst at the same time, recognizing its improbable viability. There is however, a deeper meaning to be drawn from this new Gulf initiative. Long story short: Saudi’s ‘leadership’ historically was always only marginally ‘political’. Saudi derived influence more from its possession of the holy sites, and its assertion of the right to interpret the Qur’an according to its own lights.

But the Gulf States’ facilitation of Wahabbist jihadis in the attempt overthrow the Iraqi and Syrian states, by the most barbaric means, forced those Gulf States to distance themselves from ISIS’ bloodshed. But MbS was tied from openly condemning ISIS’ Wahabbism, without linking what was happening in Syria and Mosul, to the Wahabbist principles, by which the Saudi State itself, was founded. And such criticism would have been wholly unacceptable to the Saudi religious establishment.

The Gulf ‘solution’ therefore was never to condemn directly, but rather, to urge on everyone an undefined ‘moderation’. Saudi Arabia under this meme of espousing ‘moderation’, became, in some ways quite secular, yet without embracing secular political notions; or indeed without outlining any new model for the kingdom. Rather than go fully secular, young princes embraced a western business school type neo-liberalism, plus hyper-centralisation of power, underpinned an ubiquitous, intolerant apparatus of repression – a Singapore ‘totalitarian’ model, as it were. For example, in Bahrain it is now ok to fraternise with Israelis, but to say anything positive about Qatar will lead one to a 10-year prison sentence.

Some Gulf States are aware of the dangers inherent in their ‘turn’ towards repression. If Khashoggi’s killing has done nothing else, it has shone an uncomfortable light on political repression in the Gulf. The princes have no other model (as their ‘moderation narrative’ gave rise to fresh ideas on governance) – hence the proposed new ‘Front’. A ‘war’ on the Muslim Brotherhood is popular in Washington (an useful diversion for the Gulf from Trump’s unwinnable war against Iran). An anti-Muslim Brotherhood front can justify the repressive apparatus at home, and also provide a platform for turning the West against Turkey (as patron of the Muslim Brotherhood, together with Qatar).

The deeper meaning then is Gulf anxiety and fear. The Muslim Brotherhood has been made weak and fragmented by the campaign of attrition launched against it – it has been largely incapacitated, yet the Gulf wants a new ‘war’. Plainly the ghosts of the 2011 Arab Awakening which threatened tribal autocracy still haunts the kings and emirs. They are afraid.

Bottom line: President Putin may wonder whether the midterms will bring any foreign policy change. Plainly not in respect to China, but with the neo-cons so dug into Trump’s Administration at many levels, really the only question is ‘what does Mr Bolton want from Russia, now?’.

At the back of minds in Moscow perhaps is the thought that the US may end this phase by finding it is not the global power-hegemon it had hoped to be, but rather has burnt fingers from its dollar supremacy bet – and with Trump’s ambitious hopes for the Middle East vanished into the ether (as many have afore now). Why should Mr. Putin then not patiently keep channels open with Mr Trump, however unpopular that might be in Russia – expecting nothing beyond yet more US sanctions and more calumny. Mr. Putin might patiently await the Fourth Turning when politics can be upended. 

Tags: Midterms 

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