The end of the Hamiltonian era
“In [Mr] Pompeo, [Mr] Trump is turning to a new Republican foreign-policy elite: one whose ideological lineage dates not to Eisenhower but to McCarthy, not to Nixon and Kissinger but to Goldwater, not to George H W Bush but to Dick Cheney and George W Bush. The conservative movement, long hostile to its party’s moderate foreign policy establishment, is creating a new foreign policy establishment of its own.”
Peter Beinart, The Atlantic, 15 March 2018
I am not normally one for saying “you must read…”. But, if you are interested in US foreign policy and/or political risk generally, I do strongly recommend Peter Beinart’s essay in which he plots the history of foreign policy thinking within the Republican Party. It is headed “The rise of right-wing foreign policy in America” and sets out in some detail how the moderate ‘Hamiltonians’ commanded Republican foreign policy thinking for many years but how that mantle, in America’s deeply polarised politics, slipped to the Democrats under President Barack Obama, allowing ‘right-wingers’ to capture the foreign policy agenda within the GOP.
Mr Beinart divides this latter group into two wings, ie: the isolationists who were dominant during the 1930s and who are certainly prevalent latterly in the Tea Party; and the “hawkish unilateralists” who rose to prominence during the Cold War. However, I think it perfectly possible for any one individual to have a foot in both ‘camps’, as the following paragraph from his essay implies (to my mind at least):
“It’s useful to see [Mr] Pompeo as part of a cadre of influential, foreign policy-oriented, Republican politicians that includes Tom Cotton, Marco Rubio, and Ted Cruz. All four were elected to Congress with support from the Tea Party, a movement that depicted moderate Republicans — as Goldwater once depicted Eisenhower and Nixon — as complicit with the welfare state. [Mr] Pompeo has particularly close ties to the Tea Party’s most important funders, the Koch Brothers.”
It isn’t hard to see the common ground with President Donald Trump’s ‘America First’ agenda; or to see Mike Pompeo, his nominee to replace the Hamiltonian Rex Tillerson as Secretary of State, as the very personification of the now dominant school of Republican thought.
What Mr Beinart does not tell us in his essay (for it is not its purpose) is how this shift within the Republican Party fits into the wider, ie global, context. To do this, I am going briefly to refer — for the third time in recent articles for The Global Lead — to a paper I wrote in August 2015. The relevant section of this paper was headed “Tectonics revisited”, referring to the still ongoing tectonic shift in the relative economic strength globally, as captured in this quote from Joseph Nye’s 2011 book The Future of Power:
“In 1750, Asia had more than half of the world population and product. By 1900, after the Industrial Revolution in Europe and America, Asia’s share shrank to one-fifth of world product. By 2050, Asia will be well on its way back to its historical share.”
At the risk of sounding neo-Marxist, where economics leads, politics generally follows, as I hope this extract explains.
“It was in March 2008 that I first gave the presentation from which this paper has evolved. At that time, the global economic centre of gravity ran north/south more or less through Cairo, having shifted, according to Professor Danny Quah, from somewhere just off the west coast of Africa in 1980.
Just prior to that two economist, Ronald Findlay and Kevin H O’Rourke, published ‘Power and Plenty’, which remains in many respects a cornerstone of my thinking. It is, in my opinion, the best history of globalisation over the past 1,000 years. As such, it identifies seven periods of hegemony which removed barriers to trade and, as a result, saw a major uptick in economic growth. However, the previous six periods — the seventh being the US’s culminating in the so called ‘unipolar moment’ — all ended badly with rising protectionism, economic slowdown and violent conflict between the (relatively, if not in absolute terms) declining power and a rising power.
