Tag: war

Memorial Day Thoughts

Benjamin Franklin said, “There never was a good war or a bad peace.” Given Franklin’s leadership in the struggle for American independence, we can infer that he did not think that there never was a war that was necessary, or a war that was worth its cost. But he reminds us that even necessary wars have terrible costs.

I thought about Franklin when I read an eloquent column on the meaning of Memorial Day by the novelist Mark Helprin, who is also a senior fellow at the Claremont Institute. He lamented:

Though if by and large we ignore the debt we owe to those who fell at Saratoga, Antietam, the Marne, the Pointe du Hoc, and a thousand other places and more, our lives and everything we value are the ledger in which it is indelibly recorded.

It’s a worthy sentiment, one heard frequently in Memorial Day addresses, and we do indeed owe our lives and our pursuit of happiness to the freedom that America’s soldiers have sometimes had to defend.

But I can’t help wondering: Have all of America’s wars have been necessary to American freedom? Helprin mentioned the Second Battle of the Marne, the great turning point of World War I and the first battle in which Americans started experiencing the enormous casualties that Europeans had been facing for nearly four years. The problem is that World War I was a catastrophe, a foolish and unnecessary war, a war of European potentates that both England and the United States could have stayed out of but that became indeed a World War, the Great War. In our own country, the war gave us economic planning, conscription, nationalization of the railroads, a sedition act, confiscatory income tax rates, and prohibition. Internationally, World War I and its conclusion led directly to the Bolshevik revolution, the rise of National Socialism, World War II, and the Cold War. World War I was the worst mistake of the 20th century, the mistake that set in motion all the tragedies of the century. The deaths of those who fell at the Marne are all the more tragic when we reflect that they did not in fact serve to protect our lives and all that we value.

Did the wars in Vietnam and Iraq protect American lives and liberties? In 2015 Republican presidential contender Jeb Bush said that discussing whether the Iraq war was a mistake “does a disservice to a lot of people who sacrificed a lot.” It’s understandable that an aspiring commander-in-chief would want to spare the feelings of those who lost a loved one in Iraq. But surely it’s more important that a commander-in-chief ask tough questions about when it’s advisable to go to war, a point voters should keep in mind over the next 18 months.

In my book The Libertarian Mind, I wrote about the effects of war: not just death on a large scale but the destruction of families, businesses, and civil society. And thus:

War cannot be avoided at all costs, but it should be avoided wherever possible. Proposals to involve the United States—or any government—in foreign conflict should be treated with great skepticism….We should understand the consequences of war for our entire social order and thus go to war only when absolutely necessary.

On this weekend we should mourn those who went to war, such as my father, who planned and participated in the liberation of Europe, and his brother who was lost off the coast of Normandy, and we should resolve not to risk American lives in the future except when our vital national interests are at stake.

The United States (Probably) Won’t Go to War with Iran

For weeks the Trump administration has been issuing warnings about increased attacks on US forces in Iraq and Syria by Iranian proxies. Recently the administration revealed that it has satellite imagery of what it says are Iranian paramilitary forces loading missiles onto a small boat. In response, the Pentagon recently presented national security adviser John Bolton and Trump’s national security team with an updated plan that would send 120,000 troops to the Middle East if Iran attacks American forces or ramps up its development of nuclear weapons. Though the plans apparently do not include a ground invasion of Iran, what scenarios they might encompass has not yet been revealed. Nor is it entirely clear what sort of Iranian action might trigger a response.

Considering John Bolton’s longstanding calls for a more confrontational approach to Iran and Trump’s desire to squeeze greater concessions from Iran through tougher sanctions and “maximum pressure,” tensions between the United State and Iran are certainly rising. As my colleague John Glaser has pointed out, it would be difficult to design a strategy more likely to lead to “accidental” conflict than the path the Trump administration is pursuing today. Thus, the question on everyone’s mind is: Will there be war? Though the risk is not zero, the smart bet – for now – is that there will not be war.

Though making predictions about complex political outcomes like war is fraught with peril, a reasonable approach is to start by asking two questions. First, how determined is the United States to start, or avoid, a war with Iran? Second, how determined is Iran to start, or avoid, a war with the United States? Though many other factors might be at work, such as what’s at stake for each country, the relative military capabilities of each, and so forth, most of those factors eventually get captured in those two questions. If either country desires war, war is coming. But even if neither seeks war, rising tensions, accidents, and the psychological dispositions of individual leaders could lead to war if both countries don’t take enough steps to avoid it.

