No US postwar president has managed to reset relations with Russia. Now the Trump administration must cope with a special counsel’s investigation. In the past, US efforts at regime change targetted foreign countries; today, the White House. How will it impact Trump’s stalled policy agenda?
As I argued in spring 2016 (TWFR, April 25, 2016),1 US election is a global risk and it would continue to be fought after the Trump election win. But recently, these political struggles moved to an entirely new phase.
First, the Department of Justice (DOJ) dismissed James Comey, Director of the Federal Bureau of Investigation (FBI), reportedly only days after his request for increased resources to investigate Russia’s alleged interference in the election. Barely a week later, DOJ appointed Robert Mueller, former director of the FBI (2001-13) as special counsel overseeing the investigation into alleged Russian interference in the 2016 election.
There is little doubt about the political outcome of the Mueller investigation. Just as he loyally served under President George W. Bush, along with Defense Secretary Donald Rumsfeld and Vice President Dick Cheney’s neoconservatives, he is unlikely to treat any Russian initiative – whether planned, unintended, alleged, or misrepresented – with silk gloves. So from the White House’s perspective, the end result is known. Consequently, it is the process that has potential to undermine the effective presidency.
In order to assess the probable impact of the investigation on Trump’s stalled policy agenda, it is important to understand what is actually new in his trade, political and military stances.
Obama-Bernanke Origins of Trump’s Anti-EU Rhetoric
During a bruising series of meetings in the NATO summit in Belgium and at the G-7 gathering in Italy, President Trump was quoted as calling Germany “very, very bad” on trade, which the White House denied, however. That was followed by German Chancellor Angela Merkel’s speech, which was perceived as historical in Europe, and in which she said that “the times in which we can fully count on others are somewhat over”.
While Merkel’s Atlanticist supporters saw the speech as signalling the end of the postwar Western consensus, it was also geared to Merkel’s domestic constituencies to pave way for victory in the German federal election in September 2017. Also, Trump’s accusations of excessive German trade deficits and Western Europe’s free-ride at NATO are hardly new. He has made them repeatedly in the past two years. And truth to be told, so did President Obama.
Trump is neither first nor unique in his criticism of Europe. Following the end of the Cold War, every US president, in one way or another, has engaged in similar criticism. The notion that Europeans are “free riders”, enjoying the benefits of an international order safeguarded by the US without contributing much to it, is an old one in Washington. Soon after he received his Nobel Peace Prize, Obama began to complain about those NATO members who do not pay their “fair share” in global affairs. In particular, he launched an “anti-free rider campaign” in which, among other things, he pushed his European allies to lead the NATO intervention in Libya in 2011 – “to prevent the Europeans and the Arab states from holding our coats while we did all the fighting”.
What about deficit criticism? That’s not unique to Trump either. Following the global financial crisis, both Obama and former Fed chief Ben Bernanke often argued that “Germany’s trade surplus is a problem.” Unlike China, which has been working to reduce its dependence on exports since the early 2010s, Germany has not. As a result, Obama and Bernanke often pleased Chancellor Merkel to launch Keynesian investment initiatives and promote German consumption so that European recovery could happen faster, but without success. To Obama and Bernanke, that was frustrating; to Trump, hypocrisy.
What’s new in the current Atlanticist friction, however, is Trump’s willingness to push both NATO payments and trade distortions in parallel, as well as Chancellor Merkel’s shrewd timing in using anti-Trump sentiments to foster pan-European unity. Until recently, her centre-right Christian-Democrats (CDU) were struggling against Social-Democrats (SDP) and the radical right (Alternative for Germany AfD). But when Trump began his efforts to divide Europe before election season, Merkel started her attempt to rally Germans behind CDU and united Europe, taking advantage of anti-Trump sentiments in the Old Continent. Thereafter CDU’s polls began to rise again.
While Trump’s policy agenda is not entirely new, it is tougher, broader and less politically correct than its precursors in decades. However, Mueller’s investigation will cast a dark shadow over the White House’s policy agenda.
Deferred Trade Friction
During the 2016 campaign, Trump threatened to use high import tariffs against nations that have a significant trade surplus with the US. In 2016, the deficit list was topped by China ($347 billion), Japan ($69 billion), Germany ($65 billion), Mexico ($63 billion), and Canada ($11 billion). On a per capita basis, Germany is the leading “deficit offender”.