Ingrained in this pattern is rising nationalist sentiment, a phenomenon which has, I believe, been increasingly evident worldwide.… Consider:
- Asia: the three largest economies in the region — ie China, India and Japan — all currently have openly and proudly nationalist leaders;
- Aspiring to statehood? Catalans, Kosovars, Kurds, Palestinians, Sahrawis, Scots, Tibetans, Uigurs etc;
- Europe: Front National in France, Podemos in Spain and the UK Independence Party in Britain are just three examples of nationalist political parties gaining significant domestic support;
- Middle East: much more complex but I see the rise of Islamic State as a related phenomenon, albeit one based primarily on religious, rather than national, identity;
- Russia: acknowledging that Mr Putin’s motives for Russia’s actions in Ukraine may be misunderstood by at least some Western leaders…, nationalism — coupled with anti-Western sentiment — has become the cornerstone of his regime since the start of the Ukraine crisis;
- United States: Americans may baulk at being bracketed with my previous examples but, following the post-Bush period of reflection, there is much in the resurgent demands for a more assertive foreign policy from Republicans in particular which its promoters would describe as ‘nationalism’ in other countries.”
If my assessment is correct and, consistent with the historical pattern described by Messrs Findlay and O’Rourke, we are now entering a classic ‘end of hegemon’ era, that not only Mr Trump's presidency but also the appointment of someone with Mr Pompeo’s mindset as Secretary of State is, arguably, an all but inevitable product of the times. Indeed, as Mr Beinart puts it:
“[Mr] Pompeo’s elevation represents a historical breakthrough. Never in American history has a secretary of state so firmly espoused the worldview of the American right. In no previous Republican administration — not even George W Bush’s — has the moderate GOP foreign policy elite lost its hold over even Foggy Bottom.”
But what does this all mean in practice?
“The fulcrum in foreign policy has been [James] Mattis and [Rex] Tillerson. The center-weight will now shift to [Messrs] Trump and Pompeo. The policy process may be smoother, with a chief diplomat who knows (and shapes) the president's mind. But [Mr] Tillerson’s demise removes a restraint on the president's sometimes impulsive behavior.”
Writing in the Financial Times on 14 March (subscriber access only), Edward Luce, described Mr Pompeo as a “Trump enabler” who “eliminates the gap between Mr Trump’s anti-globalist instincts and the stance of America’s chief diplomat” and who will therefore bring “Mr Trump’s America First foreign policy…closer to becoming a reality”. Despite their differences over Russia in general and President Vladimir Putin in particular (which I touched on in my 17 March article), I agree.
Mr Pompeo’s nomination is, therefore, an opportune moment, in my view, to revisit briefly the three political risks which I identified as potentially systemic in my 30 December 2017 Outlook 2018, as follows.
Doubling down on trade?
“Without [Gary] Cohn in the picture, [Peter] Navarro, an economist, will likely have a clearer field to pursue a protectionist agenda, which squares with [Mr] Trump’s long-held concerns about trade.”
Jeff Mason and Ayesha Rascoe, Reuters Business News, 7 March 2018
It would probably be fair to say that the departure from the White House of Gary Cohn earlier this month could be more important for the future evolution of US trade policy than the arrival in the State Department of Mr Pompeo. Even though Mr Cohn successor, Larry Kudlow, is a free trade advocate, he seems to have accepted the need to compromise over tariffs, reportedly agreeing with the President the threat of tariffs can provide negotiating leverage (a theory which the US is testing in its temporary exemption of Canada and Mexico from steel tariffs in order to pressure them in the Nafta talks). Nevertheless, insofar as the Administration’s thinking on trade is influenced by wider national security considerations (and, as I opined in my 1 March article, I have seen little evidence to date to suggest that it is), Mr Kudlow has to reckon on the incoming Secretary of State siding with the economic nationalists.
All this being said, overall neither Mr Pompeo’s appointment nor Mr Cohn’s departure significantly changes my views on the likely forward trajectory of trade. In other words, heightened trade frictions are more or less inevitable — perhaps especially with China where even the formidable Wang Qishan faces an uphill task trying to tame Mr Trump’s instincts; but an out-and-out trade war (such as we haven’t seen since the 1930s) remains a tail risk, albeit the fattest of my three potentially systemic ones.