So far news reporting suggests that the Trump administration has not yet decided on war, but the signals are certainly mixed. Trump himself has said that “we’re not looking to hurt anybody” and that “I’d like to see them call me” to continue talks. Even Iranian officials don’t think Trump wants war. Speaking on Face the Nation, Iranian foreign minister Javad Zarif said “We don’t believe that President Trump wants confrontation.” More generally, given Trump’s historical opposition to military intervention and nation building, it is hard to imagine Trump’s instincts guiding him to launch a war with Iran. After all, during the 2016 campaign Trump called the war in Iraq a horrible mistake, and a regime-change invasion of Iran would be a far bigger challenge.

Yes, Tariffs on Imports from China Are Taxes (Even When Absorbed by Business!)

Instead of entering what many anticipated would be the home stretch of negotiations to end the nearly yearlong trade war, U.S. tariffs on about $200 billion of imports from China are set to increase from 10 percent to 25 percent tomorrow morning. There is plenty of speculation as to what happened, who’s to blame, whether President Trump is engaging in negotiating tactics described in “The Art of the Deal,” and which economy is better situated to withstand a wider, longer trade war (as if a 10 percent economic contraction means victory if the other economy shrinks by 15 percent).

The most prominent explanation for the abrupt reversal is that U.S. negotiators learned that their Chinese interlocutors were backing away from previous commitments to resolve the forced technology transfer problem, which is one of the most important U.S. objectives in these talks. After mulling that development last weekend, Trump opted for escalation. He also promised that the balance of Chinese goods (another $250 billion of imports not yet tariffed) soon will be hit with rates of 25 percent, as well. In response, Beijing announced it will impose yet-to-be-specified countermeasures.

Interestingly, this week’s developments haven’t completely torpedoed the negotiations. A somewhat smaller (than originally planned) delegation of Chinese officials is in Washington for negotiations slated to begin at 5pm, which gives them exactly 7 hours to sort everything out before Trump’s higher tariffs take effect at the stroke of midnight. Don’t expect a comprehensive deal or even the contours of one to materialize, but with Chinese Vice Premier Liu He making the trip to Washington despite this latest upheaval, there is at least some hope that the actual tariff escalation will be deferred.

It turns out that the fine print in the Federal Register notice announcing the new rates states that products leaving China after 12:01, Friday, May 10, will be subject to the higher tariffs. It takes about two weeks for a cargo ship departing Shanghai to arrive in Long Beach, so negotiators really have seven hours, plus about two weeks, to reach a deal before Customs has to tax U.S. importers at the new, higher tariff rate. Of course, time is much shorter (seven hours plus about twelve hours!) for importers of high-value, fragile, and perishable products, which are typically transported by air.

As of this moment, the United States has punitive tariffs in place on approximately $250 billion of imports from China. Since last July, tariffs of 25 percent have been levied on imports that were valued collectively at about $50 billion in 2017. Nearly all of those goods are intermediate inputs or capital equipment—the purchases of U.S. producers. Trump advisor Peter Navarro was pleased to note at the time that, in selecting the products to target, he and colleagues used a special economic model to help them avoid burdening consumers by focusing on business purchases, as if businesses don’t pass their higher costs onto consumers in the form of higher prices or onto to their shareholders and workers in the form of lower profits. Thanks, Pete!

After Beijing retaliated, the Trump administration imposed 10 percent tariffs on an additional $200 billion of Chinese goods. This time, the majority of targeted products were consumer goods. It is this tranche of products for which tariffs are slated to increase to 25 percent at midnight. Makes one pine for the days when Navarro worried about consumers.

If matters aren’t resolved quickly, the likelihood is very high that all U.S. goods imports from China will be hit with tariffs of 25 percent.  Let me try to put that in some perspective.

In 2017 (before the punitive tariffs were in place), U.S. imports from China totaled $504 billion and duties paid to U.S. Customs amounted to $13.5 billion, which is an average applied tariff rate of 2.68 percent. Last year, when tariffs of 25 percent on $50 billion of Chinese goods were imposed in June and July, and additional tariffs of 10 percent on $200 billion of Chinese goods were imposed in late September, the value of imports from China totaled $543 billion and the duties collected came to $23 billion—an average applied tariff rate of 4.23 percent.  Nearly $10 billion of costs associated with the higher tariffs were imposed on consumers, businesses, shareholders, and employees.

