Who fares best against Trump?

The Donald is, by his own estimation, a legendary deal-maker and negotiator.  Well, he does get (some) things done, and indeed sometimes gets his own way.  But how much of this is deal-making?  And how good are his deals?  His reputation in the New York real estate sector sucks is, errr, equivocal.

He's been in action quite a bit this year!  So there's something to score: and we can form an early view on his performance as a negotiator up against several prominent counterparties.  

vs China:  Trump is losing, hands down.  The Chinese are playing him like a fiddle, and he's steadily backing down on the tariff war, step by step.  Yet surely, by every standard of US foreign policy as espoused in the past decade by both his and the Democrat party, this is the only game that truly matters.  Sheesh... this really matters!  - did he think he could simply swat Xi aside one spring afternoon while he was mostly busy, errr, earning his Nobel Peace prize, annexing the whole North American land mass, remodelling the White House, peddling his crap merchandise, running feuds against everyone he's ever had a grievance against etc etc etc?

vs Russia:  jury still out, perhaps, but Putin won't be particularly disconcerted by their exchanges to date.  Relative to the extraordinary prior claims made by Trump ("peace in Ukraine in one day!"), and his huffing and puffing about "consequences", the current state of play is pretty demeaning for him.

vs Mexico and Canada:  given how things looked at the start of the whole tariffs round, OK-ish for M & C.  They've mostly stood their ground, and the world hasn't fallen down around their ears by any means.  Makes Trump's early rhetoric look pretty silly - and that's just on trade.  As for annexing Canada ... (I think we can hear the laughter from here - and Greenland probably isn't too worried just now, either.)  

vs India:  jury definitely still out, because India has options.  Trump has dealt his blow - but will he get any pleasure from what happens over the next months and years?  Not at all clear.  How clever is it to send Modi scuttling to Beijing, hmm?

vs Starmer:  surely, 2-1 to Trump.  Starmer has chosen to grovel, in return for some relative 'gains' (negatively defined, which is the only thing we can say) when compared to the EC, see below.  But it has suited Trump to give a little pat on the head to the biggest arse-licker, just pour encourager les autres.

vs the EC:  a seriously bad result for the EU, courtesy of the unelected EC which holds much of Europe's fate in their hands.  Feeble stuff.  A bit of a surprise, given how comprehensively the EC wiped the floor with Cameron and May.  But from this distance, that probably tells us more about them than it does about the EC.

vs Iran:  personally, I can't call this one yet.  Need to keep it in view: could tell us quite a lot.

Crazy man, crazy times.

ND

How troubled is China about Trump's tariffs?

I mean, really troubled -?  Obviously, China has done very well out of the pre-existing "free trade" regime (everything is relative).  Obviously, the CPC (a) talks a good fight, and will always counterpunch stoutly as a reflex; and (b) ultimately doesn't mind imposing suffering on its people, provided the cause is sufficiently important strategically.

Whatever: they seem to have come to the table.  Sometimes the calm, confident-sounding bellicosity is a face-saving reflex.  Then again, Trump changes his story every day or so to maintain the spin on the wobbly plate of his bizarre policy-making, and is pretty keen on saving his own, errr, tanned face.  And as neutral venues go, Switzerland looks a bit more of a western location than, say, Singapore or Dubai would have done.  So far, so convenient for Trump's spin.

That said, there are a couple of other straws in the wind.  Firstly, following Xi's appearance in Moscow - a priceless morale-boost for Putin, so we know where the balance of obligations should now lie - and to China's serious annoyance, Russian online media have been showcasing clips of a tic of Xi's: he was spotted in Moscow letting his head drop a bit to one side, seemingly an involuntary slump before bringing himself back upright again.  It's been bruited about that this may be a sign of stroke, etc, yadder yadder.  Well, maybe he was just bored stiff: people are always speculating about health and striving for clickbait opportunities ... but, hey, this is Xi, the sole arbiter of Putin's future, in Russia, being poked by Russian media.  

And what it there's a soupçon of truth in it?

I'd say, the Taiwanese better start trembling.  That man wants them in the bag before he goes.  In all the crazy circumstances, who could be utterly amazed to wake up one morning to a fait accompli in the East China Sea?  Tariffs or no tariffs.

ND

Epochal change in our economic situation

What are the epochal economic changes in my lifetime?  I'm no student of macroeconomics, as any reader here will know, so I don't have a ready list.  The rise of China comes first to mind, along with its concomitant, the (relative) de-industrialisation of the West, and its precursor, the collapse of (left-wing / doctrinal) communism.  The oil crises of the 1970s.  Economic migration towards the West and the suppression of labour costs.  And ... economic "neoliberalism"?  The period of the "great moderation"? - maybe.  The banking crisis 2007-09? - not really: what changed?  Any others people care to nominate?  [I'm not looking for lists of new technologies here.] 

Anyhow, now we have a serious new candidate: the Keynsian turn of Germany announced just days ago, which is probably just the cornerstone of the EU letting rip, as many in the EC and several member countries have wanted to for decades now.  So much latent borrowing power!  Assuming it actually happens as presaged, expenditure on weaponry (of course) but also infrastructure, stands to become a truly massive boom, with the added twist that there could be a strong strategic reluctance to outsource all this upsurge in manufacturing and construction to China.

