The Demise of Dollar Diplomacy


October 17, 2017

The Demise of Dollar Diplomacy

by Barry Eichengreen*

http://www.project-syndicate.org

Pundits have been saying last rites for the dollar’s global dominance since the 1960s – that is, for more than half a century now. But the pundits may finally be right, because the greenback’s dominance has been sustained by geopolitical alliances that are now fraying badly.

WASHINGTON, DC – Mark Twain never actually said “Reports of my death have been greatly exaggerated.” But the misquote is too delicious to die a natural death of its own. And nowhere is the idea behind it more relevant than in discussions of the dollar’s international role.

Pundits have been saying last rites for the dollar’s global dominance since the 1960s – that is, for more than a half-century now. The point can be shown by occurrences of the phrase “demise of the dollar” in all English-language publications catalogued by Google.

The frequency of such mentions, adjusted for the number of printed pages per year, first jumped in 1969, following the collapse of the London Gold Pool, an arrangement in which eight central banks cooperated to support the dollar’s peg to gold. Use of the phrase soared in the 1970s, following the collapse of the Bretton Woods system, of which the dollar was the linchpin, and in response to the high inflation that accompanied the presidencies of Richard Nixon, Gerald Ford, and Jimmy Carter in the 1970s.

But even that spike was dwarfed by the increase in mentions and corresponding worries about the dollar starting in 2001, reflecting the shock of the terrorist attacks that September, the mushrooming growth of the US trade deficit, and then the global financial crisis of 2008.

Yet through all of this, the dollar’s international role has endured. As my coauthors and I show in a new book, the share of dollars in the foreign-currency reserves held by central banks and governments worldwide hardly budged in the face of these events. The greenback remains the dominant currency traded in foreign-exchange markets. It is still the unit in which petroleum is priced and traded worldwide, Venezuelan leaders’ complaints about the “tyranny of the dollar” notwithstanding.

To the consternation of many currency traders, the value of the dollar fluctuates widely, as its rise, fall, and recovery in the course of the last year have shown. But this does little to erode the attractiveness of the dollar in international markets.

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America First–Then What is Future of the US Dollar in the Trumpian Era?

Central banks still hold US Treasury bonds because the market for them is the single most liquid financial market in the world. And Treasury bonds are secure: the federal government has not fallen into arrears on its debt since the disastrous War of 1812.

In addition, US diplomatic and military links encourage America’s allies to hold dollars. States with their own nuclear weapons hold fewer dollars than countries that depend on the US for their security needs. Being in a military alliance with a reserve-currency-issuing country boosts the share of the partner’s foreign-exchange reserves held in that currency by roughly 30 percentage points. The evidence thus suggests that the share of reserves held in dollars would fall appreciably in the absence of this effect.

This under-appreciated link between geopolitical alliances and international currency choice reflects a combination of factors. Governments have reason to be confident that the reserve-currency country will make servicing debt held by its allies a high priority. In return, those allies, by holding its liabilities, can help to lower the issuer’s borrowing costs.

Here, then, and not in another imbroglio over the federal debt ceiling this coming December, is where the real threat to the dollar’s international dominance lies. As one anonymous US State Department official put it, President Donald Trump “does not seem to care about alliances and therefore does not care about diplomacy.”

South Korea and Japan are thought to hold about 80% of their international reserves in dollars. One can imagine that the financial behavior of these and other countries would change dramatically, with adverse implications for the dollar’s exchange rate and US borrowing costs, were America’s close military alliances with its allies to fray.

Nor is it hard to imagine how this fraying could come about. President Donald Trump has painted himself into a strategic corner: he needs a concession from North Korea on the nuclear-weapons issue in order to save face with his base, not to mention with the global community. And, for all of Trump’s aggressive rhetoric and posturing, the only feasible way to secure such a concession is through negotiation. Ironically, the most plausible outcome of that process is an inspections regime not unlike the one negotiated by Barack Obama’s administration with Iran.

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Visualizing the Size of the U.S. National Debt

How big is the U.S. National Debt?

The best way to understand these large numbers? We believe it is to represent them visually, by plotting the data with comparable numbers that are easier to grasp.

Today’s data visualization plots the U.S. National Debt against everything from the assets managed by the world’s largest money managers, to the annual value of gold production.

1. The U.S. national debt is larger than the 500 largest public companies in America.
The S&P 500 is a stock market index that tracks the value of the 500 largest U.S. companies by market capitalization. It includes giant companies like Apple, Exxon Mobil, Microsoft, Alphabet, Facebook, Johnson & Johnson, and many others. In summer of 2016, the value of all of these 500 companies together added to $19.1 trillion – just short of the debt total.

2. The U.S. national debt is larger than all assets managed by the world’s top seven money managers.
The world’s largest money managers – companies like Blackrock, Vanguard, or Fidelity – manage trillions of investor assets in stocks, bonds, mutual funds, ETFs, and more. However, if we take the top seven of these companies and add all of their assets under management (AUM) together, it adds up to only $18.9 trillion.

3. The U.S. national debt is 25x larger than all global oil exports in 2015.
Yes, countries such as Saudi Arabia, Kuwait, and Russia make a killing off of selling their oil around the world. However, the numbers behind these exports are paltry in comparison to the debt. For example, you’d need the Saudis to donate the next 146 years of revenue from their oil exports to fully pay down the debt.

