Trump Is Playing Chess One Turn at a Time

An impulsive president tries to look tough without being prepared to follow through.

Few who served in Iraq, or who had a loved one serving there, can avoid a spasm of gratification at learning that an American drone blew up Qassem Soleimani and half a dozen of his henchmen. The Iranian general’s hands were covered with the blood of thousands—Americans, Iraqis, Iranians, Israelis, and their allies. As Carl von Clausewitz wrote, because war involves violence, the emotions cannot help but be involved, and so a ruthless satisfaction at the elimination of an implacable foe is natural and fair. But that sentiment will pass, as it soon should, leaving behind the need for sober consideration of the deed and its consequences. In particular, we must ask what the strategic implications are, and how prepared the United States is to handle what follows.

The loss to Iran here is considerable. Soleimani was an exceptionally talented and skillful leader who inspired his subordinates and a larger Shia public. He masterminded forms of warfare that were not without precedent—after all, Frenchmen and Englishmen waged proxy war in 17th-century North America—but to which he brought rare skill and subtlety. Iran is a negligible conventional power, but through its mastery of sympathetic and controlled regional militias; clever use of technology (including explosively formed projectiles for roadside bombs, but also drones, speedboats, and missiles); and deployment of propaganda, it has become the most formidable Middle Eastern power after Israel. Soleimani was very, very good at 21st-century war.

Because organizations like the Quds Force, which he led, are not conventional military bureaucracies, their leaders’ charisma and talents matter even more than in, say, the U.S. armed forces. Soleimani’s demise is not only infuriating but demoralizing for his subordinates. A web of contacts and relationships cultivated over nearly 40 years of chronic warfare will vanish with him. Like one of his Hezbollah protégés, Imad Mughniyeh (assassinated by Israel in 2008, possibly with American help), he will prove impossible to replace for some period of time, perhaps forever.

Iran’s reaction to Soleimani’s assassination is unpredictable. It could be an explosion of violence, or long-term revenge plotted and executed over years, or attacks on exposed American outposts in Iraq and Syria, or terrorism in other countries, or mass-casualty events, or the proportionate killing of a senior American general. Or the Iranians could simply curl up in the fetal position. There are precedents for that, too, the most spectacular of which followed the shooting-down of an Iranian commercial aircraft in 1988 by an American warship, which killed all 290 passengers and crew members. It was a dreadful mistake, and in the immediate aftermath the U.S. government braced itself for a wave of terrorism in response. Instead, the Iranian government seemed to conclude that the Americans were willing to go to any lengths to bring them down, and moved quickly to terminate the Iran-Iraq War on terms disadvantageous to themselves.

In the present case, the Iranians are more likely to retaliate, at times and places of their choosing. Unlike in 1988, the Iranians have foreign friends who will not stand with the United States. Indeed, in the past few weeks, the Iranians pointedly held naval exercises with China and Russia, neither of which would be averse to seeing the United States get a bloody nose in the Middle East, and both of which might provide various forms of tacit support.

But the larger questions are about the United States: What is its strategy, and what can it handle?

The Trump administration has taken a hard line with Iran, walking out of the Joint Comprehensive Plan of Action, the flawed nuclear agreement signed by the Obama administration in 2015, and ramping up sanctions. The theory of victory, however, was never clear. The goal, presumably, was to make Iran see the error of its ways, and sign a far more restrictive agreement covering the development of long-range missiles and pulling it back from its subversive activities throughout the Middle East. But economic pressure alone has been unable to bring Tehran to heel. Indeed, in one of those clever strokes of theatrical violence at which Iran excels, in September 2019 a sophisticated attack on Saudi oil facilities showed just how much damage the Iranians can do. It sent a message to the Gulf countries that the Islamic Republic was not going away, and could do a lot of damage that the Americans could not prevent. The ambiguity of the attack—credit was claimed, implausibly, by Houthi tribesmen in Yemen, but no one doubts that it was Iranian-directed—may be a hint of what lies ahead.

The alternative, then, is the overthrow of the Islamic Republic. But the regime has shown its willingness to slaughter hundreds and even thousands in order to stay in power, most recently in its brutal suppression of price riots. Such brutality works, at least for a time. And since the United States has, for now, gone out of the business of invading Persian Gulf countries, an external power is unlikely to facilitate regime collapse. Thus, even before recent events, Washington’s tactics seemed to have had no discernible way of getting to a strategic outcome.