The markets don't think it all looks so obviously great for the USA, either: are we seeing the turning-point in a 25-year bull run on the DJ, and maybe early suggestions of the USD going out of favour?  US recession, even, as the tariffs bite?  Nice one, Donald - though at least there will be plenty of ongoing demand for his natural gas.  

Writing as a non-economist, I'd say that the whole thing also sounds rather inflationary, too - for all of us.   The older I get, the gladder I am for my substantial inflation-hedge. 

What do we all reckon, at this critical juncture? 

ND

PS - did you notice the Irish offered themselves as part of the Macron/Starmer coalition of the willing?!  See, this is real ! 

How the Romans felt when Nero was emperor

Some pretty dire scenarios are easily envisaged, but it's anyone's guess now, on any geopolitical question you care to speculate on.  Has global politics ever hinged on pettiness and petulance to this degree?  Even remotely?  "well, checks and balances ..."   Really?

There is, at least, one thing we may be sure of:  Xi will be determined to make his move on Taiwan before November 2028. 

ND

While Trump & Putin deal bilaterally ...

It looks for all the world as though Trump, against all his self-vaunted reputation as a dealmaker, has rather publicly gone into bilaterals with Putin on a basis that may be designed to achieve something for "America First", but nothing whatever for Ukraine.  And maybe that's exactly the correct summary of the situation.

But even if he has, Putin has also made some capital errors in this process: he's wetting himself with such pleasure at being talked to again by someone other than China and NK, it's not clear he can help himself.

Just count his well-advertised desiderata:  I'm not sure which, if any, count as Red Lines, but just look at the list.

• Russia gets all of the oblasts of Crimea, Luhansk, Donetsk, Zaporizhzhia and Kherson (Kharkiv has sometimes featured on this list, and we know what he really wants is Odessa, for a free crack at Moldova and total blockade of Ukraine from the Black Sea)
• Ukraine to undergo regime change (we must assume he has a List of Names), and a programme of 'denazification' which is a long list of demands in itself
• Ukraine substantially to disarm
• NATO to withdraw from X, Y, Z (list varies), and deploy no forces whatever to Ukraine
• Ukraine never to be admitted to NATO (sometimes demand extends to EU) 
• end of all sanctions etc
• return of all assets (no doubt "+ interest" etc)
• end of all blacklistings, charges of war crimes etc etc
• return to the comity of nations in all dimensions, G8, sports, etc etc: (we may guess he has a list of specific showy performative demands to seal this)
• tickets to the Oscars, Wimbledon, Pope's funeral 
• I have probably forgotten a few

So: how many of these could Trump conceivably deliver?  (without at very least expending every last drop of personal credibility in the RoW, and US political capital with the EU.)

So Putin won't get all this (that's putting things mildly): so he risks looking like he's spent a helluva lot of blood and treasure for equivocal results.  May not go down well back in Moscow.

OR: he simply wants to set Trump at the throats of Europe.  Now that, he might achieve.  But not all of Trump's merry men are knaves or fools, by a long shot.  And not necessarily the bombastic, unequivocal, easily-understood 'victory' Putin would be hoping to celebrate in Red Square, even though it might be epoch-making in the long run.

This ain't over by Xmas. 

PS, I didn't miss the interesting BTL suggestion from Mr Cowshed that Trump wants to set Putin up against Xi.  Nice theory!  Even more difficult to imagine, though.

PPS:  Forgotten a few?  Didn't even mention return of the small Kursk salient held by Ukr since last August!

ND

Trump's trade war may give us a new data-point

Trump seems to have fired the first salvos of a new global trade war.  Does he imagine, as did Putin with his shooting war, that opponents will rapidly fold and it'll all be over in days or weeks?  Well, maybe.  But Colombia might not have set the pattern.

Old Pa Drew was in the international foodstuffs game and, having been a WW2 soldier in his time, brought me up to the slogan "trade is better than war": and I'm a free-trader.   Well, but it was never a cure-all, as I readily admit.

On the other side of the account, history records nations who viewed sea-faring merchant activity as the work of the devil, and sought to ban trading altogether.  Which is a debate we perennially return to here at C@W in rather more subtle form: what's the appropriate degree of dependency on trade, as opposed to national self sufficiency?  There's no scientific way of resolving this question, even though there are metrics one might try to deploy.  

In any event, some trade-dependencies are faut-de-mieux:  I was once posed a deliberately provocative question in a seminar by a Chinese energy economist, relating to Europe's dependency on cross-border electricity trade to keep our highly interconnected grids functioning: this was surely a major strategic weakness and a Very Bad Thing, she demanded.  I politely replied that, yes, sometimes import dependency can work against you, and that *ahem* some countries were dependent on imports for their oil ...

Anyhow: the rationale for trade is, of course, that it engenders efficiencies.  The Trump Trade War might just give us some hard data on just how costly are the inefficiencies his stymying of free-flow might bring about.

Then again, maybe everyone hastens to do his bidding...

Looking forward to hearing from some of you supporters of mercantilism and self-sufficiency out there.  (I'm caricaturing a bit, I know.)

ND  

DeepSeek: capitalism at its finest!

Trump is right that DeepSeek is a wakeup call.  For a very long time many on the capitalist side of the argument (including myself) have taken a degree of complacent comfort in the highly derivative nature of Chinese technology.  One of out BTL commenters even went so far as to say that reports of a Chinese stealth fighter couldn't possibly be true.  Of course, we've long noted the undeniable, gargantuan successes of China's mercantile strategy, but hey, that's how Japan, S.Korea and Taiwan joined the club. 