4. The U.S. national debt is 155x larger than all gold mined globally in a year.
Gold has symbolized money and wealth for a long time – but even the world’s annual production of roughly 3,000 tonnes (96 million oz) of the yellow metal barely puts a dent in the debt total. At market prices today, you’d need to somehow mine 155 years worth of gold at today’s rate to equal the debt.

5. In fact, the national debt is larger than all of the world’s physical currency, gold, silver, and bitcoin combined.

That’s right, if you rounded up every single dollar, euro, yen, pound, yuan, and any other global physical currency note or coin in existence, it only amounts to a measly $5 trillion. Adding the world’s physical gold ($7.7 trillion), silver ($20 billion), and cryptocurrencies ($11 billion) on top of that, you get to a total of $12.73 trillion. That’s equal to about 65% of the U.S. national debt.

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To get there, Trump’s administration will have to offer something in return. The most obvious bargaining chip that could be offered to make the North Korean regime feel more secure is a reduction in US troop levels on the Korean Peninsula and in Asia in general, With that, the US security guarantee for Asia will weaken, in turn providing China an opportunity to step into the geopolitical breach.

And where China leads geopolitically, its currency, the renminbi, is likely to follow.

*Barry Eichengreen is Professor of Economics at the University of California, Berkeley, and a former senior policy adviser at the International Monetary Fund. His latest book is Hall of Mirrors:The Great Depression, the Great Recession, and the Uses – and Misuses – of History.

China’s Xi Jinping–The World’s Most Powerful Man


October 17, 2017

THE ECONOMIST

China’s Xi Jinping–The World’s Most Powerful Man

Xi Jinping has more clout than Donald Trump. The world should be wary

Do not expect Mr Xi to change China, or the world, for the better

Print edition | Leaders

Oct 14th 2017

One-man rule is ultimately a recipe for instability in China, as it has been in the past—think of Mao and his Cultural Revolution. It is also a recipe for arbitrary behaviour abroad, which is especially worrying at a time when Mr Trump’s America is pulling back and creating a power vacuum. The world does not want an isolationist United States or a dictatorship in China. Alas, it may get both.

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Two Giants of Asia–Xi and Modi–Friends or Foes

AMERICAN Presidents have a habit of describing their Chinese counterparts in terms of awe. A fawning Richard Nixon said to Mao Zedong that the chairman’s writings had “changed the world”. To Jimmy Carter, Deng Xiaoping was a string of flattering adjectives: “smart, tough, intelligent, frank, courageous, personable, self-assured, friendly”. Bill Clinton described China’s then president, Jiang Zemin, as a “visionary” and “a man of extraordinary intellect”. Donald Trump is no less wowed. The Washington Post quotes him as saying that China’s current leader, Xi Jinping, is “probably the most powerful” China has had in a century.

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Mr Trump may be right. And were it not political suicide for an American president to say so, he might plausibly have added: “Xi Jinping is the world’s most powerful leader.” To be sure, China’s economy is still second in size to America’s and its army, though rapidly gaining muscle, pales in comparison. But economic heft and military hardware are not everything. The leader of the free world has a narrow, transactional approach to foreigners and seems unable to enact his agenda at home. The United States is still the world’s most powerful country, but its leader is weaker at home and less effective abroad than any of his recent predecessors, not least because he scorns the values and alliances that underpin American influence.

The President of the world’s largest authoritarian state, by contrast, walks with swagger abroad. His grip on China is tighter than any leader’s since Mao. And whereas Mao’s China was chaotic and miserably poor, Mr Xi’s is a dominant engine of global growth. His clout will soon be on full display. On October 18th China’s ruling Communist Party will convene a five-yearly congress in Beijing (see Briefing). It will be the first one presided over by Mr Xi. Its 2,300 delegates will sing his praises to the skies. More sceptical observers might ask whether Mr Xi will use his extraordinary power for good or ill.

World, take note

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On his numerous foreign tours, Mr Xi presents himself as an apostle of peace and friendship, a voice of reason in a confused and troubled world. Mr Trump’s failings have made this much easier. At Davos in January Mr Xi promised the global elite that he would be a champion of globalisation, free trade and the Paris accord on climate change. Members of his audience were delighted and relieved. At least, they thought, one great power was willing to stand up for what was right, even if Mr Trump (then President-Elect) would not.

Mr Xi’s words are heeded partly because he has the world’s largest stockpile of foreign currency to back them up. His “Belt and Road Initiative” may be puzzlingly named, but its message is clear—hundreds of billions of dollars of Chinese money are to be invested abroad in railways, ports, power stations and other infrastructure that will help vast swathes of the world to prosper. That is the kind of leadership America has not shown since the post-war days of the Marshall Plan in western Europe (which was considerably smaller).

Mr Xi is also projecting what for China is unprecedented military power abroad. This year he opened the country’s first foreign military base, in Djibouti. He has sent the Chinese navy on manoeuvres ever farther afield, including in July on NATO’s doorstep in the Baltic Sea alongside Russia’s fleet. China says it would never invade other countries to impose its will (apart from Taiwan, which it does not consider a country). Its base-building efforts are to support peacekeeping, anti-piracy and humanitarian missions, it says. As for the artificial islands with military-grade runways it is building in the South China Sea, these are purely defensive.