Which brings to the fore the largest problem: the Trump administration’s national-security team. There is no such thing as a Platonic ideal of strategy. There is, rather, only strategy as can be executed by a particular group of people at any time. Any war—and if you are in the business of blowing people up, you are at war—involves improvisation and reaction. As Winston Churchill somberly observed, “Always remember, however sure you are that you can easily win, that there would not be a war if the other man did not think he also had a chance.” Iran cannot beat the United States in the field, but it can win the war politically, and may very well do so.

The dominant tone in the American government is military assertiveness. The American military has in its theater commander, General Frank Mackenzie Jr., and its chairman of the Joint Chiefs of Staff, General Mark Milley, two tough, experienced, aggressive commanders, with lots of time downrange in Iraq, where they personally felt the sting of Soleimani’s tactics. Secretary of State Mike Pompeo is forward-leaning, while Defense Secretary Mark Esper, promoted unexpectedly from being secretary of the Army, has been a capable organizer but has not articulated a distinctive strategic point of view. Neither has the national security adviser, Robert O’Brien. None has shown a substantial inclination to buck the president’s wishes or even his inclinations.

As the United States has learned to its cost, good decision making requires a forceful brake, or at least a counterpoise, to a tempting decision like the one to eliminate Soleimani. There seems to have been no one playing that role, and thereby ensuring that second- and third-order considerations had been identified and explored. Beneath the Cabinet officials is an uneven crew, many of its members filling acting positions. And above them all is a mercurial, impulsive, and ignorant president who has no desire to be pulled into a Middle Eastern war in an election year, and who wants to look tough without being prepared to follow through. This is a recipe for strategic ineptitude, and possibly failure.

The novelist James Gould Cozzens observed higher headquarters at close range during World War II. He drew on that for his masterly World War II novel, Guard of Honor. In one passage, his protagonist admits to himself that some of his seniors “were not complete fools.” However, he noted,

it was the habit of all of them to look straight, and not very far, ahead. They saw their immediate duties and did those, not vaguely or stupidly, but in an experienced firm way. Then they waited until whatever was going to happen, happened. Then they sized this up, noted whatever new duties there were, and did those. Their position was that of a chess player who had in his head no moves beyond the one it was now his turn to make. He would be dumbfounded when, after he had made four or five such moves (each sensible enough in itself) sudden catastrophe, from an unexpected direction by an unexpected means, fell on him, and he was mated.

Minus the compliments, that may be where the United States government is headed.

As Trump prepares for his holiday respite in Florida, he is more isolated than ever

Christie has maintained a cordial and clear-eyed relationship with the president. Though he carries some political baggage from his time as governor, he had credentials that few of the others considered for the chief of staff position could offer — skills that Trump likely will need in the year ahead. Among them were

  • executive experience,
  • political experience,
  • communications skills,
  • independent political relationships and, above all,
  • legal experience as a former U.S. attorney.

.. Christie apparently concluded this was no time to go inside the Trump administration and to work for a president who rarely takes the advice of his advisers and whose volatility and unpredictability could prove to be even more detrimental in the months ahead.

.. The decisions by Ayers, Christie and others underscore the precariousness of Trump’s position. At a time when he will need all the strength, wisdom, firepower and support directly around him, Trump presides over a White House that is thinning out rather than beefing up.

.. The White House Counsel’s Office is understaffed heading into a year that could bring multiple requests for documents from congressional committees and the possibility of impeachment proceedings, if what special counsel Robert S. Mueller III ultimately reports rises to that level. So far that is an open question. Others already have moved out of the White House to jobs on the Trump 2020 campaign or the private sector. More could follow in the months ahead.

.. Some loyalists remain. Among them are

  • Kellyanne Conway,
  • Sarah Sanders, and the president’s daughter
  • Ivanka Trump and son-in-law
  • Jared Kushner.

But on the issue of fresh recruits, the question is: Who would want to come to work for a president at this moment, knowing that could result in sizable legal fees as a side benefit?

