The case for tariffs in an unsettled world – Asia Times

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In the October 18 summary of the Wall Street Journal’s “Weekend Interview between the Journals’ editors and Donald Trump,” James Taranto notes disagreement about tariffs – the Journal editors being against them, as have been several recent op-eds including one by Phil Gramm and Donald Boudreaux published October 16.

Economics textbook models, assuming no military threats, no taxation, no volatile exchange rates and no restrictions on the movement of people across borders, show that whereas the introduction of tariffs improves the situation of a protected sector, the damage to the rest of society is greater than the benefit.

However, once we discard the assumptions, the case against tariffs disappears.

The Gramm and Boudreaux employment of 19th century data about the peaceful US to make the case against tariffs is irrelevant  now since that century (a.) was on the gold standard and (b.) was characterized by especially free movement of people, millions coming to the “swim or sink” US’s model of society at the time.      

These are not new observations. Adam Smith wrote similarly in his Wealth of Nations: Governments must impose tariffs “when some particular sort of industry is necessary for the defense of the country.” He thus justified the Navigation Act, which, among other restrictions, allowed only English ships to bring goods into England.

Another case “in which it will generally be advantageous to lay some burden upon foreign [countries] for the encouragement of domestic industry is when some tax is imposed at home upon the produce of the latter.  In this case, it seems reasonable that an equal tax should be imposed on the like produce of the former.”

Academic and nationalist jargons can distort these arguments and suggest that governments must then protect boot-makers, farmers and steel makers since the army needs boots, steel and food to march, fly and eat – patriotism used as a political tool to rationalize every tariffs. However, this reservation is just a reminder of being skeptical of all generalizations.      

Still, in his influential Capitalism and Freedom published in 1962, Milton Friedman wrote that “it would be far better to move to free trade unilaterally, as Britain did in the 19th century when it repealed the Corn Laws in 1846.” He believed that, but presented no evidence. What happened in Europe then was something different.

During the first half of the 19th century, France’s average tariffs stood at roughly 20%, whereas England’s was in the 50-65% range – yet the Industrial Revolution was taking place in England. France’s did not start until the second half of that century – and used British engineers to build the railways.

True, by 1850 English average tariffs dropped to the 25% range. However, Napoleon II’s promotion led to the 1860 Treaty of Commerce between France and England, following which the average level of tariffs dropped in both countries to the 10% range, other countries joining the treaty.

The coordinated drop came with other changes. Whereas England was under the gold standard since the early 18th century, by 1870 and until 1914, Europe and much of the world came to be on the gold standard, a period accompanied by relatively free movement of people and capital – not replicated since.

The1930s analyses of the impact of reducing the Smoot-Hawley tariffs are no better. They neglect the sequence of events preceding  the reduction. President Franklin Roosevelt confiscated gold in 1933, and promptly did a 59 percent devaluation of the dollar (in terms of gold).

Subsequently, in 1934, FDR got the unprecedented right to renegotiate trade agreements (the Congress delegating authority to the executive branch with the reciprocal trade agreement). Devaluation has impacts similar to tariffs. Both encourage domestic production (both at a cost – in an ideal world).  The devaluation diminished the American need of tariffs, and gave greater negotiating powers with European countries that did not devalue relative to gold (Britain and France).

None of these conditions exists these days, particularly the “sink or swim” feature. Floating exchange rates and heavy regulations on the movement of people have severe consequences. Tariffs – second bests – mitigate compounding mistaken exchange rate and other policies and atavistic models in the world.

Consider the impact of floating exchange rates. We negotiate prices of goods, services, longer-term contracts, financial ones in particular to ensure their purchasing power in global trade. The 19th century gold standard assured such stability. These days most contracts are priced in dollars or euros, which, however, fluctuate one relative to the other and relative to other currencies in the 50-100% or even more over short periods.

In the present floating exchange rates system, this volatility brought about the multi-trillion-dollar trade in notional derivatives, their main role being to approximate stable values of contract. Their use does not come cheap and requires deep financial domestic markets that most countries do not have.

In the countries lacking markets, companies’ access to financing becomes more expensive or even prohibitive, preventing them from growing – although these countries experience rapidly increasing young population. In an “ideal world,” capital would flow from aging societies to younger ones – as the former are savers, and the latter are the future. However, at present, the aging societies have the institutions that secure values of capital flows.

The younger, even well skilled cohorts in the developing countries, having limited access to capital, stay under-employed, under-paid and live under atavistic institutions, with limited options to migrate.

One consequence of immobilizing employees is have them produce goods and services at far lower prices than in Western welfare states, where employees pay taxes for sustaining their welfare model of society.  This is exactly the situation that Adam Smith considered exceptional as justifying tariffs.  Depending on the execution, and if combined with different migration policies, tariffs could not only protect the nation’s employees, but also be so structured as to attract investments and properly channel the migration flow.

Are such tariffs the “ideal” way to deal with the present global upheaval?

Are there better alternatives?  In principle, yes. On the horizon – no. 

An alternative would be to go back to clauses in the original Bretton Woods agreement to stabilize exchange rates.  During the negotiations, John Maynard Keynes worried that fixed exchange rates there would lead to chronic balance of payments problems, some countries experiencing constantly rising dollar reserves.  To sustain stable exchange rates, the latter countries had to “commit” to expand domestically and liberalize imports. To achieve such commitment, Keynes suggested penalizing these countries with prolonged trade surpluses, limiting purchases of their exports. This clause was never enforced.

In a recent WSJ op-ed, Greg Ip, though not mentioning exchange rates, paraphrases Michael Pettis offering a solution other than tariffs to achieve this: He writes that Pettis “believes that taxing surplus countries’ purchases of US assets would stop the inflow of their savings [and would] aid US-based manufacturers’ competitiveness and reduce the trade deficit.” Capital taxes “target surplus countries directly.”

The problem with this solution is that countries building up reserves pursue centralized models of society – while deepening financial markets by deploying savings domestically disperses power, which those in charge are reluctant to do.

Briefly: Western welfare states face now such centralized states, wherein dwell the majority of the (immobilized) youth (in the now 8 billion population, up from 1 billion a century ago) – a massively dis-equilibrated world. As of now, all these states pursue a mistaken exchange rate policy, too.

Tariffs – on the movement of people, too – are a way to mitigate the impact of this range of mistaken policies, putting pressures on the atavistic states to change their domestic policies.

This article draws on two books by Reuven Brenner, The Force of Finance: Triumph of the Capital Markets and History: The Human Gamble, and on his article “Toward a New Bretton Woods Agreement.”

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Prabowo’s big chance to be a global green leader – Asia Times

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Indonesia entered a bold new era with the October 20 inauguration of President Prabowo Subianto.

The leader’s ascent, rooted in a military career as a special forces commander, embodies a deep commitment to national sovereignty. But in a world where threats are as environmental as they are geopolitical, sovereignty must evolve beyond traditional defense.

So will Prabowo’s Indonesia, the world’s fourth-most populous nation and a vital maritime axis, merely drift with the currents of global change or will it seize the helm and steer toward more assertive environmental leadership and sustainable prosperity?

Indonesia’s vast archipelago loses an estimated US$4 billion annually due to illegal, unreported and unregulated (IUU) fishing, accounting for about 17% of global IUU fishing losses. It’s a crisis that depletes marine biodiversity and jeopardizes the livelihoods of over 2.6 million Indonesians in the fisheries sector.

As the nation’s maritime wealth is stolen, impinged on by illegal fishing boats including from China, the impacts are being felt in terms of economic potential and food security.

To reverse this tide, Indonesia must embrace advanced maritime surveillance and stringent enforcement, as demonstrated by Norway’s success in curbing illegal fishing. By adopting cutting-edge technologies like satellite monitoring and automated identification systems, Indonesia can reclaim control over its rich marine territories.

Strengthening legal frameworks and fostering regional cooperation through ASEAN will further amplify these efforts, positioning Indonesia as a guardian of marine resources and reinforcing sovereignty in a tangible way.

Simultaneously, Indonesia’s pursuit of economic growth through industrial downstreaming has transformed its abundant nickel reserves into a booming export industry. In 2015, Indonesia’s nickel exports were valued at only 45 trillion rupiah (US$2.9 billion).