Unlike Vladimir Putin, Russia’s President, Mr Xi is not a global troublemaker who seeks to subvert democracy and destabilise the West. Still, he is too tolerant of troublemaking by his nuke-brandishing ally, North Korea (see Schumpeter). And some of China’s military behaviour alarms its neighbours, not only in South-East Asia but also in India and Japan.

At home, Mr Xi’s instincts are at least as illiberal as those of his Russian counterpart. He believes that even a little political permissiveness could prove not only his own undoing, but that of his regime. The fate of the Soviet Union haunts him, and that insecurity has consequences. He mistrusts not only the enemies his purges have created but also China’s fast-growing, smartphone-wielding middle class, and the shoots of civil society that were sprouting when he took over. He seems determined to tighten control over Chinese society, not least by enhancing the state’s powers of surveillance, and to keep the commanding heights of the economy firmly under the party’s thumb. All this will make China less rich than it should be, and a more stifling place to live. Human-rights abuses have grown worse under Mr Xi, with barely a murmur of complaint from other world leaders.

Liberals once mourned the “ten lost years” of reform under Mr Xi’s predecessor, Hu Jintao. Those ten years have become 15, and may exceed 20. Some optimists argue that we have not yet seen the real Mr Xi—that the congress will help him consolidate his power, and after that he will begin social and economic reforms in earnest, building on his relative success in curbing corruption. If he is a closet pluralist, however, he disguises it well. And alarmingly for those who believe that all leaders have a sell-by date, Mr Xi is thought to be reluctant to step down in 2022, when precedent suggests he should.

Reasons to be fearful

Mr Xi may think that concentrating more or less unchecked power over 1.4bn Chinese in the hands of one man is, to borrow one of his favourite terms, the “new normal” of Chinese politics. But it is not normal; it is dangerous. No one should have that much power. One-man rule is ultimately a recipe for instability in China, as it has been in the past—think of Mao and his Cultural Revolution. It is also a recipe for arbitrary behaviour abroad, which is especially worrying at a time when Mr Trump’s America is pulling back and creating a power vacuum. The world does not want an isolationist United States or a dictatorship in China. Alas, it may get both.

This article appeared in the Leaders section of the print edition under the headline “The world’s most powerful man”

Former US Ambassador to Malaysia and State Department’s Joseph Yun on Rocket Man and North Korea


October 16, 2017

Former US Ambassador to Malaysia and State Department’s Joseph Yun on Rocket Man and North Korea

by Editor Rosemary O’Hara at rohara@sun-sentinel.com or on Twitter @RosemaryOhara14

http://www.sun-sentinel.com/opinion/fl-op-north-korea-rocket-man-rosemary-ohara-20171014-story.html

The first thing you notice about America’s key diplomat on North Korea is that he has a nice smile and a quick wit, attributes that help lighten the mood in tense times.

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It’s not that the questions he faced from a group of American news editors this week were tougher than those others are asking about the war of words between President Donald Trump and North Korean leader Kim Jong Un — and the potential for this exchange to escalate into World War III.

Still, it was a delightful surprise that Joseph Yun agreed to an on-the-record interview Wednesday at the State Department’s annual briefing for opinion page editors — and that he opened with a laugh line.

“I understand you’ve been here since 9 o’clock and you’ve just had your lunch, so feel free to take a nap. We completely understand,” said Yun, deputy assistant secretary of the Bureau of East Asia and Pacific Affairs.

No one had sleep on their minds, of course. We were eager to talk to the man who describes his job as “our country’s designated engager for North Korea, the guy whose job it is to talk to North Korea and see what they want and where they want to go.”

Just two weeks ago, Secretary of State Rex Tillerson acknowledged for the first time that we are in direct communication with the North Korean government over its missile and nuclear bomb tests, and a possible way forward.

President Trump tweeted at the time that Tillerson was wasting his time. “Save your energy Rex, we’ll do what has to be done!”

Five hours later, the President tweeted again: “Being nice to Rocket Man hasn’t worked in 25 years, why would it work now?”

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Special Representative for North Korea Policy at The State Department Joseph Yun (left)

And he didn’t stop there. ”Sorry, but only one thing will work!” What does that mean? “You’ll figure that out pretty soon,” Trump said.

It was Trump’s threat to “totally destroy” North Korea that the Koreans took as a “declaration of war.” Foreign Minister Ri Yong Ho said Wednesday that Trump had “lit the wick of a war against us. We need to settle the final score, only with a hail of fire, not words.”

At the center of this maelstrom is Yun, a soft-spoken native of South Korea who’s been with the State Department for 33 years, most recently as ambassador to Malaysia. “It was a nice life. Next to a golf course. Very nice.”

You could feel the punchline coming.

“They thought I was getting very lazy,” he said. “So exactly a year ago, they asked me to come over to take this job … And I feel that what I owed in my 31 years before, I have paid back now.”

Before getting down to the nitty gritty, this instantly likable man offered one more quip. “I took this job in the Obama administration,” he said. “I am one of the few, I would say, ‘holdovers’ left. I think mostly because they don’t know I’m here. That’s off the record!”

Humility aside, Yun is undoubtedly well known to President Trump and Secretary Tillerson because as State Department Spokeswoman Heather Nauert also made clear that day, North Korea is the President’s top foreign policy issue. “That is the number one issue the President has asked Secretary Tillerson to engage in.”