.. For Trump, a group of people he once counted as among his most trusted advisers has been turned into a weapon in the hands of prosecutors

.. Another person who once protected the president and is now on the other side is David Pecker, of American Media, the publisher of the National Enquirer

.. Equally worrisome for Trump could be the role of Allen Weisselberg, the Trump Organization’s longtime chief financial officer and the person who must know as much as anyone about the inner financial workings of Trump’s empire. He has been granted immunity from prosecution in return for his cooperation.

The US is at Risk of Losing a Trade War with China

The “best” outcome of President Donald Trump’s narrow focus on the US trade deficit with China would be improvement in the bilateral balance, matched by an increase of an equal amount in the deficit with some other country (or countries). In fact, significantly reducing the bilateral trade deficit will prove difficult.

.. macroeconomics always prevails:

..  if the United States’ domestic investment continues to exceed its savings, it will have to import capital and have a large trade deficit.
..  because of the tax cuts enacted at the end of last year, the US fiscal deficit is reaching new records – recently projected to exceed $1 trillion by 2020 – which means that the trade deficit almost surely will increase, whatever the outcome of the trade war. The only way that won’t happen is if Trump leads the US into a recession, with incomes declining so much that investment and imports plummet.
.. The “best” outcome of Trump’s narrow focus on the trade deficit with China would be improvement in the bilateral balance, matched by an increase of an equal amount in the deficit with some other country (or countries). The US might sell more natural gas to China and buy fewer washing machines; but it will sell less natural gas to other countries and buy washing machines or something else from Thailand or another country that has avoided the irascible Trump’s wrath.
.. But, because the US interfered with the market, it will be paying more for its imports and getting less for its exports than otherwise would have been the case. In short, the best outcome means that the US will be worse off than it is today.
.. The US has a problem, but it’s not with China. It’s at home: America has been saving too little. Trump, like so many of his compatriots, is immensely shortsighted. If he had a whit of understanding of economics and a long-term vision, he would have done what he could to increase national savings. That would have reduced the multilateral trade deficit.
.. There are obvious quick fixes: China could buy more American oil and then sell it on to others. This would not make an iota of difference, beyond perhaps a slight increase in transaction costs. But Trump could trumpet that he had eliminated the bilateral trade deficit.
..  As demand for Chinese goods decreases, the renminbi’s exchange rate will weaken – even without any government intervention. This will partly offset the effect of US tariffs; at the same time, it will increase China’s competitiveness with other countries—and this will be true even if China doesn’t use other instruments in its possession, like wage and price controls, or push strongly for productivity increases. China’s overall trade balance, like that of the US, is determined by its macroeconomics.
.. China has more control of its economy, and has wanted to shift toward a growth model based on domestic demand rather than investment and exports. The US is simply helping China do what it has already been trying to do. On the other hand, US actions come at a time when China is trying to manage excess leverage and excess capacity; at least in some sectors, the US will make these tasks all the more difficult.
.. if Trump’s objective is to stop China from pursuing its “Made in China 2025” policy – adopted in 2015 to further its 40-year goal of narrowing the income gap between China and the advanced countries – he will almost surely fail. On the contrary, Trump’s actions will only strengthen Chinese leaders’ resolve to boost innovation and achieve technological supremacy, as they realize that they can’t rely on others, and that the US is actively hostile.
.. If a country enters a war, trade or otherwise, it should be sure that good generals – with clearly defined objectives, a viable strategy, and popular support – are in charge. It is here that the differences between China and the US appear so great. No country could have a more unqualified economic team than Trump’s, and a majority of Americans are not behind the trade war.
Public support will wane even further as Americans realize that they lose doubly from this war: jobs will disappear, not only because of China’s retaliatory measures, but also because US tariffs increase the price of US exports and make them less competitive; and the prices of the goods they buy will rise. This may force the dollar’s exchange rate to fall, increasing inflation in the US even more – giving rise to still more opposition. The Fed is likely then to raise interest rates, leading to weaker investment and growth and more unemployment.
.. Trump has shown how he responds when his lies are exposed or his policies are failing: he doubles down. China has repeatedly offered face-saving ways for Trump to leave the battlefield and declare victory. But he refuses to take them up.
Perhaps hope can be found in three of his other traits:
  1. his focus on appearance over substance,
  2. his unpredictability, and his
  3. love of “big man” politics.