However, following the implementation of downstream processing policies, the figure surged to 520 trillion rupiah ($33 billion) by 2023. This economic boon, however, has caused significant environmental risks.

Energy-intensive smelting processes, primarily powered by coal, contribute substantially to greenhouse gas emissions, undermining both global climate efforts and Indonesia’s own environmental sustainability.

Here, Indonesia faces a pivotal choice: continue on an environmentally unsustainable path or pivot toward a renewable energy revolution. The country has an estimated 400 gigawatts (GW) of technical potential for renewable-based power generation.

Solar alone could contribute half of this potential, while hydropower and geothermal could deliver up to 75 GW and 29 GW, respectively. Yet, renewables currently account for only 13% of the national energy mix.

By investing in renewable infrastructure and incentivizing clean energy integration in industrial processes, Indonesia could emulate China’s successful model of aligning economic growth with environmental stewardship.

To accelerate this transformation, Indonesia must adopt strategic policies such as feed-in tariffs, tax incentives for renewable projects and the gradual phasing out of fossil fuel subsidies.

To his credit, Subianto has said he plans to launch a green economy fund by selling carbon emission credits from projects such as rainforest preservation, aiming to raise $65 billion by 2028, one of his advisors told Reuters last month.

Establishing green industrial zones powered entirely by renewables could not only reduce carbon emissions but also attract global investors committed to sustainable practices. This shift will require confronting entrenched fossil fuel interests and mobilizing public support—a test of leadership that could ultimately define Prabowo’s legacy.

At the heart of this agenda is the imperative to improve the lives of all Indonesians. Sustainable development must be inclusive, ensuring that economic progress does not come at the expense of environmental integrity or social equity.

Engaging local communities in renewable energy projects can create jobs, reduce energy poverty and stimulate rural economies. Community-based initiatives, such as micro-hydropower plants and solar cooperatives, empower citizens and distribute the benefits of growth more equitably, fostering a sense of ownership and shared prosperity.

Indonesia’s strategic position grants it significant influence over regional stability and environmental stewardship. By championing sustainable practices and leading collaborative efforts to address climate change, Prabowo’s administration can elevate Indonesia’s global standing.

The choices made today are critical—not just for Indonesia but for an entire region grappling with the dual challenges of economic development and environmental degradation. Indonesia’s actions could set a precedent for others, amplifying its impact far beyond its borders.

President Prabowo’s inauguration represents more than a change in leadership; it is an opportunity to redefine Indonesia’s role in the 21st century.

By boldly integrating environmental sustainability with economic ambition, Indonesia can demonstrate that prosperity and ecological responsibility are not opposing forces but rather complementary goals.

The path forward will be challenging, but with decisive action and visionary leadership, Indonesia can transform potential into tangible progress. Prabowo has the opportunity to transform Indonesia into a beacon of sustainable development at the heart of Asia. And the time to act is now.

Setyo Budiantoro is a fellow at the IDEAS Global Program, Massachusetts Institute of Technology (MIT), and Nexus Strategist at The Prakarsa.

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Forget Gaza and Ukraine, East Asia’s brewing war will matter more – Asia Times

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MANILA–All major global powers are flexing muscles in East Asian waters, with the US, China and even Russia conducting major drills across the Western Pacific and Southeast Asia in recent days. While global attention focuses on the potential for a major conflagration in the Middle East, great powers are sleepwalking toward conflict in Asia.

Last week, the US destroyer USS Dewey (DDG-105) and Royal Australian Navy frigate HMAS Stuart (FFH153) conducted bilateral operations in the Strait of Malacca, a show of joint force in a crucial maritime chokepoint. China’s People’s Liberation Army Navy responded by deploying its Dongdiao class surveillance ships to the East and South China Sea.

Beyond naval deployments, Washington and Beijing have also been fortifying their military presence in the area. The US will likely retain the Typhon missile system in the Philippines for the foreseeable future after its controversial deployment ahead of the Balikatan annual exercises earlier this year.

A top US general publicly hailed the move as “incredibly important” to American regional strategy, namely the Biden administration’s aim to establish an arc of military alliances and missile defense systems across the Western Pacific in anticipation of a potential direct conflict with China.

For Beijing’s part, the Asian superpower is building its own network of stealth-penetrating radars in adjacent waters to counter American air superiority in the event of a contingency.

Once completed, the new facilities will “significantly increase China’s signals intercept and electronic warfare capabilities across the disputed Paracel Islands archipelago and add to a wider surveillance network spanning much of the South China Sea,” a report by the UK think tank Chatham House argues.

Although concentrated on Ukraine, Russia has also flexed its naval muscle and doubled down on its military diplomacy by conducting drills in Myanmar and, for the first time, Indonesia, where newly inaugurated President Prabowo Subianto is expected to adopt a more proactive and multi-aligned foreign policy.

To underscore its growing resolve, Southeast Asia’s largest nation also recently drove away a Chinese coast guard vessel entering Indonesia’s exclusive economic zone in the so-called North Natuna Sea.

Meanwhile, Vietnam, following a few short years of relatively calm ties with its northern neighbor, is also doubling down on its military footprint in the disputed waters.

To prepare for possible conflict with China in adjacent waters, the Southeast Asian dynamo is adding a new 1.5 kilometer to its sprawling network of military facilities across the South China Sea, where it controls up to 27 land features.

Decades of rapid economic growth and expanding trade have disincentivized any major conflict in Asia over the past quarter of a century. The last time two regional states came to blows was the bloody skirmishes between Vietnamese and Chinese troops in 1988 over the disputed Johnson South Reef in the South China Sea. 

Over the next three decades, however, China managed to build vast networks of influence and trade across the region, while also dramatically deepening its economic interdependence with the US and its key Asian allies of Japan, Australia and South Korea.

Today, Southeast Asia is the largest export destination for Chinese products, while China is a major investor and source of technology in much of the region. Bilateral trade between Beijing and major Western economies is also in the trillions of dollars annually, underscoring the depth of economic ties among all major players in the Indo-Pacific.

For the past three decades, almost all regional states, regardless of their political systems, have relied on economic performance for public legitimacy. But China’s rapid rise, America’s domestic and foreign policy troubles and intensified disputes across the Western Pacific have created a geopolitical tinderbox of unprecedented magnitude involving multiple major powers and the world’s biggest and most dynamic economies.

The Biden administration has relied on an “integrated deterrence” strategy, which seeks to leverage its vast network of alliances in the region to constrain China’s assertiveness. Accordingly, it has also expanded joint drills with key regional allies such as Australia.

“Every time we operate together, we strengthen our capabilities and shared commitment to a free and open Indo-Pacific,” US Vice Admiral Fred Kacher, commander of the US 7th Fleet, said in a statement following the latest US-Australia drills reaching from Taiwan Straits to the Malacca Straits. “This exercise further builds on our existing interoperability and combined readiness we have with the Royal Australian Navy,” he added.

For China, however, these exercises are both provocative and an impetus for further enhancing its own military presence in disputed areas. The PLA-Navy’s Dongdiao-class surveillance ship Tianshuxing (795) was sighted last week just 62 miles west of the island of Amami Oshima of Japan before heading for the Philippine Sea in the Western Pacific.

Chinese Liaoning Carrier Strike Group, meanwhile, reportedly sailed north through the Taiwan Strait.

China is also preparing for high-tech warfare by strengthening its electronic war capacity. According to the Chatham House report, China is building new stealth-penetrating radar systems based on satellite imagery that show distinctive hexagonal grouping of SIAR synthetic impulse and aperture radar) poles, a control tower and several mobile missile staging pads on the Triton Island in the disputed Paracel Islands archipelago

According to the Chatham House report, “Once completed, the radar on Triton will form what is believed to be a wider network of at least three overlapping counter-stealth radars built across Chinese bases in the South China Sea over the past decade.”

China seems to be reacting to growing American combat stealth aircraft deployments across the region, including F-22 Raptor stealth fighters, B-2 Spirit stealth bombers, and F-35 stealth fighters.

Earlier this year, the US Air Force deployed as many as 186 F-22s to participate in Australia’s major Pitch Black international air combat exercise. American stealth fighters – both F22s and F-35s – have also visited Singapore, Indonesia (Bali), Brunei, Thailand and the Philippines.

