Partying Like It’s 1998

start with a country that, for whatever reason, became a favorite of foreign lenders, and experienced a large inflow of foreign capital over a number of years. Crucially, the debt thus incurred is denominated in foreign currency, not domestic (which is why the U.S., also a recipient of large inflows in the past, isn’t similarly vulnerable — we borrow in dollars).

.. Whatever the shock, the crucial thing is that foreign debt has made your economy vulnerable to a death spiral. Loss of confidence causes your currency to drop; this makes it harder to repay debts in foreign currency; this hurts the real economy and further reduces confidence, leading to a further decline in your currency; and so on.

.. Indonesia came into the ’90s financial crisis with foreign debt less than 60 percent of GDP, roughly comparable to Turkey early this year. By 1998 a plunging rupiah had sent that debt to almost 170 percent of GDP.

.. How does such a crisis end? If there is no effective policy response, what happens is that the currency drops and debt measured in domestic currency balloons until everyone who can go bankrupt, does. At that point the weak currency fuels an export boom, and the economy starts a recovery built around huge trade surpluses.

..  stop the explosion of the debt ratio with some combination of temporary capital controls, to place a curfew on panicked capital flight, and possibly the repudiation of some foreign-currency debt.

.. get things in place for a fiscally sustainable regime once the crisis is over.

.. Malaysia did this in 1998; South Korea, with U.S. aid, effectively did something like it at the same time, by pressuring banks into maintaining their short-term credit lines. A decade later, Iceland did very well with a combination of capital controls and debt repudiation (strictly speaking, refusing to take public responsibility for the debts run up by private bankers).

.. Argentina also did quite well with heterodox policies in 2002 and for a few years after, effectively repudiating 2/3 of its debt.

  • .. You need a government that is both
  • flexible and
  • responsible, not to mention
  • technically competent enough to implement special measures and
  • honest enough to carry out that implementation without massive corruption.

Trump’s Retreat From the West

Mr. Trump seems to have followed a blueprint for a resolution to the Korean conflict that China and Russia proposed a year before.

“The idea is to ensure a double freeze,” Russia’s foreign minister, Sergey Lavrov, said in an interview with NBC in Moscow on July 21, 2017. “North Korea suspends all their launches and tests, and in response, the U.S. and South Korea reduce the scale of their war maneuvers in the region.”

But all the meeting really accomplished was to open the prospect of new and probably lengthy negotiations for a final peace on the peninsula. Achieving that will depend on how the interests of five countries — North Korea, South Korea, China, Russia and the United States — can all be served.

North Korea and South Korea were created when World War II ended with Soviet troops occupying the northern part of the Korean Peninsula and American troops the south. After North Korea invaded the South in 1950, only to be driven back to China’s border by American-led forces, the fighting didn’t stop until after Chinese troops poured in and restored Communist control in the North.

.. A person of Mr. Putin’s age and experience cannot help seeing in Korea a likeness to a divided Germany. Having served in East Germany as a K.G.B. officer, Mr. Putin was deeply dismayed at the Soviet Union’s decision nearly three decades ago to give up control of what had been the Communists’ East Bloc. Today, his most powerful narrative of grievance is of the West expanding its institutions — especially NATO — to Russia’s western border. He would surely be loath to see the West achieve a matching situation at its eastern door.

..  Mr. Putin, speaking to Chinese reporters in Qingdao, called Mr. Trump’s decision to meet Mr. Kim “very brave and mature.”
.. It is likely that without Mr. Xi’s nod, Mr. Kim would not have met with Mr. Trump. And China may have kept its distance and let the American president steal the spotlight, hoping that a peaceful North Korea colonized by Chinese, Russian and American businesses might emerge and make an American military presence on the peninsula irrelevant
.. Mr. Trump’s foreign policy vision ignores concerns about other countries’ political structures as long as a deal can be reached. He clearly prefers bilateral deals to multilateral accords. He enjoys politics that are personal rather than institutional.

President Trump, Deal Maker? Not So Fast

His 17 months in office have in fact been an exercise in futility for the art-of-the-deal president.

  1. No deal on immigration.
  2. No deal on health care.
  3. No deal on gun control.
  4. No deal on spending cuts.
  5. No deal on Nafta.
  6. No deal on China trade.
  7. No deal on steel and aluminum imports.
  8. No deal on Middle East peace.
  9. No deal on the Qatar blockade.
  10. No deal on Syria.
  11. No deal on Russia.
  12. No deal on Iran.
  13. No deal on climate change.
  14. No deal on Pacific trade.

.. Even routine deals sometimes elude Mr. Trump, or he chooses to blow them up.

.. “Trump is an anarchist,” said Jack O’Donnell, a former president of the Trump Plaza Hotel and Casino, who became a sharp critic. “It was his approach in business, it is his approach as president. It does not take good negotiating skills to cause chaos. Will this ever lead to concessions? Maybe, but concessions to what? Not anything that resembles a deal. I just do not see him getting much done.”

.. I don’t think it’s that counterintuitive to say that playing hardball will lead to better trade deals eventually,” said Andy Surabian, a Republican strategist and former aide to Mr. Trump.

.. We’ll see what the final outcome is, but it’s already a success just to get them to the table.”

.. the major tax-cutting package that passed late last year. But even that was negotiated mainly by Republican lawmakers, who said Mr. Trump did not seem engaged in the details.

.. And as legislative challenges go, handing out tax cuts without paying for them is not exactly the hardest thing that politicians do.