.. Perhaps in a grand meeting with President Xi Jinping, he can declare the problem solved, with some minor adjustments of tariffs here and there, and some new gesture toward market opening that China had already planned to announce, and everyone can go home happy.

.. In this scenario, Trump will have “solved,” imperfectly, a problem that he created. But the world following his foolish trade war will still be different: more uncertain, less confident in the international rule of law, and with harder borders. Trump has changed the world, permanently, for the worse.

Even with the best possible outcomes, the only winner is Trump – with his outsize ego pumped up just a little more.

 

How Mnuchin Keeps a Steady Grip in a Tug of War on Trade

Two weeks ago, Steven Mnuchin, the Treasury secretary, declared that the trade war with China was “on hold” and that the United States would temporarily holster its tariffs. The reassuring comments calmed markets and raised hopes that Mr. Mnuchin, one of President Trump’s most enduring and trusted advisers, was winning the internal trade battle that has gripped the White House.

Then Mr. Trump weighed in. In a one-two punch last week, the president doubled down on the trade war with China and threw in ones with Canada, Mexico and Europe for good measure.

.. The scolding laid bare the uncomfortably familiar spot that Mr. Mnuchin finds himself in: trying to be a voice of moderation and a statesman in an administration that sees diplomatic norms and protocols as signs of weakness.

He has so far managed to stay in Mr. Trump’s good graces while advocating a more free-trade approach, but that balancing act is showing signs of strain.

.. Mr. Mnuchin, unflappable in public, is privately making his case with a president

.. The internal tensions boiled over in May during a trade mission Mr. Mnuchin led to China, when he dressed down Peter Navarro, Mr. Trump’s hawkish trade adviser, by reminding him where he stood in the administration’s pecking order after Mr. Navarro confronted him about being sidelined from the talks.

.. Current and former White House and Treasury officials say Mr. Mnuchin has managed to thrive by employing a mix of assertiveness and obsequiousness, staking out his position to the president but quickly changing course to carry out Mr. Trump’s marching orders, even if his message did not win the day.

.. Mr. Trump tweeted that he was going to find a way to help put back in business a Chinese telecommunications company that had been punished for violating American sanctions on Iran and North Korea. The decision blindsided administration officials and lawmakers

.. Mr. Mnuchin, along with the commerce secretary, Wilbur Ross, was dispatched to Capitol Hill to try to calm angry Republican lawmakers and explain the rationale behind allowing the company, ZTE, to remain in business.

.. those close to the secretary say he has learned to appreciate Mr. Trump’s use of the threat of tariffs as a negotiating tool.

.. focused on the president’s desire to see the bilateral trade deficit reduced, rather than emphasizing some of the other trade barriers

.. Stephen K. Bannon, Mr. Trump’s former top strategist, has said that Mr. Mnuchin is in over his head in the negotiations and that he is letting Mr. Trump’s leverage slip away by failing to force China to make major changes to its industrial policy.

.. it was apparent that the Chinese government was trying to elevate Mr. Mnuchin’s role in the negotiations because they see him as the American official most likely to cut a deal.

.. “Among the possible choices, they see Mnuchin as being less hawkish than some of the other counterparts,”

.. populist voices outside the administration have already been heckling Mr. Mnuchin as inept amid reports that the United States was on the verge of making an agreement with China that was viewed as merely symbolic.

.. Mr. Mnuchin has at times found himself the subject of derision, characterized as a fawning banker who cannot tell the president “no.”

.. Last year, the Treasury secretary was scoffed at by economic policymakers from across the political spectrum for insisting that the $1.5 trillion Trump tax cuts would pay for themselves.

.. Mr. Mnuchin told members of the conservative House Freedom Caucus to “vote for the debt ceiling for me.” His plea was met with groans and hisses.

.. Last August, fellow alumni of Yale, where Mr. Mnuchin earned a bachelor’s degree, called on the secretary to resign when he defended Mr. Trump’s handling of racially inspired violence in Charlottesville, Va. A month later, Lawrence Summers, a Clinton administration Treasury secretary, called Mr. Mnuchin the “greatest sycophant in cabinet history” for supporting Mr. Trump’s criticism of football players who knelt during the national anthem.

.. points to his role in successfully steering the Republican tax cut package, which many said would never pass, through Congress.