US Pacific Air Forces commander Kevin Schneider said the fighters’ rising presence in the South China Sea is a reflection of the “growing understanding and awareness of the threat posed by Beijing in their illegal, coercive, aggressive, and deceptive activities.”

He claimed there is a “greater desire [of our regional partners] to do more and a willingness to allow us to transit airplanes through their locations, their willingness to expand exercises to be perhaps more realistic for the threat environments that we face.”

Meanwhile, a Russia Navy surface action group consisting of corvettes, consisting of RFS Hero of the Russian Federation Aldar Tsydenzhapov (339), RFS Rezkiy (343) and RFS Gromkiy (335) recently conducted joint drills with Myanmar counterparts in the Indian Ocean.

“The main objective of the exercise is to comprehensively develop and strengthen naval cooperation between the countries, jointly counter global threats and ensure the safety of civilian shipping in the Asia-Pacific region,” Russia said in a joint statement.

In coming weeks, the Russia Navy contingent will join Indonesian counterparts in Surabaya, Java, for the Orruda 2024 exercises. Under the newly installed Prabowo administration, Indonesia is expected to adopt an Indian-style assertive and multi-aligned foreign policy vis-à-vis all major powers.

“The China Coast Guard-5402 (CCG-5402) re-entered the Indonesian jurisdiction on Friday,” Indonesia’s Maritime Security Agency said in a statement issued on October 26 after repelling a Chinese coast guard vessel intruding into Indonesian waters at the southern edge of the South China Sea.

“Indonesia has a sovereign right to explore the natural resource in that area and that cannot be disturbed by any country,” the Indonesia maritime agency said in a statement.

Neighboring Vietnam, in turn, is also expected to adopt an increasingly assertive stance amid ongoing disputes with China in disputed waters. Last month, several Vietnamese fishermen were severely beaten and injured after being apprehended by Chinese authorities in the disputed Paracel Islands.

Vietnam condemned China and “demanded that Beijing respect its sovereignty in the Paracel Islands, launch an investigation and provide it with information about the attack.” Far from confined to diplomatic protests, Vietnam is quietly preparing for military contingencies by building what could be its largest airstrip in the disputed South China Sea.

Since 2021, Vietnam has dramatically enhanced its military presence on the Barque Canada reef, which could soon host a modern airstrip that could extend as long as three kilometers in coming years amid rapid reconstruction.

“The new airstrip will considerably expand Vietnam’s maritime patrol capabilities as the existing runway on Spratly Island is too short for larger aircraft,” said Gregory Poling, director of the Asia Maritime Transparency Initiative at the Washington-based Center for Strategic and International Studies think tank, told the media.

Follow Richard Javad Heydarian on X at @Richeydarian

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Letter to Trump: make peace and rebuild America’s industrial base – Asia Times

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This article first appeared on The American Mind, a publication of the Claremount Institute think tank, and is republished with permission.

Dear President Trump:

Congratulations on your November election victory. President Joe Biden and Vice President Kamala Harris have left you with a strategic disaster and a fragile economy, but you have put forward a program to keep the peace and restore economic growth. Here are some ideas that may help in your efforts, followed by more specific proposals:

  • Inflation is closer to 8% than the official “3%” after figuring in higher interest costs to consumers. Biden started this inflation by running record budget deficits and the Federal Reserve made it worse by increasing the interest burden on consumers. You must educate the American public on this reality and get the right people in place to fix it.
  • The federal budget deficit is 6.4% of GDP, “larger than any deficit in records going back to 1930 except the years around World War II, the 2008 financial crisis, and the pandemic,” according to the Tax Foundation. Federal interest costs have doubled and now cost as much as defense. Get people on the Fed board who understand your economic agenda.
  • Our woke education system is a disaster and has betrayed working-class kids. We can’t fill skilled jobs in manufacturing because high school graduates lack basic math skills. In the short term, state community college systems and work-study apprenticeship programs can help. Create a federal-state initiative for public-private partnerships in manufacturing skills, and ask Governor Ron DeSantis to head it.
  • Vice President-elect J D Vance offered a workable peace plan in September to end the Russo-Ukrainian war. Give him a big role in handling the Ukraine problem. Leftovers from the foreign policy establishment in your first administration did nothing but sandbag you. Don’t listen to them and put a smart outsider in charge instead.
  • The US military-industrial complex is a hopeless morass of corruption and incompetence that can’t make enough artillery shells to supply Ukraine, let alone enough submarines. Bypass the Pentagon brass and the defense contractors and choose a secretary of defense who understands new defense technologies.
  • Your proposal to put high tariffs on Chinese EV imports but allow Chinese companies to build plants in the US is brilliant—and very much like Ronald Reagan’s response to Japanese auto imports in the 1980s.

An America First Economic Policy

Biden and Harris left you with record debts and deficits, and a dangerous household debt burden. Their reckless spending on handouts to their favored constituencies caused this inflation, not monetary policy, as David Malpass observed.

The Federal Reserve kept interest rates too low for too long and then raised them too much. Former Treasury Secretary Lawrence Summers showed that the real inflation rate is double the official number after including higher interest rates. Ask him to help the Bureau of Labor Statistics publish the real inflation rate.

You need a stable monetary policy instead of the Fed’s boom-and-bust whipsaw. Put people on the Federal Reserve Board who understand how monetary policy actually works instead of the ideologues who run the Fed today.

The biggest obstacle to industrial revival is the lack of skilled labor, thanks to the liberals who control US education. Summon the CEOs of our biggest manufacturing companies, and they’ll tell you the same thing: less than a quarter of US high school students are proficient in math. That puts high-end jobs in computer-controlled manufacturing out of their reach.

We can fix the problem by enlisting state community college systems in partnership with corporations. Florida already has the ball rolling. Ask Governor Ron DeSantis to head an emergency effort to train skilled workers.

For the first time in American history, America imports more capital goods than we produce for domestic consumption. The downside of tariffs is that they will increase costs for manufacturers who rely on foreign inputs, and domestic substitutes will take time and money to provide. You might propose a tariff rebate for American manufacturers who buy Chinese capital goods to expand production in the US.

The tax system is rigged against capital-intensive investment, raising the after-tax cost of capital for manufacturing. America’s stock of manufacturing equipment hasn’t risen in 20 years according to the Federal Reserve.

To return to a long-term growth trend, we need about $1 trillion in capital spending. GOP leaders in Congress should propose emergency legislation to allow immediate tax write-offs of capital equipment.

The 2017 corporate tax cut, which increased the number of years required to expense capital equipment, should be revised to allow immediate expensing of capital equipment. That may be a bigger stimulus for domestic manufacturing than tariffs.

Countering the National Security Establishment

You outraged the foreign policy swamp when you denounced endless wars, and they spent four years trying to remove you from office. The swamp bet the farm on endless war in Ukraine, and your refusal to play along makes you their irreconcilable enemy.

Don’t underestimate how determined they are to stop you. You hired establishment types in your first administration and had cause to regret it every time. Now, there’s no room for compromise with the swamp.

The Deep State entrapped your first National Security Adviser, General Mike Flynn, and his successors H R McMaster and John Bolton repaid your trust by turning on you. You can’t trust the failed, feckless foreign policy establishment.

It knows nothing but forever wars and meddling in other countries’ affairs. The problem is that the establishment has controlled promotion in government service and academia for three generations, so any candidate with a big resume got it the wrong way.

Vance may not have a lot of foreign policy experience, but common sense is a better qualification than years of pushing incompetent policies. Ask Victor Davis Hanson to run foreign policy and national security recruitment for the transition team.

And continue to seek the advice of Hungary’s Prime Minister Viktor Orban, your strongest supporter overseas and the smartest politician in Europe. Vance’s plan to end the war in Ukraine—establishing a ceasefire, a buffer zone, and Ukrainian neutrality—will do the job.

David Friedman did a brilliant job crafting the Abraham Accords as Ambassador to Israel in your first term. Persuade him to return to the job. The Biden administration treats Saudi Arabia like a pariah and cozies up to Qatar, the host and paymaster to Hamas.

That’s an outrage, especially after the October 7, 2023 massacre. Reach out to the Saudis and the UAE. Otherwise, US influence in the region may dissolve in the face of China’s diplomatic initiatives.

You rightly proposed a missile shield to protect the United States. Reviving Reagan’s Strategic Defense Initiative is the best defense policy anyone has put forward in years.