And now, DeepSeek!   Assuming it isn't a fake - and I think we may - it represents an all-time classic example of capitalism at its finest:  people with strong commercial motivation, creativity, and sufficient political freedom - highly qualified, but sufficient - to give rein to it;  and the innovations flow!

And of course in a frontier space like LLMs, random disruptions and breakthroughs are to be expected.  We just need to recognise that a western cultural backdrop is not the only fertile context.  

So 'wakeup call' is all we need to say.  Provided that those who hear it are not just the complacent, comatose denizens of Silicon Valley.  Now, what was it about that stealth fighter again?

ND

Does Trump know how to play Putin?

He's already winding him up mercilessly.  The context is that Putin's very substantial and prickly pride has been deeply wounded by being flatly ignored and personally banned by the entire western world for several years, and that his travel and international interlocutors are constrained to China, Iran, North Korea and, errr, back to China again.  He is absolutely desperate to be out on the World Leader circuit again, as fast as possible.  And in his optimistic moments his hopes are high.

Now, nationalist Russian sentiment is aggrieved - and is certain Putin is also angry - that Trump has failed to recognize with sufficient gratitude that Soviet Russia won WW2.  They say Putin will assuredly give Trump one of his "history-lesson" rants whenever they do finally get to talk.  He is given to rants of this kind: lengthy and rambling with a mind-numbing effect on audiences.  Nobody outside of the aforesaid China, Iran and N.Korea is trained to "listen attentively" to these things any more: the days of Fidel Castro at the podium are a distant memory.  

And in Trump, they have truly misread their man.

For all his gargantuan failings in many departments, Trump has a colossal amount of low cunning in the matter of personal encounters and human psychology.  Both he and Putin have made vast capital from their differing abilities in human engagement, so they both operate psychological theories of a kind.  But mano a mano?  When dealing with anyone other than meet-the-people walkabout audiences, Putin self-evidently relies on pure menace and intimidation - he even considers this a matter for pride and the TV cameras - a very Russian thing.  Look at the merciless, gleeful, premeditated way he literally set dogs on Angela Merkel, a well-known cynophobiac.  It'll be water off Trump's back: the man doesn't give a toss for such things (and probably won't even grant a face-to-face meeting).  But having already been baited, can we see anxious, urgent Putin going for everyone else's Plan A, viz abject flattery?  Really?

Both Putin and Trump are of course themselves the subjects of endless psychological analysis and speculation, professional and amateur.  But you know who can play them both?  Well, maybe Xi, who has the luxury of considering his chess-by-post moves very carefully, and never needs to make a move he's not totally comfortable with.  But Xi is unlikely to hold the key to restoring Li'l Volodya's fortunes in the Big World of Global Prestige.

The relevant answer is ... Zelensky.  If you've seen one or other of the lengthy TV documentaries on the man, you'll be in no doubt whatever that the little comedian / showman / war leader is absolutely masterful in his personal dealings - with whole crowds of foreign politicians as well as one-on-one encounters.  He, too, has had a very long time to ponder the arrival of Trump, but his conclusions and plans for this critical juncture will have been a lot more adroit than the twisted frettings of Putin.  I'd rate Zelensky's chances quite highly of making a bit of strategic hay over the next couple of months.

On the other hand I doubt very much that Putin's upside scenario  - Transactional Trump the famous isolationist, wants a quick PR win, and gives me everything I want - will play out anywhere other than in his most optimistic dreams.  The downside - still in the global naughty corner come summer, Ukrainian drones still falling nightly on my oil refineries, and another trip to Pyongyang in the diary - looks a lot more likely.  

And Zelensky will still have a ghastly, grinding war on his hands.  Perhaps with a few more weapons in the armoury, though.  And Xi will continue to sit there quietly at his own global chessboard, planning his Taiwan campaign.

ND

Miliband, China, & the feasibility of government plans

Last week Miliband published his risible "Clean Power 2030 Action Plan", piling on yet more nonsense atop the supposedly supportive NESO report of a couple of weeks ago which ostensibly provided cover for his & Starmer's disingenuous retreat from "100% decarbonisation by 2030" to "100% always meant 95%".  That's a lot of reading there, if you're so minded.  Don't expect much[1] intellectual consistency, though.

Anyhow, whatever target he finally declares to be what he really meant all along, one of Mili's ideas is for some kind of 'bonus' to encourage developers to use UK supply chains instead of, as at present, importing just about everything including the workforce.  I can report that would-be new renewables developers are all very keen to be given this bonus, in whatever shape or form it materialises - to the point where they are putting their plans on hold until they learn the details!  Unfortunately, even the fingers-crossed "endorsements" of Mili's breakneck 2030 timetable state that there isn't a nanosecond to be wasted (code for "it's impossible, matey") - so this new cause of delay (among very many one might list) could prove to be a pretext for yet another volte face.  Most likely, I guess, the ditching of the UK Supply Chain thing[2].  By way of support for this cynical view: FID has just been announced on Phase 1 of our very first Carbon Capture & Storage project[3] - and the developers have announced a "non-binding ambition" to source 60% of their stuff from UK supply chains.  How very amusing.