Yun described how it’s going.

When he began his assignment, the North Koreans wouldn’t talk to him. They wanted nothing to do with anyone from the Obama administration. “They said they believed that the Obama administration was interested in a policy goal of regime change … ‘Why would we want to talk to anyone that represents an administration that believes in regime change?’”

Things changed after President Trump’s inauguration. “After January. 20, I would say things improved and really, we got underway with what we call ‘North Korea policy review.’ And in the review, we came up very clearly that we’re going to increase pressure on North Korea to denuclearize. But at the same time, we would leave room for engagement.”

To be clear, when Yun says “denuclearize,” he means North Korea must rid itself of all nuclear capabilities. Personally, I hadn’t realized that was the starting point for talks.

The policy, called “maximum pressure and engagement,” grew from North Korea’s failure to stop testing its missiles and nuclear devices. “In fact, in six years under the current leader, Kim Jong Un, they tested 80 times — over 80 times. Compare that with the previous six years, under his father, (Kim Jong Il,) who tested less than 20 times. So this was getting very much accelerated.”

To begin a dialogue, Yun invited his North Korean counterparts to New York in late February. But in early February, the North Koreans killed Kim Jong Nam, their leader’s half-brother, in Kuala Lumpur, Malaysia’s capital.

“Not only did they kill him, they killed him using VX nerve agent, which is classified as WMD by the United Nations. There was such an outcry that it was not possible for me to see them and of course we had to say, ‘Now is not the time for talks.’

“At the same time, we had three American prisoners in North Korea. So both President Trump and Secretary Tillerson, it’s their very high priority to get American prisoners out. So I told (the North Koreans,) ‘Can we discuss getting the prisoners out and maybe from there we can build a dialogue?’ So that’s when I went to Pyongyang.”

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The late Otto Warmbier and US Ambassador to the United Nations Nikki Haley

Among the prisoners was Otto Warmbier, an Ohio college student held for more than a year for allegedly trying to steal a propaganda poster from a North Korean hotel. Yun saw that Warmbier was not well. His parents later told Fox & Friends that when their unconscious son arrived home, he was blind and deaf, had a nasal feeding tube, was jerking violently and howling involuntarily, and that it looked like someone had taken a pair of pliers and rearranged his bottom teeth.

“So what could have been a very positive story turned out quite negative because not only was he unconscious, he came back home and he died in less than a week. As you can see, the public opinion in the U.S. was very much against that. And then, of course, North Koreans, as they rightly should, got the blame. And as a result, we have now restricted travel of all Americans to North Korea.”

 

Meanwhile, North Korea continued to violate world norms and test its missiles and nuclear bombs. In early September, it tested a device that “was probably 150 kilotons, which is, I think, about ten times bigger than the bomb that went off in Nagasaki. And of course they also tested intercontinental ballistic missiles that are capable of hitting Hawaii, hitting Guam and possibly the West Coast.

“So this is why you’re seeing the tensions heightened. There is a realization among the American public that there is a genuine homeland security threat. … And this is why you’re seeing open debate on: do we pressure them, do we seek a diplomatic path or do we seek a pressure path? And that, I think, is the really big issue of the day.

“I’m a diplomat. I work in the State Department. We have always said we should pursue pressure as well as a diplomatic path. And that is not an easy thing to suggest — to pressure someone at the same time to coax them to dialogue and diplomatic path. That is the challenge we face.”

On diplomacy, Yun highlights the Trump administration’s recent success at the United Nations Security Council in securing unanimous resolutions to strengthen global sanctions that limit North Korea’s coal exports, oil imports and overseas workers forced to send “loyalty payments” home.

“These guest workers are essentially slave labor,” spokeswoman Nauert later added. “They don’t get to keep their own money. That money goes back to the Kim Jong Un regime … That doesn’t go to feed his own people, to provide medical care to his own people. He uses it to fund extremely expensive weapons programs. We believe that with the sanctions, we could remove money going to those programs.”

It’s impressive to see the growing list of nations severing ties with North Korea and expelling its ambassadors. Since mid-September, they include Peru, Mexico, Italy, Spain, Kuwait, Egypt, the Philippines and on Thursday, the United Arab Emirates.

China remains the biggest holdout. And since China accounts for over 90 percent of trade with North Korea, “it’s crucial that China does its part in sanctions,” Yun says.

On the other end of the spectrum, South Korea and Japan, our close allies, “have been very solid in being with us in all aspects of sanction policy as well as diplomatic policy,” he added.

“So that’s where we are. And obviously this thing hasn’t yet run its course. I would pose to you that this is a difficult problem that’s been with us for many decades. Their nuclear program probably started in the ‘60s. The first nuclear agreement we reached with them was in ’94. …The second nuclear agreement we reached with them was in six-party talks that went from about 2003 to 2008. So we’ve seen many generations of this and this is a serious problem that’s become even more serious because of the homeland threat.”

With that, Yun took questions.

What about former President Jimmy Carter’s call to send a high-level delegation to Pyongyang for peace talks or to convene an international conference that includes North and South Korea, the United States and China?