You will get bad advice from the uniforms. They wasted trillions building the wrong kind of military and will try to justify their previous blunders by demanding more of the same. We don’t need nearly a quarter million troops deployed overseas.

The Navy’s expeditionary forces are obsolete. Surface ships are sitting ducks for anti-ship missiles—and China has thousands of them. Meanwhile, our depleted industrial base can barely build one submarine a year.

The Pentagon brass will feed you phony scenarios to justify more obsolete legacy systems. Hire experts who see through flummery like Air Force officer and Stanford Professor Oriana Skylar Mastro.

You can’t trust the US Intelligence Community. Fifty-one senior intelligence officials signed a statement in 2020 claiming that the Hunter Biden laptop story was a Russian hoax. That might have cost you the election. Their appointees hold all the senior jobs today.

Seventy percent of the US intel budget goes to private contractors, opening the system to cronyism and corruption. It will take years to clean up this mess. In the meantime, create a “Team B,” a small group of people you can trust at the National Security Council to keep you informed on world affairs and double-check the CIA’s daily briefing.

Don’t trust the “process people” at the White House. Your Deputy Chief of Staff Chris Liddell told a Republican luncheon not long ago that by picking the people who would attend meetings at the Oval Office and assigning their roles, he could predetermine your decisions 90% of the time. Bring in outsiders who work for you, not the swamp.

We’re in a situation like 1973, when Soviet air defense ruled the skies. In less than ten years we invented smart warfare, turned the tables on Russia, and began winning the Cold War. We invented the Digital Age as a byproduct of our revolution in defense technology.

Don’t put a flag officer or defense contractor lobbyist in charge of the Pentagon. Appoint a defense secretary with deep knowledge of new military technologies, someone like Michael Griffin, your Under Secretary of Defense for Research and Engineering and the former head of NASA.

Under fiscal constraints, we can’t expand defense spending across the board. Focus on missile defense for the American homeland and American military assets. Cut legacy spending on forever wars, like the 230,000 US troops deployed overseas, and legacy systems like aircraft carriers.

Your first two defense secretaries came respectively from the Marines and the defense industry—and both of them tried to stop you from winning in 2024. You would be better served by a scientist who understands high tech in defense of the American homeland. Chips for defense and critical infrastructure should be produced at home under secure conditions.

Biden’s CHIPS Act is a disaster. It gave $8.5 billion to Intel just before it laid off 10% of its workforce. Worst of all, it left out R&D for chips based on new technologies. We’ve played Whack-a-Mole with China’s chip industry for five years. The battle for semiconductor dominance will be won by chips using interaction at the molecular or atomic level, with speeds orders of magnitude faster than silicon.

Finally, the swamp bet the future of NATO on the Ukraine misadventure. That disaster will cripple, if not destroy, NATO in its present form.

How to Deal with China

We’ve spent $7 trillion on forever wars. China spent $1 trillion on its Belt and Road Initiative. We lost influence and power, whereas China gained both. China’s exports to the US, Europe, and Japan are stagnating, but its exports to the Global South have doubled since you left office. China now exports more to the Global South than to all developed markets combined.

A lot of Chinese exports to the Global South are indirect exports to the US: China builds, plans, and ships components to Vietnam, India, and Mexico, and they export in turn to the US. This translates into a jump in Chinese influence in Asia, Europe, the Middle East, and Latin America, and more US dependence on Chinese supply chains.

China is gaining on us. At best, sanctions on exports of US technology to China buy time. At worst, they will backfire: Instead of keeping China dependent on our products, we have handed Chinese companies a captive domestic market for legacy chips and chip-making equipment.

We beat Russia in the Cold War by inventing the Digital Age, using NASA and the defense budget to drive breakthroughs in new technologies. We can innovate better than China. But federal support for R&D under Reagan was double its present level as a percent of GDP.

That’s why it’s critical to shift the defense budget to support new technology. To take only one example: We can’t out-produce China in missiles. The best response to China’s huge force of anti-ship missiles is directed-energy weapons (for example, lasers). But the Pentagon R&D budget for these new weapons is less than $800 million a year, or the cost of ten fighter planes.

We want to maintain the status quo over Taiwan. China won’t risk using force as long as Taiwan doesn’t move toward independence. With thousands of anti-ship missiles and hundreds of 5th-generation aircraft, China already outguns us in the South China Sea. To keep the balance of power, we need new anti-missile technology—not more sitting ducks in the form of surface ships.

Act at once on your proposal to combine steep tariffs on Chinese EV imports with an invitation to Chinese companies to build plants in the US. As Elon Musk well knows, China has a big lead in industrial automation, including AI applications and 5G communications.

Xiaomi just opened a fully automated plant that can turn out 1,000 cars a day. No US company can make an EV with a sticker price under $10,000 like BYD’s Seagull. It’s like the 1980s when Japanese automakers had better technology than Detroit. Forcing the Japanese to build plants here helped the U.S. auto industry get up to speed.

Just as we did during the Cold War, we need to harness America’s unique capacity for innovation to renew our industrial base. And if you can guide us there, Mr. President, your second administration will be remembered as a turning point in American history.

David P Goldman is deputy editor of Asia Times, a Washington fellow of the Claremont Institute and a senior writer for Law & Liberty.

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BRICS isn’t de-dollarizing anytime soon – Asia Times

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BRICS Summit host Russian President Vladimir Putin disappointed both anti-colonial enthusiasts and Western alarmists last week by conceding that the bloc’s members “have not built and are not” building a payment system to challenge the US dollar-based global banking system.

The leaders of the two economic giants present at the summit, China’s Xi Jinping and India’s Narendra Modi, did not mention alternative payment arrangements in their respective remarks.

The technical requirements for alternative payment systems aren’t the problem. The SWIFT system that controls interbank payments in dollars and other major Western currencies merely transmits secure messages.

The challenge, rather, is economic: US demand for imports fuels an outsized portion of economic growth in the Global South. China’s exports to the US amount to just 2.3% of its GDP, but about half of its surge in exports to the Global South since 2020 depends on re-exports to the United States.

While China’s exports to the Global South more than doubled from about US$60 billion a month to $140 billion a month, US imports from the Global South rose from about $60 billion a month to $100 billion a month during the past four years.

Graphic: Asia Times

Dependence on the US market varies widely across the universe of developing countries. Vietnam and Mexico, the two favorite venues for so-called “friend-shoring,” that is, transferring production away from China to putatively friendlier countries, registered big increases in exports to the US as a share of GDP.

Vietnam’s exports to the US in 2023 amounted to about 27% of the country’s GDP, compared to just 10% in 2020, while Mexico’s US exports rose to 27% of GDP in 2023 from 20% in 2010.

Graphic: Asia Times

Singapore and Malaysia, by contrast, showed little increase in US exports as a share of GDP. Indonesia and Brazil export comparatively little to the United States.

Some Asian countries, notably Malaysia and Thailand, export more than 60% of their GDP, mainly to other Asian countries. Brazil, Indonesia and China are far less export-dependent.

Today, China exports just 19% of its GDP compared to 27% in 2010, which means that an increasing share of GDP growth depends on domestic consumption and investment.

Graphic: Asia Times

What makes the United States such an important factor in the economies of the Global South is its enormous current account deficit. The table below ranks the current account surpluses and deficits of the 20 largest economies from the largest deficit to the largest surplus.

With a current account deficit of $80 billion a month, or $1 trillion a year, the US appetite for an excess of imports over exports dwarfs the rest of the world.

Graphic: Asia Times

China is the largest or second-largest economy in the world, depending on whether we count GDP in US dollars or adjust for purchasing power parity, but China’s imports from the Global South have been stagnant for three years.

Graphic: Asia Times

China won’t replace much of American import demand for the time being, given Beijing’s focus on high-tech investment rather than consumer demand. At the margin, that leaves the Global South all the more dependent on the US.

Projecting current trends into the future suggests a steady rise in consumer spending in the Global South, especially in East Asia, and the emergence of robust domestic markets and less dependence on exports.

Below is a chart published by the Brookings Institution think tank last year, projecting that the total consumer market in East Asia will overtake the US consumer market by 2028.

Graphic: Asia Times

Developing countries, though, don’t pay their bills on projections. Arranging payments for goods in international trade is a trivial issue. More challenging is financing long-term deficits.