.. Within the Treasury Department, Mr. Mnuchin has developed a reputation as a micromanager. He resisted choosing a full-time deputy for more than a year, preferring to oversee everything from carrying out the new tax law to overseeing financial sanctions.

.. When the Internal Revenue Service systems failed on Tax Day, the response to the crash was slowed because Mr. Mnuchin was in New Hampshire

.. He had required that any big decisions be cleared by him

.. Mr. Mnuchin’s closest aides describe him as a collegial and mentoring figure.

.. Despite his earnest persona on television, he is known to possess a wry sense of humor

 

Trump’s Reckoning Arrives

The president’s unpredictability once worked to his advantage—but now, it is producing a mounting list of foreign-policy failures.

.. Trump’s election jolted almost every government into a frantic effort to understand what to expect. Other countries’ uncertainty enhanced Trump’s relative power—and so, perversely, did Trump’s policy ignorance and obnoxious behavior.

.. presidents are surrounded by elaborate staff systems to help them—and oblige them—to think through their words and actions.

If we impose tariffs on Chinese products, how might they retaliate? What’s our next move after that?

If we want to pressure Iran more tightly than our predecessors, what buy-in will we need from other countries? What will they want in return?

What do we want from North Korea that we can realistically get?

Team Trump does not engage in exercises like this.

.. Team Trump does not do it because the president does not do it. His idea of foreign policy is to bark orders like an emperor, without thinking very hard about how to enforce compliance or what to do if compliance is not forthcoming.

The administration canceled the Iran deal without first gaining European, Chinese, Japanese, or Indian cooperation for new sanctions.

Trump started a trade war with China without any plan for response to the inevitable Chinese counter-moves.

.. The U.S. has abjured its right to inspect Iranian nuclear facilities without any workable plan to impose global sanctions instead. India and China each trade more with Iran than with the entirety of the European Union—and neither is very vulnerable to U.S. pressure.
.. First, because he talked so much and tweeted so much, he revealed much more of himself much earlier than other presidents. His ego, his neediness, his impulsiveness, and the strange irregular cycles of his working day—those were all noted and analyzed before any formal action of his presidency.
.. for example, Australia, his offensive words had limited the ability of Australia’s democratically accountable leaders to cooperate with him.
.. Second, foreign leaders have concluded that the shortest path to Trump’s heart runs through his wallet. Oil states such as the United Arab Emirates and Saudi Arabia have rushed to be helpful to the business interests of Donald Trump and his son-in-law Jared Kushner, seeking an advantage over regional rivals like Qatar. Authoritarian leaders who could hamper Trump-licensed businesses—like Turkey’s Recep Erdogan and Rodrigo Duterte in the Philippines—have exploited their perceived leverage, acting with apparent impunity.
.. Third, Trump’s highly suspicious dealings with Russia before the election potentially put him at the mercy of countries in a position to embarrass him.
.. Only 17 percent of South Koreans trust Trump to do the right thing
.. At a time of relatively low military casualties and strong job growth, the president’s popularity at home roughly matches that of George W. Bush’s during the worst months of the Iraq war, 2005–2006, and Barack Obama’sduring the most disappointing months of the weak recovery from the recession of 2009.

Why corporate America loves Donald Trump

American executives are betting that the president is good for business. Not in the long run

MOST American elites believe that the Trump presidency is hurting their country. Foreign-policy mandarins are terrified that security alliances are being wrecked. Fiscal experts warn that borrowing is spiralling out of control. Scientists deplore the rejection of climate change. And some legal experts warn of a looming constitutional crisis.

.. Bosses reckon that the value of tax cuts, deregulation and potential trade concessions from China outweighs the hazy costs of weaker institutions and trade wars.

.. the investment surge is unlike any before—it is skewed towards tech giants, not firms with factories. When it comes to gauging the full costs of Mr Trump, America Inc is being short-sighted and sloppy.

.. The benefits for business of Mr Trump are clear, then: less tax and red tape, potential trade gains and a 6-8% uplift in earnings.

.. During the Obama years corporate America was convinced it was under siege when in fact, judged by the numbers, it was in a golden era, with average profits 31% above long-term levels.

Now bosses think they have entered a nirvana, when the reality is that the country’s system of commerce is lurching away from rules, openness and multilateral treaties towards arbitrariness, insularity and transient deals.