“Clearly we’re open to any approach, but let me be frank with you. … The North Koreans have made it clear to me, as well as to the world, that they want to talk to the U.S. They’re not that interested in talking to anyone else, that this is a problem between North Korea and the United States. So I’m not sure internationalizing it, that they would accept that. … North Korea has said they don’t want six-party talks. What they want to do is talk to us.”

Do we want to talk to them?

“I think we are very much open to talking to them. You’ve seen Secretary Tillerson say that. We want to talk to them. But we also do believe at the same time, they have got to come to talks with some degree of credibility and seriousness. They have agreed many times in the past that denuclearization is also their goal. But they have recently removed that. They said they would not denuclearize. And so that’s a problem for us. If you come to talks and say you’re not going to denuclearize, I’m not sure really what the future of those talks are.”

Steve Bannon, former White House chief strategist, recently said that as long as North Korea has thousands of rockets trained on Seoul, there’s no credible military option that doesn’t result in the deaths of millions of South Koreans as well as thousands of U.S. troops stationed there. Is he correct?

“You’ll have to ask my colleagues in (Department of Defense.) My main job is diplomacy. It’s not to pull triggers. This is outside, really, my lane.”

Why do we expect sanctions to change North Korea’s behavior when they haven’t for decades? And if North Korea doesn’t commit to denuclearization, are we saying we won’t go to the table to talk?

“I would say sanctions can be effective if implemented fully and properly. As I have alluded, China has about 90 percent of trade, so the burden does fall on China. It’s very different, by the way, than Iran, where there were many trading partners. In this case, it is China. So really, when you say sanctions have not worked, I think it is because sanctions have not been fully implemented by China. Why? That is a question we’re always trying to come to grips with.

“I think the common view among the analysts is that China fears the collapse of North Korea more than it fears a nuclear North Korea. They fear if North Korea were to collapse, then U.S. troops might move in along with South Koreans … And if you remember from the Korean War, that is also when the Chinese got into it, when it looked like (Gen. Douglas) MacArthur was driving U.S. troops and South Korea troops up there. So that’s their principle concern.

“This is why we’ve said to them, to reassure them, Secretary Tillerson has said our policy has four no’s. Number one, it is not about regime change. Number two, it is not about bringing on regime collapse. Number three, it is not about forcing reunification of the Korean Peninsula. And number four, it’s not about stationing American troops north of the DMZ. That was to reassure not just the North Koreans, but the Chinese that this is not about us pushing up beyond DMZ, but rather, it’s about denuclearization in the Korean Peninsula.

“Denuclearization is the end goal of U.S. government policy, and it has been for the past three decades. You can ask questions about why it failed, but you’d have to give me another two hours.”

There it was. A small chuckle, in a conversation that had grown tense.

North Korea has looked at what happened in a denuclearized Libya, and America’s doubtful adherence to the Iran nuclear agreement. Is it realistic to expect Kim to follow a similar path? If he doesn’t, are we looking at South Korea and Japan getting nuclear weapons, or is that threat simply a way to get China’s attention?

 

“This is, of course, what China fears. But if this situation continues, I can predict to you that South Korea and Japan will want stronger and stronger weapons, defensive weapons, or even offensive weapons to counter North Korea’s nuclear weapons … So you are staring at what looks like an arms race. And what is the logical conclusion to that?

“Already, we are seeing South Koreans, conservative South Koreans, wanting indigenous nuclear weapons. And if we have that, if we have South Korea go nuclear, and Japan go nuclear, that will be practically the end of NPT (the landmark 1970 Non-Proliferation Treaty on nuclear weapons.)

“And NPT, in my view, certainly has been one of the most successful, post-Second World War treaties we’ve had, limiting the number of countries with nuclear weapons. The P-5 — Russia, U.S., United Kingdom, France and China — and there’s only a handful of others, Pakistan, Israel and India. So really, if you imagined in the ‘60s that nuclear weapons would be limited to these few countries, people would have thought you were dreaming. South Korea actually gave up nuclear weapons in the ‘70s because we asked them. So you can imagine if this goes down the path, the logical conclusion. … It will be a nuclear Northeast Asia.”

Why do you think South Korea is less concerned by recent events? And what do you think when you hear the trash talking — the “Rocket Man.” Does that make your job more difficult?

That’s also outside my lane. (Crowd chuckles.) What was that first question?

Are we facing World War III tomorrow or more years of diplomacy?

South Koreans in general have become inured to threats from North Korea. Remember, they are facing all these thousands of artillery just across the DMZ, which is about 35 to 40 miles away from Seoul, the center of population. So they have become fairly inured to threats from Pyongyang. In my view, I think for Americans, this is a threat that was somewhat unexpected, even though those who have followed North Korea issues have been predicting it for a while.

“I do think this is a serious issue. I do welcome the public joining the debate on how to deal with this. What is the right strategy? What does it mean to sanction a country and why are we doing it? Why do we have such a difficult partner or are we being difficult? These are all questions that are worth asking.

“In the end, I am again from diplomacy school and I would like to think there is a path out there. I would like to think there’s a path that could deliver: number one, lower tensions; number two, try to meet minimum requirements of each other; and number three, build some kind of relationship, build a little bit more trust in each other. I would like to think that is possible, but again it remains to be seen.