India, for example, used to run an annual trade deficit with Russia of less than $3 billion. Discounted Russian oil sales to India after the start of the Ukraine war boosted this to more than $60 billion.

What will Russia do with the Indian rupee equivalent of $60 billion? It would far prefer to have another currency, for example, the UAE dirham, that can be used to buy goods in third markets.

The Global South doesn’t yet have the capital markets or the currency stability to convince a surplus trading country to simply hold assets of the deficit country in exchange for goods.

That is what the United States does so well: Its $18 trillion negative net foreign asset position corresponds to the last 30 years’ cumulative current account deficits.

America sells assets to foreigners in return for their goods. The Global South doesn’t have the assets to sell, or at least not in the form that the rest of the world would like to own.

That helps explain why the BRICS Summit’s final declaration relegated the issue of payment systems to feasibility studies:

We reiterate our commitment to enhancing financial cooperation within BRICS. We recognize the widespread benefits of faster, low-cost, more efficient, transparent, safe and inclusive cross-border payment instruments built upon the principle of minimizing trade barriers and non-discriminatory access.

We welcome the use of local currencies in financial transactions between BRICS countries and their trading partners. We encourage strengthening of correspondent banking networks within BRICS and enabling settlements in local currencies in line with BRICS Cross-Border Payments Initiative (BCBPI), which is voluntary and nonbinding, and look forward to further discussions in this area, including in the BRICS Payment Task Force.

BRICS central banks don’t hold each other’s currencies as reserve assets, with limited exceptions. Just 2.3% of world central bank reserves are held in China’s RMB, up from 1.1% in 2016 but down from a peak of 2.8% in 2022. Most of them are buying gold. If the legend on US currency states, “In God We Trust,” gold says, “Trust nobody.”

Sweeping changes across the Global South would be required to make their currencies attractive reserve instruments—transparency and risk management of capital markets, the development of a local middle class, infrastructure, and education.

A great deal of this is happening in stages in many developing countries but progress is gradual and uneven. We now can foresee circumstances under which the Global South might declare independence from the dollar system. But we aren’t there yet and won’t be for years under any foreseeable circumstances.

Follow David P Goldman on X at @davidpgoldman

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Israel-Iran in dangerous game of face-saving missile strikes – Asia Times

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Israel’s strike on military targets in Iran over the weekend is becoming a more routine occurrence in the decades-long rivalry between the two states.

Israel has conducted low-level or “unofficial” operations in Iran in the past, but since the October 7, 2023, Hamas attacks on southern Israel and subsequent Israeli war in Gaza, tensions between Iran and Israel have spilled over into direct military confrontation for the first time.

While the consequences of this particular strike are not yet clear, it does show that the violence in the Middle East is not winding down any time soon. This is also a clear example of how easily one conflict – in this case, Gaza – can expand into new conflicts with unintended consequences.

But there are other dimensions at play beyond Gaza and the Palestinians. Relations between Israel and post-revolutionary Iran have never been good. The Iranian government has called for the destruction of Israel, and Israel has used its foreign intelligence service, Mossad, to disrupt Iran’s nuclear program with assassinations and cyber warfare.

In its most recent direct attack on Iran, Israel struck military targets from the air in the provinces of Tehran, Khuzestan and Ilam, causing minor damage to military installations and killing four soldiers. Israel had consulted the US State Department about its plans but the US was not directly involved in the strikes.

Though Tehran has played down the extent of the damage, the Iranian regime has not ruled out a response, which should keep the region on edge for weeks to come. In fact, some hardliners in the Iranian parliament say the strike crossed a red line and a response is necessary.

Answering the question of “who started it?” in this conflict is not that simple. If you were to ask the Iranians, they would say the first escalation came in early April when Israel struck an Iranian diplomatic compound in Damascus, Syria, killing two senior Iranian generals, among others.

If you were to ask the Israelis, they would say that attacks by Hezbollah in northern Israel over the past year are effectively Iran throwing the first stone, as Hezbollah is a militant proxy of the Islamic Revolutionary Guard Corps (IRGC).

Iran has responded to Israeli strikes on its territory twice with barrages of rockets and explosive drones – once in retaliation for the consulate strike and again in early October after Ismail Haniyeh, one of the leaders of Hamas, was killed by a strike in Tehran. Israel’s latest airstrike was in direct response to Iran’s early October retaliation.

US President Joe Biden said after the latest Israeli attack, “I hope this is the end” – an effort to urge both parties to halt their escalations. But unfortunately, it is not his call to make.

Maintaining a delicate balance

There is a reason why direct military strikes between nations are rare, even between sworn enemies. When attacking another state, it is difficult to know exactly how they will respond, though a retaliatory strike is almost often expected.

This is because defense forces are not just used for fighting and winning wars – they are also vital to deterring them. When a fighting force is attacked, it’s important for it to strike back to maintain the perception it can deter future attacks and make a display of its capabilities. This is what is happening right now between Israel and Iran – neither side wants to appear weak.

If this is the case, where does the escalation end? De-escalation is essentially a game of chicken – one side has to be content with not responding to an attack to take the temperature down.

But there are equal pressures on states to choose to respond to an attack or de-escalate. On the one hand, showing that your military is incapable of responding to an external threat is unacceptable, and theoretically invites further attacks. An unused deterrent is not a deterrent.

On the other, there’s the risk a retaliation could spiral into all-out conflict with your adversary. In the case of Israel and Iran, this would almost certainly mean the involvement of US forces – a dire prospect.

Thankfully, this outcome is unlikely. There are signs both Iran and Israel are using their strikes to “save face” and maintain their deterrence capability rather than escalate tensions further, given the fact both made strikes on nonessential targets.

Both sides have reasons to avoid a larger conflict. Israel has just opened a second front against its adversaries by targeting Hezbollah in Lebanon and would face the largest conventional fighting force in the region if an all-out war broke out with Iran.

And Iran’s leaders have been under pressure domestically in recent years due to widespread public discontent. Iran would much rather continue to attack Israel through its proxies and maintain plausible deniability, as a direct war could threaten the regime’s survival.

But this latest strike is also a reminder that the longer conflicts go on, the less likely they are to remain contained. For over a year, the war in Gaza has raised tensions in the region to a fever pitch.

A ceasefire would go a long way to reducing these tensions and stop the spread of political violence across the region – before it’s too late.

Andrew Thomas is lecturer in Middle East Studies, Deakin University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Japan’s new island-defense missile pointed sharply at China – Asia Times

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Japan is ramping up its defense with a powerful new anti-ship missile, aiming to counter China’s regional ambitions and reinforce control over contested waters. However, technical challenges and the fickle nature of the US-Japan alliance may keep its ambitions grounded.

This month, Naval News reported that Kawasaki Heavy Industries (KHI) will conduct the first test launch of its new anti-ship missile to defend remote islands in fiscal year 2027.

According to Naval News, the missile, known as the “New Anti-Ship Missile for the Defense of Remote Island,” is part of Japan’s broader strategy to develop standoff missiles amid rising tensions over the disputed Senkaku Islands.

The report says the missile features KHI’s latest small fuel-efficient turbofan engine, the KJ300, and is designed to launch outside the enemy’s threat range. It notes that the Japanese Defense Ministry has awarded KHI a US$223 million contract for the missile’s research and development from fiscal years 2023 to 2027.

According to Naval News, the new missile’s specifications anticipate a maximum range of 2,500 kilometers, allowing it to reach inland China from western Japan.

The report notes that this development is part of Japan’s Defense Buildup Program, which aims to enhance the country’s standoff defense capabilities with longer-range, low radar cross-section, and higher mobility missiles. It also adds that the program includes the development of a new surface-to-ship/surface precision-guided missile, utilizing research from the new anti-ship missile project.

The missile’s successful development will enable Japan to enhance its capability to engage targets at long distances, reinforcing its defense over remote islands and projecting power within the region, including coverage up to inland China.

In December 2022, Asia Times noted that the Nansei/Ryukyu Islands hold significant strategic military value for China and Japan, serving as potential critical logistics, defense and power projection points.

The islands are pivotal for China to break through the First Island Chain, which is essential for its naval operations and a potential Taiwan blockade. Conversely, Japan views these islands as a defensive barrier against Chinese expansion as it seeks to establish an “island wall” of advanced missile systems.

