Empire by Invitation

Defense Policy is Trade Policy

If you want to take a position that will likely offend everyone within earshot, I’d suggest something along the lines of “I see Trump’s position and, let’s face it, somebody has needed to address the problem for years. But his execution, you know, carrying one like a baboon with hemorrhoids… well that’s not doing us any favors.” I can promise you that someone in the room – any room – will take violent exception to at least one half of that statement.

Hell, I agree with the statement and it chaps me to type it out.

The fact remains that United States is badly over-stretched in mission, manpower and budget. And like anyone overextended in commitments, time and money, US foreign policy must prioritize. So yes, I see Mr. Trump’s broad-stroke point: We can’t police the world and to try is foolish. Keeping the sea lanes open as a global cop is expensive, but being the world’s global moral crusader is blindingly so. It costs a fortune and doesn’t appear to doing America, or the world, much good.

To point out the obvious: Europe has simply got to stand on its own and defend itself. They know it and we know it. Ideally, Washington could pledge an American defense back-stop, and the last three administrations have tried, only to create the same sort of lazy moral hazard as telling banks to be careful with depositors money, but Uncle Sam will bail you out if you aren’t. Since the Obama Administration, Europe has called our bluff because they’d rather not take the lead on defense after bombing themselves back into the Middle Ages during the last war.

Let’s consider who we’re dealing with here. In my father’s lifetime (granted, he was about a month old) Germany went to war with the entire industrialized Eurasian landmass and backstopped Italy in North Africa. Germany was completely outgunned in in manpower and manufacturing and it was still a close run thing. Britain and her Empire only just managed to hold them at bay, and invented the special forces, while waiting for the US to do the right thing. I’m as proud as the next American that we tipped the balance, but it’s not like these people don’t know how to fight. They just don’t want to.

The three year near-stalemate shows the limits of Europe’s main boogeyman. The Russian military is clearly more formidable in theory than in the field. No matter what happens in Ukraine, Russia can’t take Western Europe and Putin knows it. He just doesn’t want Europe to figure it out. Hence all the mocking, school-boy derision. In fact, Moscow’s war machine economy, already starting to crack-up, would have already imploded but for China keeping revenues topped up with oil and gas purchases. That isn’t out of charity, the Chinese and the Russians hate each other in a personal and hilariously racist way. But Beijing needs Moscow to either win the war or keep it going indefinitely. Either keeps Europe terrified and the US distracted. Which is exactly why the US needs to draw down its presence in Europe.

So… point taken.

An Empire By Any Other Name

As Secretary of State for the Colonies in the aftermath of World War I, Winston Churchill was faced with the great carve-up of the Ottoman Empire. The man went out of his way to not add any colonies to the Imperium. Mr. Churchill was an arch-Imperialist of the first order, but the simple reality was that, after a certain point of development, colonies cost more money than they are worth. By 1920, Britain was wildly in debt, governing a quarter of the planet is expensive and being the world’s policeman was unsustainable. Controlling the world’s reserve currency will only get you so far. His goal, which he largely achieved (no judgement), was to maintain global influence without the cost of colonies. Paying off the tribal royal family to control a natural resource, in contrast, was a moneymaker. If you see a mirror reflection in today’s scramble for critical minerals, you’d be right.

After the next war, the game for Britain was up, and the American Century had begun. The United States financed the reconstruction of Europe and Japan - and made a fortune in the process. In 1986, the Norwegian analyst Geir Lundstad described the post-War world as divided between two empires, the Soviet - which used force to maintain internal cohesion – and America’s “empire by invitation.” In practice the American Empire operated more like a massive chamber of commerce than histories great empires. And like a good chamber, everyone got a richer off the arrangement. As the European and Japanese economic miracles played out by the late 1960’s, and new nations piled into the club with the collapse of the old imperial system, the growth slowed and the costs of maintaining the order grew the more it was challenged. Many of the global institutions on which that US-led order has been built suffered from a fatal flaw: there is no easy mechanism to eject bad actors abusing the system for their own ends. Now that great power competition has returned, the order is becoming unsustainable.

Like the Roman’s pulling back from Britain and the British pulling back east of Suez, the United States needs to prioritize because the Republic simply hasn’t got the bandwidth to maintain the overreach. The current undersecretary of defense for policy, Elbridge Colby wrote in his 2001 book The Strategy of Denial: American Defense in the Age of Great Power Conflict, that Washington’s top priority was to assemble a coalition in Asia to prepare for a big war with China over Taiwan. Whether you are inclined to agree with “Bridge” Colby or not, that is the prevailing strategy.

About that Baboon with Hemorrhoids…

Yet, there is strategy, and then there is execution. A coalition to box in American’s main rival in Asia should have been fairly simple. The template developed in Europe worked well enough (save for a global case of scope-creep). Perhaps counterintuitively, America’s trade deficit is largely what gives Washington so much global leverage when coordinating other nations. In any relationship with asymmetrical interdependence the advantage goes to the least dependent partner. Therefore, as the biggest buyer in a global seller’s market, the United States has the leverage that China, the biggest seller, can’t have. Ironically, running a trade surplus actually makes a nation politically vulnerable because it risks greater domestic economic fall-out than the less dependent partner (read: the one running the deficit).

As we would say in the bond business, he who cares less wins. As such, Washington’s leverage is being eroded by the sheer aggressiveness of the Trump’s attacks. No one shows that much emotion without showing their hand.

The other angry hemorrhoid is that the in the last Cold War defense and trade policies rarely met, because the US and the USSR were never economically interdependent. In the rivalry between Beijing and Washington defense and trade policies have collided so hard that it’s hard to tell where one from the other. You could argue that they are the same thing. Even Mr. Trump’s supporters will concede that the president is not one to connect the dots. To put it charitably, he’s like a lawyer arguing a single brief: He goes full bore after whatever is in front of him to the exclusion all else. He rarely makes the connection between one brief and another, even closely related, one. The end result being that the overlapping US defense and trade policies are operating at cross-purposes.

Current defense policy dictates drawing down US troops in Europe, and building Asian alliances to counter Chinese threat. Yet by picking trade fights with the same Asian allies that are, theoretically, pillars of US Indo-Pacific strategy, Washington is driving those partners into free trade agreements with the rival that we are trying to check. Japan and South Korean were threatened with around 25% tariffs in April, both of which got hammered down to around 15% with pledges of US investments of $550bn and $350bn respectively. Both of these crucial allies have since signed a free trade agreement with China. Pivoting back to Europe, the EU was, more or less, aligned with America’s trade policy, confident that both partners could profit from knee-capping China’s export-led economy. That trade strategy is now in tatters and China continues to thread the needle by playing different sides agains to other. Beijing doesn’t have to be the optimal partner, just the more consistent.

This matters because we are, in fact, an Empire by Invitation. America’s power has always been soft power, something that the brutally transactional Trump administration doesn’t understand. Nor does he see that what the US bought with that trade deficit was an impressive network of allies by invitation – which is a hell of a lot cheaper than maintaining allies by Soviet-style force or European style-empire. Just look what it did to them. The defense brief and the trade brief are no longer separate cases, but largely the same thing. Either way, the harder the United States works to erase its narrow-context trade deficit, the more buyer’s leverage it erases.

On a tactical level, Mr. Trump’s crazy bit works, but only in the transactional short term. Pretty soon other powers learn how to game it. Honestly, a maddeningly detached aloofness works better and for a lot longer.