“Meanwhile, since this poses such a threat, we also have to believe we have to put all options on the table and that would have to include a military option. This is not an empty threat. If your homeland is under such a scrutiny and threat, I do believe you have to put all options on the table.”

What about those other American prisoners? What can you tell us about your conversations with them?

“We raise this at every opportunity. Protection of our prisoners overseas is an incredibly important mission for the State Department, so that really takes priority over anything else. I don’t want to go into too much detail about what kind of conversation we had. They were rather restricted because we were not just the two of us. We had a representative from their government there as well.”

“There are actually three remaining detainees in North Korea. I did see them when I was there in June, but nobody has seen them since then. I assume they are still alive. We have an arrangement with the Swedish Embassy, where the Swedes look after our consular cases. And the Swedes have not seen them, either, since June.”

After spending about 40 minutes with our nation’s key diplomat on North Korea, I came away thinking we were lucky to have him. But I grapple with our policy of not holding talks unless the North Koreans first agree to give up their nuclear capabilities.

Why would Kim do that, I asked my colleagues. He would lose face. It could spell his end. And if you back someone into a corner, there’s only one way out — straight at you.

My colleagues countered: We’re asking Iran to forego nuclear weapons. Besides, his people remain incredibly repressed. They wouldn’t rise up like the Arab Spring.

As to the policy of making North Korea give up its nuclear capabilities altogether, spokeswoman Nauert said there’s no other choice.

“If North Korea were to become a fully nuclear-capable country with weapons that are able to hit folks around the world, we know that North Korea would not contain itself,” she said. “We know that North Korea would sell those weapons and sell its technology. So the idea of containment may sound nice and rosy, but in reality, there’s no one out there who believes that North Korea could be contained.”

The best way to force Kim to give up his nuclear arsenal — as Trump, Tillerson and Yun have all made clear — is for China to end trade and oil shipments if he doesn’t. Without these, Kim’s nation cannot survive.

On reflection, I began to see some value in Trump’s tweets. Not because they are helping to de-escalate tensions with North Korea, which they’re not, but because they are putting new pressure on China.

Another high-placed diplomatic friend, speaking off-the-record, offered me that perspective.

“China hates to be humiliated. China despises the fact that they’re going to be bullied. But they’re looking at Washington and going, ‘This guy is pretty crazy, right? Actually, he could be a real threat.’ And China cannot afford under any circumstance to have conflict on the Korean Peninsula. The last battle on the Korean Peninsula put China back 50 years in developing the One-China policy to their satisfaction.

“So now, it is quite clear that China wants to help — for the first time — in North Korea. All of a sudden, everyone understands the stakes and for the first time, China is reacting. Not at the suggestion of bullying by the U.S., but because Trump has been able, to some degree, to pull back with his public belligerence against China. But privately, (our diplomats) believe that China believes it has to try to get a solution here. And that is a positive development that President Obama and his predecessors couldn’t deliver.

“Conventional wisdom hasn’t worked. And the unconventional activity is making a difference.”

It’s not that “Rocket Man” is working. Bullying words distract.

But there’s a reason President Trump has maximized pressure on North Korea and gotten China to agree to a “complete, verifiable and irreversible” denuclearization on the peninsula.

 

North Korea is close, very close, to being able to rain nuclear hell on its neighbors and our homeland.

And while China might not have once cared if North Korea had nuclear weapons, recent provocations have changed the equation.

More than anything, China doesn’t want South Korea and Japan to acquire nuclear weapons, something Trump once suggested as a way to cut America’s defense costs in the region.

Neither does the world want to see more countries acquire nuclear bombs capable of killing hundreds of thousands of people in horrific ways.

As Yun says, “It’s crucial that China does its part in sanctions.”

And that’s no joke.

Reach Sun Sentinel Editorial Page Editor Rosemary O’Hara at rohara@sun-sentinel.com or on Twitter @RosemaryOhara14.

Copyright © 2017, Sun Sentinel

The Economic Case for China’s One Belt, One Road Initiative


October 14, 2017

The Economic Case for China’s One Belt, One Road Initiative

by Shang-Jin Wei*
https://www.project-syndicate.org/commentary/china-belt-and-road-economic-case-by-shang-jin-wei-2017-10

Image result for The Economic Case for China’s Belt and Road

 

In recent years, many of the world’s most influential countries have turned inward, with politicians promising protectionism, immigration restrictions, and even border walls. But, to achieve stronger economic growth and development, the world needs initiatives focused on building bridges – initiatives like China’s Belt and Road.

NEW YORK – Since 2013, China has been pursuing its “Belt and Road” initiative, which aims to develop physical infrastructure and policy linkages connecting more than 60 countries across Asia, Europe, and Africa. Critics worry that China may be so focused on expanding its geopolitical influence, in order to compete with the likes of the United States and Japan, that it may pursue projects that make little economic sense. But, if a few conditions are met, the economic case for the initiative is strong.

As a recent Asian Development Bank report confirms, many Belt and Road countries are in urgent need of large-scale infrastructure investment – precisely the type of investment that China has pledged. Some, such as Bangladesh and Kyrgyzstan, lack reliable electricity supplies, which is impeding the development of their manufacturing sectors and stifling their ability to export. Others, like Indonesia, do not have enough ports for internal economic integration or international trade.