China has conducted periodic naval and air drills around these islands, with its carrier battlegroups conducting exercises simulating attacks. In response, Japan’s 2022 National Security Strategy includes deploying long-range missiles and enhancing counterstrike capabilities against China and North Korea.

However, Japan’s pursuit of long-range counterstrike capabilities faces significant tactical, operational and strategic-level challenges.

At the tactical level, Zuzanna Gwadera mentions in a July 2023 International Institute for Strategic Studies (IISS) article that Japan’s ambitious missile development program requires significant investments in intelligence, surveillance and reconnaissance (ISR) capabilities and missile penetration countermeasures.

Similarly, Masashi Murano mentions in a March 2024 Hudson Institute article that Japan’s pursuit of long-range strike capabilities faces significant technical challenges, noting that extending its missiles’ range necessitates a data link for real-time target updates, which is crucial for engaging moving targets.

Murano says current warheads are inadequate for damaging hardened targets, requiring the development of new ordnance types. He states that targeting dynamic threats like mobile missile launchers demands advanced targeting systems and two-way data links.

He adds that developing electronic warfare capabilities, such as stand-in jammers, is also essential but will take considerable time.

At the operational level, Will Kielm mentions in an article for the Center for Maritime Strategy this month that Japan’s recent shift in military strategy, as outlined in its 2022 National Security Strategy, highlights the challenge of distinguishing between offensive and defensive capabilities.

Kielm points out that Japan’s acquisition of long-range counterstrike capabilities raises fundamental questions in international relations about whether a state can enhance its military capabilities for defensive purposes without being perceived as aggressive. He says the “security dilemma” concept suggests that even defensive military buildups can trigger insecurity in other states, leading to an arms race.

He asks whether defensive and offensive capabilities can be reliably distinguished. He says focusing on defensive technologies can signal non-aggressive intentions, adding that the indistinguishability of these capabilities nullifies the security dilemma, necessitating a focus on deterrence and escalation dominance.

In addition, Yohsuke Aoki mentions in a July 2023 Center for Strategic and International Studies (CSIS) article that a large-scale system covering everything from target identification to post-attack evaluation is necessary when attacking a target from a distance. He added that Japan would seek US assistance in building this essential infrastructure.

However, Christopher Johnstone and Jim Schoff point out in a February 2024 CSIS article that the existing US Forces Japan (USFJ) structure, essentially unchanged since the 1960s, is insufficient for Japan’s rapidly evolving counterstrike and response capabilities, with limited joint operational authorities and a fragmented command system.

To address those shortcomings, the US Department of Defense (DOD) announced in July 2024 plans to transform US Forces Japan (USFJ) into a joint force headquarters, reporting to America’s Indo-Pacific Command (INDOPACOM).

This historic shift aims to modernize command and control structures to address contemporary challenges. The new joint force headquarters, led by a three-star officer, will align with Japan’s Self-Defense Forces (JSDF) Joint Operations Command, enhancing bilateral military cooperation.

At the strategic level, Japan faces significant challenges in maintaining deterrence with conventional forces, as it is up against nuclear-armed China and North Korea.

Japan’s renunciation of nuclear weapons and offensive military capabilities makes it challenging for it to implement deterrence by punishment, necessitating a deterrence-by-denial approach.

Ken Jimbo notes in a February 2023 Stimson think tank article that Japan’s deterrence by denial strategy would focus on making an adversary realize that an invasion of Japan is not possible and that the damage an adversary would incur would make it not worth the cost.

Jimbo notes that Japan’s deterrence by denial rests on three pillars: modernizing military equipment, strengthening the US-Japan alliance and strengthening partnerships with partner countries in the Indo-Pacific and Europe – a concept known as “integrated deterrence.”

The US 2022 National Defense Strategy mentions that integrated deterrence is enabled by US and allied combat-ready forces, backstopped by a nuclear deterrent.

US policy shifts may also be problematic for Japan’s defense posture. In an August 2024 War on the Rocks article, Jeffrey Hornung and Zack Cooper mention that the most profound challenge in the US-Japan alliance is synchronizing long-term strategies, as US strategic documents change with each administration, causing potential misalignment.

Hornung and Cooper note that the situation requires the US to involve Japan early in strategy development, a fundamental shift from current practices.

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Japan’s LDP rocked and roiled in an election earthquake – Asia Times

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As political miscalculations go, it’s hard to top Shigeru Ishiba’s decision to hold a snap election Sunday, just 30 days after his own shock rise to Japan’s premiership.

Ishiba’s Liberal Democratic Party (LDP) lost its majority for only the third time since 1955. But this latest indignity for a party that long took for granted the priorities of Japan’s 125 million people could be the most impactful yet.

Ishiba’s blunder, and the political upheaval it’s causing, come amid a bewildering array of headwinds zooming the nation’s way.

They include slowing growth at home, China’s downshift, North Korea’s provocations and the increasing odds Americans will return Donald Trump and his trade wars to the White House.

It comes as Japanese inflation outpaces wages at a moment when the Bank of Japan mulls whether to continue hiking interest rates. It comes as investors assess whether the Nikkei 225 Stock Average’s surge to record highs is sustainable as policy instability reigns in Tokyo.

At the very least, Ishiba seems more destined than ever for short-timer status as Japanese leader following Sunday’s disastrous election showing for his LDP.

“Japan now enters a period of political uncertainty about whether a new coalition government can be formed,” says David Boling, analyst at Eurasia Group. Economist Takeshi Yamaguchi at Morgan Stanley MUFG adds that “political uncertainty will remain high in the near term.”

Granted, one silver lining for the LDP is that opposition parties didn’t join forces to win a majority or cobble together a governing coalition. Yet the best-case scenario for the LDP and its coalition partner Komeito is to find additional seats via a third party.

Still the damage has been done, particularly to Ishiba and his ability to retain the premiership or claim he has a mandate to lead.

Though predecessor Fumio Kishida stuck around for three years and mentor Shinzo Abe lasted nearly eight, most Japanese prime ministers get 12 months to make their mark – and most don’t.

Chalk it up to leaders spending so much time keeping their jobs there’s no time to do their jobs. The cycle, especially prevalent since the mid-1990s, seems certain to come for Ishiba. Even before Sunday’s repudiation from voters, Ishiba had suffered one of the most precipitous drops in public approval political observers had ever seen.

In late September, when Ishiba shocked the political establishment by navigating past the two front runners for the premiership, Ishiba enjoyed support rates north of 50%. But after four weeks of policy U-turns and managerial chaos, his numbers fell into the 20s.

That’s far from what Kishida had expected when he stepped aside last month. With his own approval in the low 20s amid scandals and soft economic conditions, Kishida opted to let his party head into Sunday’s contest with a fresh face.

It surprised many that this meant swapping one 67-year-old conservative with another. Ishiba’s man-of-the-people persona led LDP bigwigs to hope he might revive the party’s image.

Instead, reality caught up with Ishiba – and fast. For years, Boling notes, Ishiba polled very favorably with the public.

He benefited from being seen as an outsider within the LDP because he was willing to criticize the party. That made him unpopular with many LDP lawmakers but popular with the public.

But “since becoming prime minister, he has made some missteps that have opened him to attack,” Boling notes. That Sunday’s results mean Ishiba is “weakened” and that the “odds would be against him rebounding.”

If Ishiba does stay in, he’ll be busy struggling to save his premiership. Odds are he’ll be too preoccupied to address the economic headwinds racing Japan’s way.

Chief among them is an economy fast losing altitude. This might come as quite a surprise to LDP elders who encouraged Kishida to stand down.

Back in mid-September, when these machinations were in motion, the party figured the economy was on sound footing.

At the time, the Nikkei index was testing all-time highs amid stable economic growth, 10 years of corporate governance reforms were gaining traction and hopes were high that wages gains would accelerate.

Earlier this year, labor unions scored the biggest wage bump in 33 years. That fueled optimism that the “virtuous cycle” Tokyo had craved for decades had arrived.

All this encouraged the BOJ to begin exiting 25 years of zero interest rates and quantitative easing. On July 31, BOJ Governor Kazuo Ueda’s team hiked short-term rates to 0.25%, the highest since 2008. That sent the yen skyrocketing.