.. In effect, the agreement with Mr. Kim is like a deal to sell parts of Trump Tower without settling on a price, date, inspection or financing. It is not nearly as advanced as agreements that President Bill Clinton and Mr. Bush made with North Korea, both of which ultimately collapsed.

.. But no modern president has sold himself on the promise of negotiating skills more than Mr. Trump has. He regularly boasts that deals will be “easy” and “quick” and the best ever.

.. He has pulled out of Mr. Obama’s Iran nuclear deal, Paris climate accord and Trans-Pacific Partnership, but promises to negotiate better versions of those deal have gone nowhere.

.. Mr. Trump set his sights on what he called “the ultimate deal,” meaning peace between the Israelis and Palestinians. He said it was “frankly maybe not as difficult as people have thought.” A year later, his team is only now preparing to release a plan.

.. “What the president seemingly fails to understand is that in foreign policy and in trade policy — unlike in real estate transactions — the parties are all repeat players,” 

.. “The country you insult or seek undue advantage over today you will have to work with again tomorrow.”

.. Mr. Trump’s approach so far has been to make expansive demands and apply as much pressure as he can. He argues that crushing sanctions he imposed on North Korea forced Mr. Kim to meet. He now hopes to extract concessions from China, Canada and Europe after slapping punishing tariffs on them.

.. “Trump is a bilateral player, in part because that’s what he is used to from his building days, but also because he keeps himself the king, the decider, the strongman,” said Wendy Sherman, who was Mr. Obama’s lead negotiator on the Iran nuclear deal. “In the case of North Korea, however, he wouldn’t have gotten this far — which isn’t all that far — without the South Koreans or the Chinese.”

..  When he gave up on immigration on Friday, he blamed it on Senate Democrats, even though the immediate impasse was among House Republicans who do not need the other party to pass a bill.

.. “Republicans should stop wasting their time on Immigration until after we elect more Senators and Congressmen/women in November,”

.. It was in effect an acknowledgment by Mr. Trump that he cannot reach across the aisle and can only govern with Republicans.

.. the challenge on immigration is that the president has to grapple not just with Democrats but also with Republicans who do not share his philosophy on the issue.

.. Mr. O’Donnell, the former casino president, said Mr. Trump has always oversold his deal-making skills. The casino he managed, Mr. O’Donnell noted, brought in $100 million a year yet still went bankrupt.

.. “The fact is, Trump casinos should have been one of the greatest success stories in the history of casino gambling, but bad deal making caused him to lose all three properties,” he said.

U.S. allies see Trump’s steel tariffs as an insult

No world leader has tried harder to get on President Trump’s good side than Japanese Prime Minister Shinzo Abe. Whether racing to New York the day after the 2016 election and presenting Trump with a $3,755 gold-plated golf driver, or taking him out on the golf course and serving hamburgers for lunch, Abe has cultivated a close personal relationship with his American counterpart.

.. But now, Japan, which is not just led by a friendly politician but also is a key security ally of the United States, looks likely to be slapped with tariffs on its steel exports to the United States. And to add insult to injury, the reason, Trump says, is rooted in national security.

“The U.S. is suddenly treating Japan as a target,” said Tsuyoshi Kawase, a professor of international trade policy at Sophia University in Tokyo. “The Japanese side is bewildered and confused.”

.. countries that figured, no matter the bumps in relations with Washington, they would wind up on the same side against China in any dispute over steel or unfair trade practices. And yet suddenly there is talk of a trade war between the United States and its supposed friends.

.. Even those leaders who have grown accustomed to the zigs and zags of the Trump White House say this could be different. The consequences of Trump’s targeting other priorities — the Paris climate agreement and the Iran nuclear deal chief among them — have not had an immediate, concrete effect. But the tariffs could soon put citizens in ally nations out of work, and if a trade war escalates, all sides could feel the pain, officials from Brasília to Brussels to Seoul say.“The impulsiveness of the decision caught us by surprise,” said Diego Bonomo, the head of foreign trade at the National Trade Association of Brazil. His country is the second-largest exporter of steel to the United States.

“It’s an economic shot in the foot,” he said. “When they impose tariffs to hurt Brazilian steel, they hurt their own coal exports and exports of products that use steel.”

.. Trump’s order came hours after Japan and 10 other countries formalized a new Pacific free-trade agreement

.. The announcement also upended a Saturday meeting of the top U.S., E.U. and Japanese trade negotiators, who were originally scheduled to convene to talk about how to take on what they say is China’s unfair support for its steel industry. Instead, officials say, the meeting may turn out to be the first salvo in an unfolding and escalating trade skirmish.

.. The frustration is compounded by Trump’s national security rationale. In fact, say U.S. allies, there is no national security risk to importing steel and aluminum from one’s closest military partners. And any move that damages their own industries also hits at overall NATO readiness and hurts trust among allies, they say.

.. But that response could backfire, some analysts say. If the WTO rules against the White House, and Trump chooses to ignore the ruling, that could effectively spell the end of the organization.

.. “To be honest, everyone kind of agrees with us,” said the official, who spoke on the condition of anonymity to discuss closed-door European efforts. “I haven’t found anyone who says, ‘No no, the president is right.’ ”

.. The prospect of steel tariffs follows on the heels of similar levies on solar panels and washing machines. But it comes at a sensitive time on the front of North Korean diplomacy.

..  tariffs could have a “negative impact on South Korea-U.S. relations,”

.. Many in Japan worry that Trump’s effort may ultimately undermine global security, not bolster it.

“When trade friction grows between allies, the alliance is weakened,” Watanabe said. “But it’s unclear if Trump understands that.”