Iran: Closing the gulf
“…Mr Pompeo is a visceral critic of the Iran nuclear deal, which he says should be scrapped. He is of one mind with Mr Trump on this.”
Edward Luce, Financial Times, 14 March 2018
Mr Luce is correct. In nominating Mr Pompeo, Mr Trump is closing a yawning gulf between his thinking on the Joint Comprehensive Plan of Action (JCPOA), to give the nuclear deal its proper name, and that of his chief diplomat. This essentially leaves only Defence Secretary James Mattis and, assuming he survives that long, National Security Advisor, HR McMaster as the only senior officials likely to argue in favour of renewing the sanctions waiver associated with the JCPOA when it hits the President’s desk again on (probably) 12 May. I doubt they will prevail. Indeed, even if Mr Tillerson were still at State Department, I think the balance of probabilities would still be that Mr Trump would refuse to sign the waiver again; and if, as is widely speculated, Mr McMaster is replaced by someone with the world view of former Bush 43 ambassador to the UN John Bolton, another ‘hawkish unilateralist’, refusal to sign becomes a very high probability indeed.
In an article updated on 14 February, I opined that the risk of disruption to global oil supply was probably increasing because of the likelihood that Mr Trump would decline to sign the sanctions waiver again. Not only do I believe that the risk of the latter has gone up in the wake of Mr Pompeo’s nomination but I also consider that, in the event of Tehran staging some sort of act of defiance in response (eg a ballistic missile test), the probability of the US countering with a military strike has also risen. Nevertheless, I would stress that military confrontation between Iran and the US remains a tail risk — but probably a fatter one now than it seemed to be just a month or so ago.
North Korea: Jaw-jaw or war-war redux
“If the US pulled out of the Iran deal, Mr Kim would have even less incentive to strike a bargain with Mr Trump. The dangers of a belligerent fallout from a failed Kim Jong-un summit are acute. As CIA chief, Mr Pompeo has spoken publicly about removing Mr Kim.”
Edward Luce, Financial Times, 14 March 2018
The past few days have been notable for there being no news on the proposed Kim Jong-un/Donald Trump summit. Indeed, unless or until there is a good measure of agreement — or they fail in their efforts — I expect Pyongyang to remain publicly silent on this proposal. But that does not mean that nothing is happening behind the scenes. The balance of probabilities is that, in addition to working through Seoul, North Korean and US officials are in some sort of semi-formal direct contact (possibly in the margins of the UN in New York) seeing if they can get this to work.
Assuming the summit does happen, I think Mr Pompeo’s nomination makes it less likely than ever that Mr Trump will go to the table demanding anything less of Kim Jong-un than that he totally denuclearises without preconditions — backed up by, the at least implicit, threat of military action if he does not comply. This could trigger an early breakdown in the entire process; or Kim Jong-un may look to play for time. Whichever, it seems to me that Mr Luce is correct in his assessment of the dangers inherent in the proposed summit — although this is not to say that, having got to where we are, I think it would be better if it were not to happen at all, a scenario which would also carry non-negligible risks.
Given the uncertainties which surround the proposed summit still, I remain disinclined to shift my overall probabilities relative to North Korea as set out in my 10 March article, ie a 75% probability that we remain on the current trajectory through until at least early 2019 and a 35% probability of war breaking out on the Korean peninsula at some point in the next 15 months or so.
However, Mr Pompeo’s nomination has caused me to revise the very low probability I was putting (in oral presentations) on violent conflict this year, ie no higher then 10%. I now think that probability to be considerably higher, ie perhaps as high as 25% and almost certainly a fatter tail risk for 2018 than a US military strike on Iran.
[Author's Note: For any reader who is wondering about the title of this article, it is rooted in Edward Elgar's (1857-1934) Pomp and Circumstance Marches, the best known of which is March No 1 in D. Composed in 1901 as the 'British century' was beginning to draw to an end, reference to it seems to me appropriate to the subject matter of the article itself.]