And of course the same goes for the building industry - in spades!  (see what I did there?)  1.5m new houses (sorry - homes: we now learn a significant % will be converted office blocks) cannot remotely be built with nothing but indigenous supply & labour.  Nor the building standards that so many activists believe they were promised would be imposed on housing developers - for energy efficiency / heat pumps / solar panels / disabled access etc etc.  There's another target ripe for downwards revision.

In amongst all this oh-so-cynical realism, we learn that in the New Year ... Mili is off to China!  - that well-known "developing country" (for COP purposes) which is the source of almost all solar panels and much else besides.  What, do we imagine, is the purpose of his mission?  To tell them they must locate their factories in Sunderland, & stop burning coal?  To lecture them on human rights?  To demand the return of Hong Kong?  To stop sending weapons components to Putin?  Do tell us, Ed - what will constitute success for your mission?  We only ask because we want to know.  

ND

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[1] I was about to say "any / whatsoever" there: but in fact there is a thin strand of consistency detectable.  Having not formally decided whether or not to extend the wretched Drax's baleful biomass subsidies beyond 2027, Miliband pays lip-service at least, to the possibility Drax stops generating thereafter.  Personally, I'd be very surprised if he held his nerve against the blatant subsidy-farmers at Drax - but this formal reserving of the position is at least a modest positive sign.  

[2] See, for example, the sad little story of the Vestas Isle of Wight turbine blade production / job losses.  How are those "650,000 good new jobs" shaping up, Ed?

[3] Obviously this announcement of "CCS" at Teesside came with a great fanfare.  Look closer, and you'll notice that its primary sponsors, BP and Equinor, are committing only to the new gas-fired power plant at this stage.  That's the low-hanging fruit, of course, and in any event, CCS or no CCS, is likely to have a role as part of Mili's "fleet of gas-fired back-up" which he now realises he always meant to retain.  We'll believe the commitment to the actual CCS aspects when we see it, Ed ...

Xi humiliates Starmer

I return from a trip last week to find two obviously connected headlines that don't seem to have been juxtaposed in the MSM. 

UK's Starmer Confronts Xi on Human Rights at G-20 (here) 

Hong Kong jails 45 pro-democracy activists 'for trying to overthrow city's government' in latest China-imposed crackdown (here)

China is obsessed by symbolism in such matters, and the timing won't be remotely coincidental.  Has anyone dared to tell Starmer that this can only be a calculated, deliberately humiliating slap in the face?  

And why has this obvious aspect not - so far as I can find - been reported on here?  Someone please correct me if I'm wrong about that, but as I say, I haven't found it.

ND 

UK nuclear madness

Always remember what we said here a very long time ago: the whole point of France's nuclear policy is to get other nations to underwrite their astronomical nuclear liabilities.

This is precisely à propos of Mr W's prompting BTL here (he'll kindly correct any details that need correcting) ...

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The Hinkley Point C / Sizewell C story so far:

When EDF (together with Centrica & later still the Chinese) acquired the old British Energy in 2008, they were immediately set on building more of their EPR design of nukes in the UK: HPC was nominated to be the first.  Recall that until after the 2005 GE, Blair was set against a nuke revival which he'd believed to be electoral anathema: but various voices** persuaded him it was a Good Idea.   EnSec at the time was of course ... Ed Miliband.  EDF had the effrontery to announce an HPC start-up date of 2017, and that it wouldn't require a penny-piece of subsidy - the latter line being official government policy up to and including the awful Chris Huhne (remember him?)  

Next milestone event was Fukushima 2011 which, to be fair, was outright force majeure and caused significant mods to be made to the design of the structure in which the EPR reactor would be housed.  OK, so the costs went up as a consequence.  But that was the last externality that EDF can truly be excused of: covid might just also creep in to the reckoning, but not inflation, their other bleat.

During the regime of Ed Davey - to be fair, egged on by that git George Osborne - suddenly EDF was going to get subsidised.  We have written about the awful HPC CfD contract many times here.  It has only one saving grace, on paper at least: project cost overruns are solely for the account of EDF / the Chinese (who've now buggered off) / Centrica.  But given the outrageous one-way changes subsequently made to the CfD in EDF's favour, at EDF's demand, even this is of little comfort.  The project overruns are horrendous; and we know EDF will hold a gun to HMG's head for outright cash subventions at some point.  (Personally I suspect this has already happened, disguised as SZC payments, see below.)

To repeat: once the Fukushima design changes were made, everything subsequently is down to EDF's monstrous incompetence.  EDF hints that UK regulators have kept tinkering unreasonably with new design demands, but remember: the CfD states that unless a new regulation could have reasonably been foreseen by EDF, the latter is indemnified against extra costs arising.  So we can put 'costly regulatory tinkering' out of our minds.

Fast-forward to SZC

EDF, of course, realised even before the ink was on the CfD (which they only signed because they thought Brexit would scupper the project altogether) that they couldn't carry out SZC on the terms explicitly for SZC itself that are actually contained in the HPC contract (i.e. for SZC as a put-option for EDF).  So they carefully played a lobbying game resulting in Boris agreeing to finance SZC on a US-style 'rate base' footing (i.e. underwritten directly by taxpayers) - and then, got HMG to stump up hard cash: a billion here, a couple more there ...  now the cash commitment has hit £11 bn of taxpayer money, rather than the usual 'stick it all on the electricity bill'.  AND - amazingly - although EDF has yet to take FID on SZC, the new reactor is already under construction in France, paid for by us.  FFS !  Talk about "too big to fail" ...