It turns out that for many products Americans purchase from China, demand is fairly price inelastic. In other words, a one percent increase in price generates less than a one percent decline in quantity demanded. Total revenue rises. At least that is the case for broad swaths of products within the range of price increases attributable to the tariffs. Afterall, despite that tariffs, import value rose from $504 to $543 billion in 2018. Maybe there aren’t many substitute sources or the costs of finding substitutes and switching is too high relative to the tariffs.

A 25 percent across-the-board tariff could generate different effects. Demand may be more price elastic for more products at that price range. In other words, we will likely see a decline in import value from China if 25 percent tariffs are imposed. That means that the added costs directly attributable to the tariffs would not be 25 percent of $543 billion (the 2018 value), for example, because the value of imports will be lower. How much lower depends on these elasticities and other factors.  However, 25 percent of $543 billion is not an unreasonable, upper end estimate of the costs to U.S. consumers and businesses that would be attributable to a 25 percent across the board tariff. That’s $135 billion. That’s a cost of about $400 for every person in the United States. That’s a lot.

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Weighing Trump’s Trade Apologists

In the wake of the recent “trade agreement” between President Trump and EU Commission President Jean Claude Juncker, we have seen a surfeit of commentary heaping praise on the U.S. president for his strategic trade policy vision and tactical brilliance. Much of that praise has come from people who share the president’s flat-earth view that trade is a zero-sum game played by national governments where the objective is to promote exports, block imports, and secure a trade surplus. Trump throwing U.S. weight around to assert the rule of power over the rule of law is music to this crowd’s ears.

But then there are the apologists who know better; the enablers. They are the bigger problem. In their obsequious tones, they explain how our brilliant president is blazing his own path toward free trade and that the evidence of his success is all around us. If we just disregarded Trump’s nationalist rhetoric, ignored his belief that the trade deficit means the United States is getting ripped off, shoveled away his mounting pile of destructive, protectionist actions, and stopped believing our own lying eyes, we too would rejoice in the greatness of a man who is committed—above all else and above all others—to free trade. 

Engaging in such extreme mental contortions is no easy task, but that’s exactly what an op-ed by tax reform luminaries Steve Moore, Art Laffer, and Steve Forbes in the New York Times last week expects readers to do.

Moore, Laffer, and Forbes (MLF) portray Trump’s “gunboat diplomacy” (you open your markets fully or I’ll close ours!) as strategic genius, akin to Reagan’s nuclear arms race, which broke the Soviets’ backs.  They conclude: “Just as no one ever thought Mr. Reagan would stem nuclear proliferation, if Mr. Trump aggressively pursues this policy, he could build a legacy as the president who expanded world commerce and economic freedom by ending trade barriers rather than erecting them.” Well, yeah, maybe he could.  But so far Trump has only increased trade barriers, more are coming, and there are no negotiations underway—with anyone—aimed at lowering tariffs or other barriers to trade.  But just close your eyes and imagine.

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Why All Went Quiet on the Western Trade Front

Although many hailed last week’s “trade agreement” between President Trump and European Commission President Jean-Claude Juncker as an important achievement, it included no firm commitments to reduce tariffs, non-tariff barriers, or subsidies—or to do anything for that matter. The only agreement of substance was that new tariffs would not be imposed, while Washington and Brussels negotiated longer-term solutions to problems both real and imagined.

Those hungering for some good trade news might call that progress, but the only new tariffs that were under consideration (outside the exclusive domain of the president’s head) were those related to the Commerce Department’s investigation into the national security implications of automobile and auto parts imports. Of course, that investigation is still proceeding and there’s no reason to think Trump won’t leverage the threat of imposing auto tariffs to bend the outcome of those EU negotiations in his favor.

So what does Trump want? Trump seems committed to prosecuting a trade war with China and he expects the EU to have his back in that fight. Trump’s tariffs on $34 billion of Chinese products are scheduled to expand to $50 billion in early August and potentially to $250 billion in September. In a recent CNBC interview, Trump even threatened to subject all Chinese goods—more than $500 billion worth of imports in 2017—to additional tariffs.

For the first $34 billion, China has retaliated in kind, targeting mostly agricultural, aquaculture, and meat products. Beijing has pledged to go tit-for-tat throughout, even though its retaliation would have to take other forms—such as penalizing U.S. multinationals operating in China—because annual U.S. exports to China are in the neighborhood of only $130 billion.