 

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The Belt and Road initiative promises to help countries overcome these constraints, by providing external funding for ports, roads, schools, hospitals, and power plants and grids. In this sense, the initiative could function much like America’s post-1945 Marshall Plan, which is universally lauded for its contribution to the reconstruction and economic recovery of war-ravaged Europe.

Of course, external funding alone is not sufficient for success. Recipient countries must also undertake key reforms that increase policy transparency and predictability, thereby reducing investment risk. Indeed, implementation of complementary reforms will be a key determinant of the economic returns on Belt and Road investments.

Image result for The Economic Case for China’s Belt and Road

President Xi Jinping’s One Belt, One  Road Initiative  aims to knit together Asia, Europe and Africa through land and maritime corridors that collectively encompass a set of countries representing about 65 percent of the world’s population and one-third of its total economic output. China plans to spend roughly $150 billion a year to advance the initiative through infrastructure projects ranging from railways and roads, to ports and pipelines, to power plants and telecommunications networks.

For China, the Belt and Road investments are economically appealing, particularly when private Chinese firms take the lead in carrying them out. In 2013, when China first proposed the Belt and Road initiative, the country was sitting on $4 trillion in foreign-exchange reserves, which were earning a very low dollar return (less than 1% a year). In terms of China’s own currency, the returns were negative, given the expected appreciation of the renminbi against the US dollar at the time.

In this sense, Belt and Road investments are not particularly costly for China, particularly when their far-reaching potential benefits are taken into account. China’s trade-to-GDP ratio exceeds 40% – substantially higher than that of the US – owing partly to underdeveloped infrastructure and inadequate economic diversification among China’s trading partners. By addressing these weaknesses, China’s Belt and Road investments can lead to a substantial increase in participant countries’ and China’s own trade volumes, benefiting firms and workers substantially.

This is not to suggest that such investments are risk-free for China. The economic returns will depend on the quality of firms’ business decisions. In particular, because efficiency is not the primary consideration, Chinese state-owned enterprises (SOEs) might purse low-return projects. That is why China’s SOE-reform process must be watched carefully. Nonetheless, while the Belt and Road initiative is clearly driven partly by strategic objectives, a cost-benefit analysis shows that the economic case is also very strong – so strong, in fact, that one might ask why China didn’t undertake it sooner.

Even the United States and other countries may reap significant economic returns. A decade after the global financial crisis erupted, recovery remains weak and tentative in much of the world. Bold, large-scale infrastructure investments can provide much-needed short-run stimulus to global aggregate demand. The US, for one, is likely to see a surge in demand for its own exports, including cars, locomotives, planes, and high-end construction equipment, and financial, accounting, educational, and legal services.

In the longer term, the new infrastructure will ease logistical bottlenecks, reducing the costs of production inputs. The result will be higher productivity and faster global growth.

If Belt and Road projects are held to high environmental and social standards, significant progress can also be made on global challenges such as climate change and inequality. The more countries choose to participate in these projects, the better the chance of achieving these standards, and the greater the global social returns will be.

In an era when some of the world’s most influential countries are turning inward, talking about erecting trade barriers and constructing border walls, the world needs initiatives focused on building bridges and roads, both literal and figurative – initiatives like the Belt and Road strategy.

 

The White House Enigma


October 10, 2017

The White House Enigma

https://www.washingtonpost.com

Image result for Donald Trump the Enigma

The White House Enigma

After nearly nine months of the Trump administration, many of America’s closest allies have concluded that a hoped-for “learning curve” they thought would make President Trump a reliable partner is not going to happen.<

“The idea that he would inform himself, and things would change, that is no longer operative,” said a top diplomat here.

Instead, they see an administration in which lines of authority and decision-making are unclear, where tweets become policy and hard-won international accords on trade and climate are discarded. The result has been a special kind of challenge for those whose jobs are to advocate for their countries and explain the president and his unconventional ways at home.

Senior diplomats and officials from nearly a dozen countries in Europe, Latin America and Asia expressed a remarkable coincidence of views in interviews over the past several weeks. Asked to describe their thoughts about and relations with the President and his team as the end of Trump’s first year approaches, many described a whirlwind journey beginning with tentative optimism, followed by alarm and finally reaching acceptance that the situation is unlikely to improve.

“We have to adjust to this,” said a second diplomat from a different continent.

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Senator Bob Corker (R.Tennessee)  with Senator John McCain (R-Arizona). Sen. Bob Corker (R-Tenn.) weighed in on the tumult within President Trump’s administration on Oct. 4, and said Secretary of State Rex Tillerson “ends up not being supported in a way that I would hope a Secretary of State would be supported.”

 

Their concerns echo those expressed increasingly in public by Republican lawmakers such as Senate Foreign Relations Committee Chairman Bob Corker ­(R-Tenn.), who has spoken of administration “chaos” and on Sunday described the White House under Trump as an “adult day care center” where the president’s behavior must be managed.

Frustrations and fears, building for months, have grown especially intense in the past few weeks following Trump’s bellicose taunting of North Korean leader Kim Jong Un and his apparent decision to decertify Iranian compliance with the international nuclear deal.

Although foreign diplomats are restrained by the nature of their jobs from speaking out about the policies and politics of their host governments, it is not unusual for them to trade tips and gossip in the early days of a new administration when information is in short supply and it is unclear which top officials have the most sway with the leader of the free world. But their perplexing dealings with the Trump administration have become an obsession of late for ambassadors.