*   *   *   *   *  

So now we loop back to the very first line of this post.  Also, we should stew in the details of how badly in trouble HPC is, and how cash-strapped and liability-riddled EDF is in general; how much HMG needs French cooperation on the Boats issue; and the perennial suspicion the whole civil nuclear programme is there to underpin the military nukes ... and you have a recipe for an ongoing haemorrhage of taxpayers' cash that starts to look seriously injurious.  And in the middle of this, Miliband thinks he can get electricity bills down!

An appalling tale - egregious even by the standards of HMG cockups and nuclear age skullduggery.  I have nothing against nukes in principle: but in practice they just never add up.  If we wanted an SZC, let it be remembered that by far our best-performing nuke has been SZB.  We should have 'simply' (hah!) built an updated SZB. 

ND  

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** including one G.Brown, brother of whom worked for, errrr, EDF

General - if you follow the tags, you'll find loads more C@W posts on these topics.

Russian LNG exports scuppered. Eyes on China?

Russia has just suspended LNG exports from its Arctic LNG 2 gas terminal - indeed, it's suspended liquefaction.  Not a helpful state of affairs for Putin, when Russia obviously depends a great deal on sales of commodities (and, errr, of surface-to-air missiles - remind us, Ayatollah, how they are working out?**).  

This is being reported as a result of sanctions, as follows:  although it's possible to transload LNG at sea (from Russian vessels to non-sanctioned LNG carriers of other nations, e.g. UAE), LNG is many times more difficult to play games with than oil - which, frankly, you can transport in an old Coke bottle.  Their sanctions-busting games on LNG have run their course, and they are giving up.

Maybe.  But there's a counter-argument you'll hear.  It's actually a lot easier to offload at a regasification port, and then have the cargo re-loaded onto another vessel.  All that needs to happen, the argument runs, is for China (say) to offer this service for its usual modest fee.  This being the case, the shut-in must be for technical reasons, most likely to do with the shortage of LNG vessels capable of taking on icy waters.

I'd throw another complication in for good measure.  Russia is known to depend utterly on western technology for all manner of industrial purposes, some of which can't simply be rustled up by the Chinese (or Indians).  Oil- & gas-field tech is one such area.  For a relatively modern facility (i.e. not of solid old Soviet design) like and LNG liquefaction plant, I'd be wondering if they've run out of spares for something potentially quite basic.  

We see this phenomenon at work further downstream: see this recent post for a note on how Russia's oil infrastructure is suffering for want of a basic piece of kit like the non-return valve.

So even if the LNG shipping aspect isn't an insuperable problem, sanctions might still be biting in other ways.  How can they not - eventually?  That said: how long can Ukraine wait?  

ND

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** and, err, how they feel about having correspondingly less SAM cover in Crimea?

China, Korea, Russia, Ukraine: strategic mistakes all round

Start with Ukraine.  Zelenski's 'Victory Pan' of earlier this month is so off-beam, it simply serves to illustrate the impossibility of 'victory' by the standard of his stated war aims.  I won't waste space pointing out why.  Desperation stuff, ahead of the US election.

I fact, it's so off-beam, and he has often proved to be quite a subtle guy, I could even imagine that his real audience is internal - some truly unrealistic hard-liners.  Look guys, this is what it would take, right?  Now look carefully - do you seriously imagine any of this is going to happen??

Either that, or he's losing it (Heaven knows, he's been under monstrous pressure for a very long time) & it's a big mis-step.  Even the seasoned chess players in the Kremlin must initially have laughed out loud (- until they start thinking like I did above).

But then ...

... the North Korean thing**.  Could you imagine anything more calculated to swing the dial back the other way? - in several places around the world where it really matters.  And not just in political terms: Russia seriously doesn't want S.Korea becoming a material backer of Ukraine.  Or Japan.  More desperation stuff.

Why did China allow this to happen?  Is Xi really happy to have N.Korea as an outright proxy in such a tangible & risky way?  Or does he even have control on what Kim Wrong'Un does any more?  Have keen will China be to see Putin transfer missile technology to its rogue neighbour?  Even Lukashenko  is publicly breaking ranks on this one.

And how does this go down in Tehran?  The dimensions and angles are endless.

Trump will be in his element if he wins next month.  He just loves swirling, ambiguous situations, where his scope for crazy, unpredictable interventions is maximised.

ND

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** Every soldier there's ever been knows the feeling of being in a long line to get issued with ill-fitting kit in various shades of green.  It'll be "present you bare left arm for the needle" next.  Happy memories!

The Saudis and the 'Petrodollar Deal'

Several days ago, there were stories that a supposed US-Saudi deal had elapsed (at its 50th anniversary) with potentially earth-shattering consequences.  We said we'd take a look.

The 'deal' (as reported) was that the US would guarantee Saudi's security militarily in various ways, in return for the Kingdom only selling its oil in dollars, and reinvesting (most of?) those dollars in US government bonds.  This had the effect of propping up the dollar all these years, as nations globally were forced to buy dollars.  End the deal, end the dollar, was the implication.

Hmm.  Well, firstly I know nothing about macro-economics, so I'm always open to being corrected on some of these things.  (My state of macro ignorance has never held me back, since happily I've always found that micro competence is the way to make money.)

That said, here are a few thoughts.