The only real factor constraining Trump’s trade war is the potential that workers in red states will abandon the cause and turn on him. But so far, even as domestic production and employment are threatened as a consequence of the tariffs and the retaliation, Trump’s base still seems to be supporting his unorthodox, zero-sum approach to trade. Last month, a worker at Wisconsin’s Harley-Davidson facility, which will be downsizing as the company shifts production to Europe as a result of the EU’s retaliatory tariffs, said of Trump: “He wouldn’t do it unless it needed to be done, he’s a very smart businessman.” That worker and many others agree that the United States should be throwing its weight around to obtain a larger slice of the pie—even if that process ends up reducing the overall size of the pie.

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Arms Sales: Pouring Gas on the Fires of Conflict

Do arms sales cause war? Or do wars cause arms sales? Critics of arms sales often argue that selling weapons abroad fuels conflict. And indeed, one can point to one or more sides using American weapons in many recent conflicts including Syria, Yemen, and Iraq. Skeptics argue, on the other hand, that weapons don’t start the fire and that conflicts would arise whether or arms exporters like the United States sell weapons abroad.

The debate has important implications for foreign policy. If selling or transferring weapons abroad makes conflict more likely, or intensifies conflicts already in process, then the United States should rethink its long-held policy of selling weapons to pretty much any nation that wants them. If, on the other hand, arms sales have no impact on conflict or make conflict less likely, then the Trump administration’s intention of expanding arms sales should be seen as a positive move. 

As it turns out, several academic studies have looked at this question. The primary conclusion of these works is that although arms sales do not create conflicts out of thin air, they do make conflict more likely when the conditions for conflict are already present.

The basic logic behind this conclusion is fairly straightforward and has been noted in the academic literature for some time. In a 1998 article, “Arms Transfer Dependence and Foreign Policy Conflict,” David Kinsella argues that states that enjoy a steady flow of arms – especially from multiple countries – tend to pursue more aggressive foreign policies. The increase in the recipient’s military capability makes victory in a potential conflict more likely, which in turn raises the likelihood that the state will start disputes, demand concessions from its neighbors in those disputes, and to escalate to conflict if negotiations fail to produce the desired outcome. Using case studies from Israel, Egypt, Syria, Iran, Iraq, India, Pakistan, Ethiopia, and Somalia Kinsella finds that, when a country has more than one weapons supplier, arms sales drastically increase the chances of conflict.

In their 2002 article, “The Arms Trade and the Incidence of Political Violence in Sub-Saharan Africa, 1967-97,” Cassady Craft and Joseph Smaldone identify another mechanism by which arms sales can fuel conflict. They find that autocratic governments importing weapons are more likely to use those weapons to oppress/mistreat/kill their own citizens since they now have a greater coercive capability.

But despite the straightforward logic behind the arms sales/conflict connection, most work on the topic to date has relied on case studies, which are wonderful for highlighting potential causal mechanisms but not much use for establishing whether those mechanisms hold across the time and space. Until recently there had not been any work using statistical methods that would allow scholars to state with confidence which direction the causal mechanism actually flows – that is, do arms sales precede conflict or do impending conflicts lead to increased arms sales? Happily, the most recent article on arms sales by Oliver Pamp and his colleagues in the January 2018 issue of the Journal of Peace Research entitled, “The Build-Up of Coercive Capacities: Arms Imports and the Outbreak of Violent Intrastate Conflict,” uses a simultaneous equations model to overcome this problem. Looking at the relationship between arms sales and the outbreak of civil conflicts, the authors confirm the general thrust of previous research, concluding that:

“…while arms imports are not a genuine cause of intrastate conflicts, they significantly increase the probability of an onset in countries where conditions are notoriously conducive to conflict. In such situations, arms are not an effective deterrent but rather spark conflict escalation.”

This new confidence in the arms sales/conflict connection should compel serious revision to American arms sales policies. Since 2002 the United States has sold over $286 billion dollars of weapons to 167 countries. These exports have gone to numerous countries where the conditions were or remain ripe for conflict. U.S. arms transfers to an unstable Iraq preceded the emergence of the Islamic State, but wound up helping amplify the Islamic State’s military capability when it took vast quantities of American weapons from defeated Iraqi army units. U.S. arms sales over the past decade also helped prepare Saudi Arabia to launch its disastrous intervention in Yemen and enabled the Nigerian government to unleash more effective violence on its own citizens, just to list a few examples.

