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Foreign Policy

Trump’s Final Gamble: From Chinagate to Hybrid Wars

Jun 05, 2020

China's recent 'Two Sessions,' the annual meeting of top legislative and political advisory bodies, herald the rebounding of the economy.

Meanwhile, President Trump has re-escalated the trade war, withdrawn from the World Health Organization (WHO) amid the global pandemic, triggered multiple geopolitical storms while aggravating the worst domestic unrest in decades.

The objective is to deflect responsibility from the White House's disastrous mishandling of the pandemic and the consequent economic plunge.      

Pandemic costs, economic damage        

The Trump White House missed three opportunities to contain the virus outbreak.

The first one occurred between the first recorded case in China (December 30, 2019), and the WHO's announcement of the international emergency (January 30, 2020). The second, between the WHO's international emergency (January 30) and global pandemic alert (March 10). And the third during the 2nd quarter, when social distancing finally began 6-8 weeks late and proved grossly inadequate (see my report here).

The cold reality is that the Trump administration learned about the virus already on January 3, when CDC Director Dr. Robert R. Redfield informed Secretary of Health Alex Azar that China had discovered a new coronavirus. Yet no mobilization was initiated until late March. Instead, a long debate began within the White House over what to tell the American public, while Azar and Secretary of State Mike Pompeo began repeated attacks against China for the US virus crisis. The consequent economic carnage is evident in the 2nd quarter free-fall (Table).


The costs of complacency are historical. At the end of June, the US is likely to have some 2-2.4 million cumulative cases and 130,000-140,000 deaths. In the 1st quarter, the US annual GDP growth contracted (-4.8%). The real carnage will ensue with the 2nd quarter plunge (-35% to -40%), as major investment banks have warned.

At home, the White House has resisted science-based public health measures by the nation’s top health experts, which is reflected by the ongoing debate about the risks of a premature exit from the lockdown. Internationally, policy mistakes are about to have far worse consequences. 

The first fatalities of the Chinagate          

As the Trump White House has targeted China as a politically expedient re-election scapegoat, the early victims include US-Sino high-level bilateral dialogue, trade, and investment relations, US treasuries, military relations, and destabilization in East Asia.

High-Level Dialogues. Undermining decades of US-Sino bilateral progress, President Trump has let US-Sino high-level economic, law enforcement, and cultural dialogues freeze since fall 2017; the diplomatic and security dialogue since fall 2018. When great powers no longer talk, misguided perceptions tend to replace cooperation – which is part of the Chinagate script.

Trade.  Trade tensions are re-escalating. After the Phase One deal, China is obliged to buy $200 billion in additional US imports over two years on top of pre-trade war purchase levels. The truce would require 18% annual import growth from the US, which is trying to China amid Trump protectionism and dire global prospects.

Investment. Before the trade wars, US investment in China averaged $15 billion per year, whereas Chinese investment in the US soared to $45 billion. US investment in China has persisted, but Chinese investment in the US has plunged to $5 billion. Thanks to Trump's decoupling, over a decade of progress, has been reversed. Nevertheless, seven of ten US companies do not plan to leave China.

Treasuries.  For years, Beijing invested much of its foreign exchange reserves in US assets, particularly US Treasury securities. In another low-probability but high-impact re-election scenario, Republicans are threatening Beijing with unilateral $1.1 trillion debt cancellation, while others in Washington hope to de-list Chinese companies from US markets. As a result, Beijing is diversifying investments away from the US by encouraging Chinese firms to invest overseas, while pumping over $1.4 trillion into the tech sector over to 2025.

Military Relations. Despite political differences, US-China military exchanges used to feature high-level visits, exchanges between defense officials, and functional interactions. According to Pentagon, these engagements have fallen by two-thirds in the Trump era, while bilateral tensions are rapidly escalating in the South and the East China Sea. Whether accidental or provoked, conflict is a matter of time.

Special Administrative Regions (SARs).  Destabilization efforts in the Chinese mainland's proximity have escalated dramatically since 2017.

●  Taiwan.  Unlike previous administrations, the White House, in cooperation with Taiwan's elected president Tsai Ing-wen, seeks to undermine decades of "One China" policies. If the past "strategic ambiguity" gives way to force, the geopolitical impact could destabilize East Asia.

●  Hong Kong. According to the White House, "pro-democracy forces" are threatened in Hong Kong. According to Beijing, the cooperation between the White House, Congress, and Tsai government is fueled by a quest for a "color revolution." As Senate Intelligence Committee chair, radical-right Sen. Marco Rubio (R-FL) will exploit the Hong Kong Human Rights and Democracy Act for regime change in China as he has in Iran, Russia, Venezuela, and elsewhere.

●   While the gambling mecca Macau has had a lower profile in international media, billionaire casino magnate Sheldon Adelson and his Sands Corp. has funded the Trump campaign and Republican conservatives and allowed the CIA to use of his Macau properties for intensified US espionage in the early 2010s. More recently, Las Vegas Sands played a critical role in an apparent spying operation targeting Julian Assange, when the CIA came under the control of Mike Pompeo, another Adelson ally.

●   Tibet. Before Trump's Hong Kong declaration, US lawmaker Scott Perry (R-PA), a retired Pennsylvania Army National Guard Brigadier General, introduced a bill recognizing Tibet as a sovereign country. 

From pandemic geopolitics to global debt crises           

In 2003, the Bush administration began its Iraq War under a pretext, presumably to achieve a domino-effect democracy across the Middle East. The consequent nightmare led to still another 'forever war' in the region, in which the costs soared to $3 trillion, as estimated by economist Joseph Stiglitz.

Barely two decades later, the Trump administration has initiated what in Beijing looks like a nascent hybrid war to win re-election. The costs of complacency, which are misplaced on China and WHO, is estimated at $9 trillion; that's three times the costs of the Iraq War.

These tragic losses could pale with the imminent new policy mistakes. In what I have termed a Great Power Conflicts scenario, lingering pandemic risks would result in intense trade and technology wars, "hot" geopolitical conflicts, and a long, multi-year global depression. This is the current path of the Trump White House, which is predicated on leveraging the US economy to the hilt.

US debt has soared to $26 trillion that puts US debt-to-GDP ratio to 120% (at par with that of Italy amid its debt crisis in 2011-12), which the White House and the Fed will soon have to further increase.

Due to the central role of the US in the world economy, such economic leverage – coupled with the human costs of the pandemic and deadly geopolitics – is pushing global prospects toward the edge of a global depression. 


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