• several well-informed commentators stated there never was such a deal !
• whether or not the doomsayers knew this (I thought everyone did, but maybe not), the US is about to sign a significant new defence pact with Saudi.**     We probably won't be given the full text ... but I can't imagine the US isn't getting more or less whatever it wants from this
• given that the whole world (not least, China) holds US Treasuries, who wants to crash the dollar anyway?
• the FX markets are just about the most liquid on the planet.  What difference does 'pricing in dollars' make?  (There's my macro ignorance showing - but seriously now, just tell us.  It isn't as if oil is priced in dollars at a fixed price, is it?)
• after many years as a net oil importer (indeed, net energy), since the shale revolution the US has been a net exporter.  That makes the world a rather different place to what it was 50, 30, 20 years ago, in ways that I'm sure the US Treasury is on top of
  

From time to time we hear guff about how China wants the whole world to switch to renminbi, or alternatively some devious crypto-currency of their devising.  Nothing much seems to happen.  Similarly Russia says that, Uncle Sam being a busted flush, it will now export its oil and gas in rubles, thank you very much.  The rest of the world waves them a cheery two fingers.  

The simple fact is that liquidity is liquidity.  Loads of countries announce from time to time that they are going to supplant this or that feature of the established (western-led) global order, but it rarely does them any good.  For many years the Russians have sought to develop a global market in "Urals Blend" crude oil in order to break the tyranny of Brent (i.e. UK / North Sea) pricing, but Brent it remains on the world market.  After Brexit, the EU toyed with the idea of relegating English to "just the language spoken by Malta": and the French fancied their hour had come!  Tough titty, frogs: English it remains, long after the English themselves have departed.  Liquidity is liquidity.

I have a very strong suspicion nothing much has changed between the US and Saudi this year.  At any event, the US dollar remains my hedge against a UK meltdown.  It served me very well during the financial crisis 2007-10.

Any views from those with a proper PPE degree?  

ND

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** Incidentally, within the USA itself there is a significant school of criticism of this deal, not least in military circles: "we don't need their oil, so why do we need them any more?"  Not too difficult to come up with answers to that question, though.

'We are in 1938': excellent weekend read

 

'Defence', you understand

... if you don't mind your weekend peace being rudely shattered.

From the Graun, of all places.

ND

The geo-politics of 2024: a seriously good read

Here's a seriously good offering by a heavyweight US historian of the geopolitics of the modern age.  We all have our amateur views on this stuff: but Zelikow is a professional, giving thought-provoking inputs from a range of telling 20th century precedents and parallels that I certainly wasn't familiar with and I'm guessing few others would be, either.  There are also some very basic history lessons the whole world should be taking  ... 

The Axis powers all ... hoped America would decide to stay in its hemisphere and mind its own business. They were not sure just when or whether they should do anything that would bring the United States into the war. Though each side started from a posture of basic hostility, they had to make new choices. The United States decided to arm Germany’s enemies. And it decided not to abandon beleaguered China ... Roosevelt did try hard to find an accommodation with Japan. His efforts in the first half of 1941 were entirely fruitless ... At all times Japan was prepared to negotiate about Indochina. It was even prepared to forego the great plans for the southward advance into resource-rich British and Dutch colonies. But Japan was not prepared to yield its domination of China ... Tokyo redoubled its efforts, diplomatically and militarily. The new government decided that it would either conclude a deal by the end of November - even a temporary one - or it would go to war. In this crunch time, the United States still would not write China off. This U.S. commitment to China was not well-understood at the time or by historians now. For Roosevelt, the commitment mainly arose from his complex calculations about the war in Europe - the need to keep the Soviet Union from collapse and therefore the need to keep Japanese troops tied down in China.   It is worth recalling today, as Russia and China confront the United States, that the proximate reason for America’s entry into World War II was its determination to save those two countries from extinction.  (my emphasis)

He feeds all the historical considerations into his analysis of today's situation for America (and Russia, China, Taiwan, Japan, Iran ...).   His lengthy conclusions start thus: 

I believe the anti-American partnership has probably decided to double down. They are probably preparing in earnest for a period of major confrontation. My view on this rests on my analysis of the history presented above as well as some key assessments of Moscow, Tehran, Beijing, and - to a lesser extent - Pyongyang. Xi and Putin regard themselves as world-historical men of destiny. They believe they are capable of decisive, strategic action. Xi ranks himself with Mao and Stalin. Putin evokes the memory of Peter the Great. In China, Russia, and Iran the information and decision environments are cloistered. In China, Russia, and Iran the propaganda ministries have already been preparing their populations for a time of war, great sacrifice, and existential struggle ...  I believe that some Iranians have now stored up so much resentment and hatred that they may be desperate to do almost anything to get at Israel. The North Korean intentions seem driven, but as opaque as usual. My working hypothesis is that they are preparing for a period of conflict and that they are wondering about possible opportunities to play an important role. In each capital there are arguments for retrenchment on one side and, on the other, for more militancy. The more militant factions have likely been arguing and speculating about ways to turn over the table. Beijing’s outlook is both the most important and the most difficult to assess, since its government has visibly sought a policy of “peaceful coexistence” with the United States. I think it is most likely that Beijing has assessed that the die has been cast for a period of escalating confrontation**.

Strongly recommended.  Incidentally, given the foregoing, the idea that appeasing Putin over Ukraine makes things better, or would have if we'd done it prior to 2022, seems to me a very odd one.