“It’s always an undercurrent when we get together,” a third senior diplomat said. “We’re always asking each other, ‘Who do you deal with inside the administration?’ ‘How do you handle difficult situations?’

“When somebody actually sees Trump, people immediately flock around: ‘What did you see?’ ‘What did he say?’ ‘Was Ivanka there?’ . . . ‘What kind of look was on Kelly’s face?’ ” he said, referring to White House Chief of Staff John F. Kelly. It is, he said, a kind of Kremlinology.

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Secretary of State Rex Tillerson

Some diplomats choose to focus on the positive. Estonian Ambassador Lauri Lepik, whose country’s fears of a resurgent Russia on its eastern border are practically existential, praised Vice President Pence’s summer stop in his country. It helped reassure NATO allies after Trump, on an earlier trip to Brussels, failed to reaffirm the U.S. commitment to alliance mutual defense.

“That was a highly appreciated visit,” Lepik said. “The administration was engaged, and we were in constant contact.”

Others, some of whom had difficulty with the Obama administration, have found a new closeness with the United States. Saudi Arabia, after enduring President Barack Obama’s human rights criticism and policy objections, is now a favored Trump nation.

Newly arrived Hungarian Ambassador Laszlo Szabo, whose government hews to the nationalistic right, said bilateral trade “is improving nicely and constantly.” His prime minister, Viktor Orban, was the first European leader during last year’s U.S. campaign to say a Trump presidency would be better for Europe — a view widely derided by his European partners.

Afghanistan’s Ambassador Hamdullah Mohib, whose government was alarmed by the Obama administration’s unfulfilled plans to withdraw the vast majority of U.S. troops from the country, said he and his government had regular high-level access to senior Trump administration officials this summer as the debate over the war heated up. “I was at the White House on a daily basis,” he said.

The access did not always bring clarity, especially when it came to figuring out how competing fiefdoms operated inside the West Wing. In August, Afghanistan paid $120,000 for a three-month contract with the Sonoran Policy Group, a lobbying firm with close ties to the White House, to gain “a better understanding of how the inside of the Trump administration works,” Mohib said.

The majority of those interviewed were far more critical and said they would speak candidly only on the condition of anonymity.

Several spoke of the difficulty of determining where power lies within the administration and how decisions are made. “We are still not sure how the equilibrium in this administration is playing out in terms of who is responsible for what,” a senior European said. “Is it the White House? The State Department? Is Defense calling the shots? . . . I’m being clinically analytical, not chiding. This is the situation. We are guessing, sometimes.”

Things have gotten “a bit better” since Kelly’s arrival over the summer, a Latin American said. “At least with process, if not policy. It’s clear [Kelly] has influence. But Jared? McMaster? We don’t know if they’re in or out,” he said, referring to Trump adviser and son-in-law Jared Kushner and Lt. Gen. H.R. McMaster, Trump’s national security adviser.

Some try to posture in a way they think will appeal to Trump and those around him. South Korean President Moon Jae-in, a progressive pragmatist who visited Trump in the White House in June, “tried to sync with him, but it didn’t work,” said Joon Hyung Kim, a professor of international studies at Handong University.

“Moon is really a detail person, and he tried to explain things in detail” regarding defense and economic issues,” Kim said. “I don’t think Trump really liked that.”

“We want to trust Mattis and others,” he said, referring to Defense Secretary Jim Mattis, generally considered a moderate buffer for Trump, “but we’re not really sure if they’re 100 percent bulletproof.”

Many of those interviewed said they are often told by administration officials to ignore Trump’s tweets or undiplomatic remarks. They recognize it is a risky game.

“In the business sector, you can be very forceful in negotiations,” said a diplomat whose government has been on the receiving end of Trump’s tweets. “You call each other names all day, then you sit down and have a martini. In foreign policy, there are consequences to the name-calling. Damage is done.”

Some foreign diplomats have tried to work around the White House by forging closer relationships with the battered and shrinking Democratic and Republican foreign policy establishment in Congress. Another strategy, particularly on issues related to climate change and trade, has been to work directly with governors, avoiding Washington entirely, several foreign diplomats said.

Others said their leaders, in meetings with Trump, have had to decide whether to take on what one called the president’s “one-sentence, very blunt affirmations.” Asked to give an example, this official recalled a discussion of the Iran nuclear deal in which Trump asserted, as he has before, “Iran is allowed to build a bomb” as soon as the agreement expires.

European signatories to the Iran nuclear deal have given up on trying to change his mind, or to argue that the accord’s sunset provision does not give Tehran a pass to restart its nuclear program. Instead, they have directed their attention to persuading Congress not to legislate new sanctions on Iran.

A diplomat whose country has close and cordial relations and no obvious problems with the administration said his government is nonetheless exploring more extensive trade and diplomatic ties with Asia.

“At the beginning,” he said, Trump was “a fascination.” As the months have passed, he said, “all this perplexing noise from Washington, it becomes background noise. And the United States is a bit less important than before.”

Karen DeYoung is associate editor and senior national security correspondent for the Washington Post.

Follow @karendeyoung1

Greg Jaffe is a reporter on the national staff of The Washington Post, where he has been since March 2009. Previously, he covered the White House and the military for The Post.