Since then, a clear deceleration in retail sales, exports, industrial production, machine tool orders and other sectors has Team Ueda hitting the pause button on additional tightening moves.

It also had Ishida’s government pivoting to the kinds of short-term stimulus maneuvers he claimed his government would avoid. A long-time fiscal hawk, Ishiba also was a proponent of higher rates and a stronger yen. Not anymore.

Ishiba’s reversal on these and other policies has sent the yen tumbling past the 150-to-the-dollar mark. It’s also generating increased volatility in Japanese government bond yields.

For one thing, Ishiba’s government having to rely on opposition parties to retain power makes it harder to champion fiscal consolidation and monetary liquidity normalization. For another, the clock is now ticking faster and faster for Japanese leaders to act on implementing economic reforms.

The LDP’s stumble could not be worse timed for Asia’s second-biggest economy. The export boost on which Tokyo was betting is in growing doubt as Chinese growth slows. China is slow-walking moves to address a property crisis that many compare to Japan’s 1990s bad-loan debacle.

Stephen Innes, managing partner at SPI Asset Management, notes that Beijing is “trying to talk the talk, with more noise about stabilizing the property market.” Generally speaking, though, Innes says, “China’s property mess isn’t something that can be patched up with a few speeches and half-baked measures.”

Macquarie Bank economist Larry Hu adds that measures taken so far “may not be enough to turn the housing market around.”

Meanwhile, Germany’s recession weighs on Europe’s prospects. The US is showing signs of wear. The geopolitical environment is hardly ideal as Middle East tensions flare and Russia’s Ukraine invasion drags on.

The rising odds that Trump might be re-elected on November 5 to supersize trade wars is a major source of global uncertainty.

Amid such uncertainty, investors have valid reasons to question Tokyo’s ability to get the reform process back on track. In the 12 years since the LDP returned to power, few big-picture upgrades have been implemented.

In 2012, the Prime Minister Abe pledged to modernize labor markets, reduce bureaucracy, increase innovation and productivity, empower women and strengthen corporate governance. Abe succeeded with this last endeavor.

The Nikkei’s surge to record highs is partly a result of steps to increase returns on equity, give shareholders a louder voice and diversify boardrooms. It’s also the result of ultra-low interest rates.

Yet surging stocks have meant little to the average Japanese household. Wages have generally lagged the rate of inflation. Japan ranks 30th among the 38 Organization for Economic Cooperation and Development (OECD) members in productivity.

What so-called Abenomics did, ultimately, was prove that “trickle-down economics” still doesn’t work. And that sporadic stimulus packages don’t alter economic trajectories nearly as much as structural changes. Now, the clock is already ticking as Japan’s latest government inherits a uniquely lopsided economic trajectory.

On the one hand, the inflation Tokyo had been craving for 25 years is here. And the BOJ is finally trying to normalize a super-aggressive interest-rate regime. On the other, that very rising-price dynamic is wrecking household and business confidence. It makes Japan the economic equivalent of the dog that caught the car. Consumers find themselves missing deflation, which many viewed as a stealth tax cut.

This balancing act proved too much for Kishida, who took power in early October 2021. Ostensibly, Kishida’s dismal approval ratings reflected political funding scandals within his LDP. In reality, it was mostly an underperforming economy that ended his tenure.

Like his mentor Abe, Kishida did himself no favors by prioritizing foreign policy over reforms. Ishiba, a former defense minister, irked voters by appearing to do the same. An old-school China hawk who favors creating an “Asian NATO,” Ishiba seemed more interested in creating a bulwark against Beijing than tackling kitchen-table issues.

Now, with political winds shifting, Tokyo seems even more captive to events in Beijing and Washington.

Recently, Chinese leader Xi Jinping’s government conceded that the globe’s No 2 economy is in trouble.

Earlier this month, Beijing unveiled aggressive stimulus measures to support an economy grappling with a deepening property crisis. The People’s Bank of China announced its first simultaneous cut in key short-term rates and banks’ reserve requirements since at least 2015.

Mainland stocks have tried to rally on the news. And PBOC Governor Pan Gongsheng is hinting at further cuts in the amount of cash banks must hold as reserves.

The faster Beijing puts a floor under the economy, the more Japan’s prospects will improve. China is by far Japan’s biggest trading partner. Having the top customer for your goods battling deflation is rarely a plus for economic confidence.

On top of that, the specter of Trump trade 2.0 is keeping many Tokyo officials up at night. Preparing for a Trump or Kamala Harris administration will be a major preoccupation for LDP officials. Yet not as great as figuring out whether the nation’s dominant party can find a way forward. With, or without, Ishiba in the mix.

Follow William Pesek on X at @WilliamPesek

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Israel strike on Iran actually de-escalates Mideast tensions, for now – Asia Times

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Israel’s airstrikes of October 26, 2024 – which hit around 20 military targets in Iran, Iraq and Syria – had been anticipated for weeks. Indeed, the operation followed a promise from Israeli Prime Minister Benjamin Netanyahu to retaliate for an earlier ballistic missile attack by Tehran in early October.

The move also follows a pattern that has seen Iran and Israel take turns to up the ante in what was for a long time a “shadow war,” but which has has now developed into direct confrontation.

These tit-for-tat attacks prompted widespread fears that the whole region was poised to enter a more escalatory phase.

But, counterintuitive though it may seem, I believe that the latest Israeli strikes may actually have defused tensions. To understand why, it is worth analyzing the nature and scale of the Israeli operation, as well as the likely stance of decision-makers in Israel, Iran and the United States in the aftermath of the attack.

A calibrated attack by Israel

The October air assault by Iran was itself retaliation for a series of Israeli operations against Iran’s proxy group Hezbollah. These included the assassination of a high-ranking Hamas official in Tehran on the eve of the inauguration of Iran’s new president in July and the killing of Hezbollah’s leader in late September.

Similarly, an earlier air assault on Israeli targets in April by Tehran was in response to Israeli provocations this spring – including a strike against the Iranian consulate in Damascus, Syria, on April 1 that killed two senior military officers.

Many observers anticipated, or feared, an Israeli response to Iran’s October missile and drone attack to be heavy, and punishing – Israel certainly has the military capability to do so.

But rather than target vital infrastructure in Iran or the country’s nuclear facilities, Israel instead opted for “precise and targeted” strikes on the Islamic Republic’s air defense and missile capabilities.

the skyline of a city is seen illuminated at night.
A view of Iran’s capital, Tehran, following the Israeli army’s announcement of strikes on October 26, 2024. Photo: Fatemeh Bahrami / Anadolu via Getty Images / The Conversation

The somewhat limited scope of the Israeli operations suggests that the strike was designed to send a strong message to Iran’s supreme leader and Iranian military commanders. In essence, Israel was signaling that it has the capability to strike at the heart of Iran, while holding back from a full-throttled attack that would have had further damaged Iran’s fragile economy.

While it will take time for a full assessment of the effectiveness of Israel’s strikes to emerge, early indications suggest that they succeeded in revealing weaknesses in Iran’s overall security.

These weaknesses that could be further exploited against other more important targets, such as oil and gas production facilities or even nuclear power sites, should Iran or its partners in the so-called “axis of resistance” choose to retaliate.

A cautious response in Iran

Despite the apparent success of Israel’s attacks against a wide range of targets, statements from Iranian leaders suggest the operational impact was limited. An Iranian Foreign Ministry statement condemned the attack, noting that Iran “had a right to self-defense.” But at the same it added that Iran would “uphold its commitments for regional peace and stability.”

Reading into those words, it suggests to me that Iran is not immediately seeking to retaliate and escalate tensions further.

Of course, that could change. Further messages by Iranian Supreme Leader Ali Khameini or Quds Force commander Esmail Qaani may give a clearer indication whether Iran will seek to retaliate, and how.

But with Iran well aware of the impact that escalation – and the potential for more US-led sanctions and heightened support for Israel – would have on its ailing economy, it may well calculate that a return to the pre-escalation status quo with Israel is in its interests.

In Washington, a wary White House

A return to the shadow war between Israel and Iran – as opposed to open warfare – would no doubt be welcomed in Washington.

Since the horrific Hamas attacks in Israel on October 7, 2023, the Biden administration has been caught between competing obligations and concerns. This has included supporting longstanding ally Israel while not alienating friendly Arab governments and trying to avoid conflict creep into all out war in the region.