ND 

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**He has a very interesting view on China's most likely strategy for Taiwan

Trade war with China, hmm?

"The EU has restated its readiness to launch a trade war with China over imports of cheap electric cars, steel and cheap solar and wind technology, with Ursula von der Leyen saying the bloc will “not waver” from protecting industries and jobs after a meeting with the Chinese president, Xi Jinping, on his multi-day tour of Europe ...

If she's serious, the cost of (inter alia) net-zero programmes across Europe will go through the roof: and in principle at least, that's non-discretionary spending.  It'll be made all the more acute by the forthcoming Carbon Border Adjustment Mechanism.  I presume it would also be the final nail in the coffin of German exports to China.  And who'd have any euros left over for Ukraine?  It's quite a bluff, if that's what it is.

If she means it, well all I can say is: assuming the UK would somehow get swept up in this rather than being a lucky beneficiary of ramped-up Chinese dumping, then not for the first time in recent years, I will be very glad of my substantial hedge against inflation.  (No, not gold - that's against Bad News.)

Incidentally, you gotta smile at the nasty conference-hall-style chair Macron gave Xi at the Élysée.  That wobbly table looks rather egalitarian, too ...   He gave Trump a much nicer time.

ND

Iran / Israel: George Bush Snr's 1991 doctrine needed

Prisoners of Geography (Tim Marshall) is a well known, oft-quoted book on geopolitics.  It's really an A-level text - first-year university stuff at best.  I don't have a copy to hand.  But the weekend's news from the middle east brings one of Marshall's often quite blunt assessments to mind, which from memory runs roughly thus: 

A lot of people in middle eastern nations harbour vicious and irreconcilable hatreds against each other.  It's a typical mistake made by western folks, not to believe middle easterners when they say they hate someone, and what they intend to do about it.

OK, so we believe it: this whole matter is filled with irreconcilable hatreds, and people hell-bent on killing their neighbours.  And that these hatreds can spill out all over the place, not least the www.  So let's try to keep this thread strategic.

1) Looks like Netanyahu, in furtherance of his political / personal goals, has played Biden ruthlessly, successfully - and transparently.  Plenty of commentators saw a canny, US-suckering escalation coming.  Forewarned isn't always forearmed.  Still, Biden should have been able to do better than this for the furtherance of his own goals - not least of which is retaining independence of agency.  That said ...

2)  "Can the USA be relied upon any more to protect its friends then, eh?"  And indeed, can coordinated onslaughts of massed, mix-&-match missiles be defended against - by anyone?  Russia thought it had proven the answers were "no", and "no".  Well, there's a bit more to ponder now, on the part of the many people in the RoW who have been wondering about that.  Including ...      

3)  Taiwan and, errr, China.   Ah yes, China.  We read that, once again, the Chinese are "very interested" in what's going on in the middle east.  But, once again, just as in the case of their some-time client Libya, China's role seems to be that of a rather academically interested spectator.  When are they going to become that global great power they keep billing themselves as?  And it's back to the drawing board for that invasion of his own Xi keeps toying with.  ("One Iron Dome system, please, for the oriental gentleman to the north of the Philippines.") 

So, back to Netanyahu.  In 1991, Saddam Hussein launched a wave of Scuds on Israel (and Saudi).  George Bush Snr told Israel to stay its hand - which was just as well, because the pointy end of the  Israeli airforce had taken off moments before the first missile landed (we could detect Scuds at launch even in those days) and was in a holding pattern, waiting for the order to nuke Baghdad etc.  (You might like to refer back to my 30th anniversary account of this episode.) 

We all need "Ironclad" Biden** to dust off his history and make that call, firmly and credibly.  Is he up to it?  

ND

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**Wasn't that subtle of him, eh?  See, he does have some advisers with their heads screwed on.  They just seem to go missing at vital moments.

Aspects of Russia's war on Ukraine: (3) Germany

In times gone by Germany as a whole, and most German businessmen I have met, liked to come across as the grown-ups of Europe.  Oh, their worldly wisdom!  How I remember the condescending post-Brexit lectures on the imminent departure of the whole of the City of London for Frankfurt ... [1]

Well, it didn't seem to get them very far when the custard hit the fan.  Their two aces - being deeply in bed with Russia, and exporting like crazy to China, didn't turn out quite the bankers they had assumed when Putin played his own hand: cue breast-beating and hand-wringing.  So what happened next in Germany?  Well, lots of things but I'll highlight a few:

• A typically dynamic German practical response: massive shift towards LNG to replace NS1 / NS2 gas - long before 'someone' exercised the Semtex option
• Hugely accelerated efforts on a large-scale shift to hydrogen fuel as the supposed saviour of German manufacturing (no tangible results yet, though)
• Meaningful slump in said manufacturing sector (whether this is permanent 'demand destruction' is yet to be established) with baleful economic repercussions
• Promises (as yet unfulfilled) of much more defence spending and a full-scale reorientation of policy
• Lame & abject 'followerism' as regards military aid for Ukraine: truly, pathetically demeaning

And now, the 'intercepted military telephone discussion' of a couple of weeks back.  WTF?  Afterwards, Scholz had the gall to suggest that everyone still has complete trust in Germany as a secure & reliable military ally.  Errr, no.  Hasn't been any for years before this incident; even less (if that's possible) now.  They don't get a look-in on anything of importance.