Academic research often gets a bad rap in policy making circles. In the case of arms sales and arms transfers, however, the scholarly literature has correctly pointed out the serious risks involved. If the United States is serious about preventing conflict and managing regional stability in trouble spots around the globe, it would do well to stop pouring gas on the fire.

This blog post was written with help from Jordan Cohen, a Ph.D. student in political science at the Schar School of Policy and Government at George Mason University.

A Trade Armistice in the Works?

President Trump set off another round of Twitter hyperventilation and financial market selling these past 18 hours with his latest threat to assess duties on another $200 billion of Chinese imports. What to make of this?

I see two (and only two) ways of looking at this. You can conclude that Trump is irrational, engaging in rhetoric and taking actions that are inconsistent with his goals, or you can see him as rational. You may not like his goals, but that doesn’t make him irrational.  And he may be rational, but that doesn’t mean he’s not misguided.  It seems to me, though, that if you think Trump’s irrational, then there’s not much use in trying to make heads or tails of the daily gyrations. There’s no basis, really, for offering much in the way of useful analysis of U.S. trade policy for the next couple of years.

I see Trump as rational, but deeply misguided. His unpredictability is risky and frustrating, but it’s also a staple of his governance. Unpredictability is the most predictable feature of this administration. But Trump’s goal is consistent and predictable.  Trump’s goal is to cut deals that make him look Herculaean. The deals he most covets are those that cast him as fixing the trade problem with China and fixing the “worst trade deal ever negotiated,” NAFTA.

From the outset, Trump set his sights on “fixing” the U.S. bilateral trade deficit with China.  Is that a worthwhile priority of trade policy?  Absolutely not. But Trump is convinced that reducing the deficit is priority number one.  He sees his high stakes engagement as worthwhile because he miscalculates the potential benefits and costs of his approach. I see the upside of Trump’s approach as offering potentially smallish benefits (getting China to do something that may benefit U.S. exporters), but the downside (a deleterious trade war that leaves the world in far worse shape) as severe and significant. My own approach would be far more risk-averse.

Trump wants the Chinese to buy more American goods and services.  On its face, this is a reasonable desire for a U.S. president to have.  But Trump wants the Chinese government to commit to purchasing more U.S. goods and services, somewhere in the neighborhood of $100 billion to $200 billion per year (which, of course, reinforces the fact that China’s economy is centrally directed, which is the basis for the legitimate problems in the economic relationship in the first place.) Threatened tariffs of 25 percent on $50 billion of imports from China, announced as result of a U.S. investigation into Chinese technology and IP practices, are Trump’s initial leverage in getting the Chinese to commit to more purchases. Beijing’s announced retaliation slightly negates that leverage, but then the administration cracked down on ZTE, the Chinese information and communications technology company that admittedly violated U.S. export control laws by selling certain products to Iran and North Korea, and was cut off from U.S. suppliers of semiconductors and other critical components.

The on-again-off-again-on-again sanctions seem to be conditioned on whether and to what extent Beijing commits to purchasing U.S. exports, and that decision now seems to be conditioned upon Trump granting a reprieve to ZTE. Trump has already given ZTE a reprieve on paper (with certain conditions and requirements), but Congress seems to have strenuous objections, and is considering an amendment to the defense authorization bill to prevent Trump’s reprieve from taking effect.

Trump’s latest threat to hit another $200 billion of Chinese products with tariffs is just as much a threat to Congress as it is to China.  Either the Chinese will relent and agree to purchase U.S. stuff (without need of reinstating ZTE) and the tariffs will be called off or Congress, fearing (more than Beijing does) a trade war that will take down U.S. manufacturing and agricultural interests and their representative in Washington, will relent on its legislative push to block ZTE.  Of course, relenting on ZTE while continuing to treat Canada, Mexico, the EU and other allies as national security threats (especially since that designation has resulted in those countries applying tariffs to U.S. agricultural and manfuacturing exports, too) isn’t going to sit well with Congress either. 

So, in order to fix these asymmetries and make Congress and U.S. allies whole (wholer, whole-ish): Congress abandons its legislation to block ZTE, which gets back in business (with conditions); the U.S.-China tariff war is called off; China signs purchasing orders for $100 billion to $200 billion of U.S. exports; the steel and aluminum tariffs on Canada, Mexico, and the EU are removed; and the NAFTA negotiations are restarted and concluded before the midterms. This gives Trump two major pyrrhic victories that will reinforce his greatness to his base.

Seems to me these are the only outcomes that could remotely explain (if not justify) the ride Trump is taking us on. I see it as misguided, but not irrational.

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