Meanwhile, in an election year, the Democratic ticket in particular is trying to balance its support for a largely pro-Israel Jewish voting block with a need not to offend potentially important Muslim votes in key states, nor a more pro-Palestinian youth vote.

Escalation of conflict in the region does nothing to help the White House in these respects. Yet President Joe Biden’s decades-long relationship with Netanyahu has not led to outcomes that the administration has sought. Washington has not succeeded in pushing its ally toward a ceasefire in Gaza, nor a cessation of hostilities between Hezbollah and Israel in southern Lebanon.

And with the US election looming on November 5, elevated tensions in the Middle East on various fronts could impact how voters perceive Vice President Kamala Harris or former President Donald Trump — especially in the battleground state of Michigan, where the Democratic ticket may lose votes among Arab and Muslim Americans angered over the Biden administration’s perceived pro-Israel stance.

Threading the needle?

Predicting what will happen next in the Middle East has escaped the most seasoned analysts.

It may take days, weeks or even months to assess whether this latest airstrike by Israel will lead to a further escalation of tensions between Iran and Israel – or whether a more de-escalatory dynamic settles over the region.

But there are good reasons to believe that decision-makers in Iran, Israel and the US know that more escalation is in no one’s interests. And the latest salvo may have just done enough to satisfy Israel, while providing cover for Tehran to say that there is no need to return fire in kind.

Javed Ali is associate professor of practice of public policy, University of Michigan

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Weakened Hamas at a crucial leadership crossroads – Asia Times

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Hamas will soon begin the process of deciding who will next head the militant Palestinian organization following the October 16, 2024, killing of former leader Yahya Sinwar – but the task won’t be easy or quick.

What makes his replacement as chairman of Hamas’ political bureau a hard one is that since the October 7, 2023, attack – for which, Sinwar was seen as the main architect – Israel has killed many of the senior political and military commanders that would be in line to replace him, or at least be tasked with determining the future direction of Hamas.

Just two months before Sinwar’s death, his predecessor in the role, Ismail Haniyeh, was assassinated in Tehran, purportedly in an Israeli operation. Meanwhile, Hamas’ military chief, Mohammed Deif, was killed in July and Saleh Arouri, a senior Hamas official and deputy of Haniyeh, was earlier killed in a Beirut drone strike.

As an expert on Palestinian politics, I believe the death of Sinwar will leave a vacuum in Hamas that will likely last for many months, if not years. The question is whether the group eventually opts for a leader who continues Sinwar’s hard-line legacy or tries to moderate Hamas’ approach.

Sinwar’s legacy

Sinwar’s uncompromising stance has shaped not only Hamas but also the Palestinian cause.

Born and raised in the Gazan refugee camp Khan Younis, Sinwar joined Hamas in the early days of the organization, which was established in 1987. He quickly rose through the ranks and was responsible for establishing Majd, a security agency within the military wing of Hamas responsible for apprehending and executing Palestinian collaborators with Israel.

Sinwar confessed to Israeli interrogators to have killed and buried 12 suspected collaborators – earning him a life sentence in Israeli jail. He served 22 years before being released in a prisoner-swap deal in 2011, which also saw the release of Israeli soldier Gilad Shalit.

A few years later, he made it to the top of Hamas, serving as chairman of Hamas’ political bureau in Gaza since 2017. After Haniyeh’s assassination in late July, 2024, Sinwar assumed overall leadership.

Throughout, Sinwar has been a proponent of Hamas’ hard-line stance on Israel – an approach that won him respect within the organization.

Less than a year after assuming power in Gaza, Sinwar endorsed the “Great March of Return and Breaking the Siege” protests of March 2018 along Israel-Gaza borders. The demonstrations – during which Israeli troops shot dead scores of Palestinian protesters – succeeded in galvanizing international support for the Palestinian cause.

The protests may have also contributed to Israel’s decision in August of that year to allow Qatar to begin making monthly payments of millions of dollars to Hamas and Gaza in an attempt to defuse and de-escalate tensions.

More concessions came as Israel tried to satisfy Sinwar and avoid the further escalation of unrest in Gaza, including allowing Gazan laborers to work in Israel for the first time since Israel’s disengagement from Gaza in 2005.

But Sinwar had less success in getting Israel to agree to releasing the fellow Hamas members he had left behind in Israeli jails and had vowed to get out. He tried many times to strike a deal for the bodies of two Israeli soldiers and two civilians, but Israel was not interested. That failure probably contributed to Hamas’ decision to attack Israel on October 7, 2023.

How Hamas reacts to blows

The killing of Sinwar has weakened Hamas, but Hamas as an idea and an ideology is harder to kill.

Israel knows this. In March 2004, an Israeli missile struck and killed Hamas’ founder and spiritual leader Sheikh Ahmed Yassin; a month later, his successor Abdel Aziz Rantisi was also killed.

But those deaths did not weaken Hamas. On the contrary, the organization grew more radical. A younger and more defiant leadership took over the organization, which fought Israel repeatedly from 2008 onward, culminating in the October 7 attacks.

Hamas’ reaction to that double blow may give an insight into the current decision-making process now. The killing of Yassin was an opportunity for Hamas to revise its military tactics against Israel – which then mainly consisted of suicide bombings against Israeli civilians.

But in the end, Hamas vowed to continue the violent struggle against Israel.

A coffin draped in a green sheet is seen being held by mourners, many waving flags.
Palestinian mourners carry the coffin of Sheikh Ahmed Yassin in Gaza City on March 22, 2004. Mohammed Abed/AFP via Getty Images

Moderation or radicalization?

Hamas is again at a crossroads. It is weakened, alienated from Arab moderate governments and increasingly unpopular among Gazans.

But throughout the last year of conflict it has remained defiant. Footage of an injured Sinwar, fighting to the last and trying to down an Israeli drone with a stick, has only added to his legacy, making him a legend to many supporters.

The new leadership will have to chose between continuing down the road of radicalization that Sinwar represented or opting for moderation.

But Israel is not making that second option any easier. Israeli Prime Minister Benjamin Netanyahu’s only offer to Hamas is total surrender – he has not left the group any face-saving exit.

So it seems likely that Hamas will choose to continue the fight.

As such, one of the most likely candidates for post-Sinwar leadership of Hamas is Khalil al-Hayya, a Palestinian politician who has served as the deputy chairman of the Hamas political bureau since August 2024.

Al-Hayya is known for his hawkish attitude toward the idea of Hamas’ reconciliation with rival Palestinian group Fatah, and his hawkish statements on Israel. After Sinwar’s death, he vowed to continue the fight against Israel, an indication that the spirit of Sinwar will continue to guide Palestinian resistance in the coming years.

His main challenger for the role of leader is Khaled Mashaal, who served as chairman of Hamas’ political bureau from 1996 to 2017 and currently serves as its chairman in exile.

Mashaal, who has a large network of regional and international allies, is considered a more moderate option. He was responsible for drafting Hamas’ 2017 manifesto – seen as a departure from the earlier, more radical and blatantly antisemitic 1988 charter.

Collective leadership: Room for maneuver?

But a decision on who will assume the role of leader is not expected immediately. Hamas appears more inclined toward collective leadership until scheduled elections in March 2025, if conditions permit.

In the meantime, a five-member committee that was formed in August following the assassination of Haniyeh will take over decision-making.

The committee is tasked with “governing the movement during the war and exceptional circumstances, as well as its future plans,” and the new committee is authorized to “make strategic decisions,” according to Hamas sources who spoke to Agence France-Presse reporters.

Collective leadership of this sort would seemingly indicate that at present Hamas sees no single person as being able to fill the vacuum left by Sinwar.

It would also give Hamas potentially more room to maneuver regarding negotiations with Israel and regional players, as some members of the committee are seen as acceptable faces to moderate Arab governments.

Collective leadership also provides Hamas with a survival mechanism, making it harder for Israel to claim the type of success it has so far achieved in assassinating named Hamas “leaders.”

No doubt, Israel has weakened Hamas with this strategy – notably with the killing of Sinwar. And while the assassination of leading Hamas figures does not constitute “total victory” over the group, as Israel wants, it does make the choice in choosing the next leader that much harder for Hamas.

Mkhaimar Abusada is visiting scholar of global affairs, Northwestern University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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