In short, from having a plausible case for being the grown-ups of Europe, Germany now looks like the over-sized, know-nothing teenager sulking in its bedroom and defying calls to come down for the family outing.  What and how long it takes for Germans to throw off this current malaise is not something I have a detailed view on, except that nobody should ever underestimate their ultimate capacity for hard work and self-sacrifice, whether in a good cause or a bad one.  Doesn't look as though it will be in time to be of much assistance to Ukraine, though.  I suppose keeping out of the way isn't nothing, in the circumstances.  It may be the best that can be hoped for.

While we all wait to learn the outcome of this surely-temporary impasse, there's a question lingering in my mind: did Mutti realise what she was doing all those years of 'drawing Russia into the fold', and how misconceived it was?  Obviously, the German polity embraced her always-implausible policy wholesale: as Nietzsche said, " 'Credo quia absurdus est': that is what the German spirit wants" [2].

Merkel mostly keeps her peace on the matter, and we can see why; but early on, there were some hints at remorse (- unlike the shameless Schröder, only too happy to draw his enormous Russian stipend: historical, ocean-going, world-scale treachery).  She, remember, was a prize-winning Russian student: fluent in the language, in communism - and surely also in the Russian mentality?  I don't have a tenth of her first-hand experience of Russia; and for a westerner the 'Mysterious Russian Soul' takes a bit of adjusting to.  But I still reckon to have more insight than she seems to have deployed.  When you've been systematically exposed to all things Russian (including the bully Putin personally - the man who maliciously enjoyed literally setting the dogs on her) as long as she has, it's pretty weird to misread them quite as badly as she did.  I don't consider her guilty of Schröder-sin, so I can only assume her neuro-wiring is extremely well geared for language-learning but not for reading human beings.  It happens out there on the autism spectrum.

This post hasn't been much centred on Ukraine (for which apologies).  It was the Russian invasion that triggered Germany's present regression, of course - but we must surely assess there was a major fault-line in the coherence and wisdom of German geo-economic policy and overall statescraft that would have become manifest eventually, one way or another.  What are the likely consequences - e.g. for the EU?  For NATO?  The West vis-à-vis China?   Etc etc.  Very much open to any insights and perspectives on this massive and rather important topic - lots of you [2] know Germany well.

ND 

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[1]  Frankfurt?!  Have you ever been there?  Would your wife be willing to live there?  Would anyone ever visit you there?

[2] OK, this quote is a bit out of context but Nietzsche very much saw the Germans as being suckers for falling in behind a Grand Idea, whether or not having serious merit.  He blamed Bismarck for using his undoubted statesmanship and populism to build up "a monstrosity of imperial power"; and I don't think he'd have liked what Merkel did either. 

[3] Am greatly missing whatever would have been Mark Wadsworth's opinions on this: he thought widely & laterally, and was an excellent German speaker.

AEP on 'Green Boom': not quite the full picture

As oft-noted here, Evans-Pritchard is often amusingly contrarian with an interesting point to make; and equally often just plain bonkers.  His latest DTel offering - fresh from his triumphant insistence that Labour should stick to its £28 billion pledge, hoho - straddles both characterisations. 

This is the year the world’s green juggernaut becomes unstoppable - the greatest economic growth story since the industrial revolution has crossed a critical threshold

Well, we read what he writes and we know what he means: but caveats need to be entered.

1.  2024 isn't the year: it was 2018-19, as explained here several times.  This was the window in time through which shone the dazzling light of expenditure on adaptation / resilience to climate change being classified by the UN as "green", & therefore qualifying for government subsidy / underwriting etc.  At this point, every traditional steel-n-concrete industry and their bankers realised this Green thing really had something in it for them - road repairs, sea defences, flood protection measures, reservoirs etc etc.  At which point - and that's 5 years ago now, Ambrose - the switch was thrown.

(Not all Greens are big fans of this development.  For one thing, dosh for adaptation diverts funds away from what they'd prefer to be spending money on; and for another, it can be portrayed as having given up on outright prevention of climate change, which many of them still cling to.)  

2.  There's a renewal in oil & gas, too.  More than one thing can be true at once, in this complicated world of ours.  The big O&G companies - and not just the Aramcos, ADNOCs & Petronas's of this world; it's Exxon, Shell, Total, BP and Equinor, too - have tracked the spending on renewables, modelled its impact, and noticed that the green trajectory lauded by AEP isn't going to eliminate the need for oil & gas for a very long time yet to come - the tobacco industry phenomenon I've written about before.  It might have been just the NOCs, the Chinese, and the piratical energy traders who benefitted: but now the IOCs have started to reorient.  

So, quietly at first (except Total**: their buccaneering CEO is made of stronger stuff), they've started on strategies that will allow them to carry on with their traditional businesses, while maintaining at least some kind of green front.  An ostentatious readiness to get stuck into the 'S' bit of CCS is one such wheeze; a bit of renewable investment of their own is also in the mix (except for Exxon, which started thinking that maybe it didn't need to change after all, a couple of years ahead of the others).

I'm not sure how the stock markets will handle this, or the pension funds.  But be in no doubt, however the spoils are shared and the shares are held, there's a long-term viable business still there.

ND

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** This may have awkward consequences for Total, because it has been identified as #1 Bad Guy by the greens who are willing to go violent, and they plan to target it.