.. so far this month 200-odd listed American firms have discussed the financial impact of tariffs on their calls with investors. Over time, a mesh of distortions will build up.

.. American firms have $8trn of capital sunk abroad; foreign firms have $7trn in America; and there have been 15,000 inbound deals since 2008. The cost involved in monitoring all this activity could ultimately be vast. As America eschews global co-operation, its firms will also face more duplicative regulation abroad. Europe has already introduced new regimes this year for financial instruments and data.

.. The expense of re-regulating trade could even exceed the benefits of deregulation at home. That might be tolerable, were it not for the other big cost of the Trump era: unpredictability. At home the corporate-tax cuts will partly expire after 2022.

.. Bosses hope that the belligerence on trade is a ploy borrowed from “The Apprentice”, and that stable agreements will emerge. But imagine that America stitches up a deal with China and the bilateral trade deficit then fails to shrink, or Chinese firms cease buying American high-tech components as they become self-sufficient

.. Another reason for the growing unpredictability is Mr Trump’s urge to show off his power with acts of pure political discretion.

  • He has just asked the postal service to raise delivery prices for Amazon, his bête noire and the world’s second-most valuable listed firm.
  • He could easily strike out in anger at other Silicon Valley firms—after all, they increasingly control the flow of political information.
  • He wants the fate of ZTE, a Chinese telecoms firm banned in America for sanctions violations, to turn on his personal whim.

.. When policy becomes a rolling negotiation, lobbying explodes. The less predictable business environment that results will raise the cost of capital.

.. Mr Trump expects wages to rise, but 85% of firms in the S&P 500 are forecast to expand margins by 2019

.. Either shareholders, or workers and Mr Trump, are going to be disappointed.

.. In a downturn, American business may find that its fabled flexibility has been compromised because the politics of firing workers and slashing costs has become toxic.

.. American business may one day conclude that this was the moment when it booked all the benefits of the Trump era, while failing to account properly for the costs.

Under Trump, a Strong Economy but Murky Policy Outlook

Researchers find uncertainty about economic policy is slightly higher now than during Obama’s entire tenure

During Barack Obama’s presidency, uncertainty about U.S. economic policy was much higher than it had been during the previous 25 years, according to calculations by a trio of academic economists.

You would think uncertainty would be low now, with economic expansion advanced and secure, the global economy on a stable footing, and a president in the White House focused on helping business by cutting regulation.

But it isn’t. The researchers find economic policy uncertainty is slightly higher under President Donald Trump than it was during an Obama era marked by deep recession, auto bailouts, unconventional Federal Reserve interventions into the financial system and routine brinkmanship between Democrats and Republicans on fiscal policy.

.. “Obama was president in a time when you needed extreme policy action,” said Mr. Bloom. “Trump has incredibly benign economic conditions. He should have very low levels of policy uncertainty.”

It is hard to say exactly why uncertainty is high now. Mr. Bloom said it is likely partly because of big policy changes happening in Washington—such as an aggressive new stance on trade—and partly because of the decision-making process, which he described as chaotic.

.. “It has been a gut punch to tech investors,” Daniel Ives, chief strategy officer at GBH Insights, an investment research firm, said of the Amazon and Facebook developments. “These stocks and their multiples were not factoring in increased regulation.”

.. Complicating matters, it is hard to see a comprehensive policy framework behind Mr. Trump’s interventions into the economy, making it hard to predict what might come next.

.. Some analysts have described the nation’s evolving trade approach as mercantilism, a government effort to prop up exports and restrain imports in pursuit of trade and financial surpluses. But Qualcomm, AT&T and Amazon aren’t about that. Nor is it quite industrial policy, which is government selection of certain industries over others, as Japan practiced in the 1980s and 1990s.

.. “He’s picking winners and losers,” said Matthew Slaughter, dean of Dartmouth’s Tuck School of Business, who also served as an economist at the Council of Economic Advisers under President George W. Bush. “But it is not obvious what the unifying strategy would be and it is not obvious what the definition of winners and losers are in these cases.”

.. “The regulatory machinery is not likely to be put into motion because the president has a grudge against Amazon,” he said.

His advice to Wall Street: “Don’t fear the Tweeter.”