In his campaign, President Trump promised to renegotiate America’s key free trade agreements, including the North American Free Trade Agreement (NAFTA). Right after his inauguration, he used executive order to pull out of the Trans-Pacific Partnership (TPP), which was seen as President Obama’s legacy deal. In turn, NAFTA renegotiations are set to start soon. However, according to the positive spin of US Trade Representative Robert Lighthize the Trump administration will seek to “expand” NAFTA trade rather than to “overturn” it.
As the talks are to begin after mid-August, they will be followed closely by other bilateral trade talks (South Korea, Japan, Taiwan), including allegations on “currency manipulation”. Since these negotiations are likely to endure through the fall, major trade friction may not be likely until 2018.
The Trump administration’s tone about China has also softened following an internal struggle between Trump’s trade hawks (head of the National Trade Council Peter Navarro, and trade advisor and former CEO of steel giant Nuctor, Dan DiMicco), and their more moderate opponents (Treasury Secretary Steve Mnuchin, and chief of National Economic Council Gary Cohn). After the two-day summit at Mar-a-Lago, President Trump and President Xi Jinping announced a 100-day plan to improve strained trade ties and boost cooperation between two nations.
However, unless the plan can offer major breakthroughs after the summer, trade hawks may return later and deficit rhetoric may escalate toward the year-end.
Since sanctions fall under executive actions, Trump tends to have more strategic manoeuverability in these areas. Then again, both Republican neoconservatives and Democratic liberal internationalists support sanctions against North Korea, Russia and, with some qualifications, Iran.
Headwinds Against Tax Reforms
Until recently, progressive taxation has played a critical role in all advanced economies. In America, that model has been under a siege since the Reagan years. Today, US personal income tax rate is one of the lowest among the G20 economies, whereas US corporate tax rates are high internationally. As a result, US companies have parked more than $1 trillion worth of cash abroad.
Nevertheless, Mueller’s investigation is likely to overshadow Trump efforts at tax overhaul, which depends on legislative support for success.
The Trump administration hopes to simplify the number of individual income tax brackets. It would like to reduce the tax rate on capital gains, non-corporate business taxes and those in the highest bracket, repeal the alternative minimum tax and the Affordable Care Act (the “Obamacare”) surtax, and the estate tax. Critics expect the total costs of the plan to soar to $5 trillion over a decade. While Republicans are ready to move ahead with a repeal bill, it has been diluted but still divides Republicans in the Senate and House of Representatives. Senate Majority Leader Mitch McConnell suspects that the new bill will not pass through the Senate.
The Trump corporate tax plan is seen as even more controversial. In 2016, these rates were around 30-35% in major advanced economies (France, Japan, Germany), except for the UK (19%). The US rate (39%) is the highest among all G20 economies. Trump’s plan would almost halve rates to just 15 percent, which would put America ahead even of low-tax city paradises, Singapore (17%) and Hong Kong (16.5%). With reduced rates and one-time repatriation tax rate stashed, the White House hopes that US companies’ overseas profits and corporate operations would return home. In reality, such expectations are inflated.
There has been no major outflux of foreign firms from large emerging economies, which offer growth that is 3-4 times faster than in the US or Europe. Since the 1970s, US trade deficits have been a regional issue mainly with Asia. As costs are rising in China, emerging Asia will take the mantle but US trade deficits will prevail. And even when relocation offers some benefits, US and other multinationals may prove reluctant to move their core operations because an increasing number of these companies rely on emerging-economy middle classes and new innovation hubs for their profitability.
While the Trump administration will try to push its stalled policy agenda, it must now do so with the White House in shackles. Intriguingly, despite their global might, all US postwar presidents have failed to reset relations with Russia.
Four Presidents, Four Russia Resets, Four Failures
After the dissolution of the Soviet Union in 1991, relations between Russia and the US remained generally warm between the Bush and Clinton administrations, and President Boris Yeltsin until the US-inspired “shock therapy” caused Russia an economic nightmare that proved far worse than the Great Depression in the US. That is when three former Soviet satellites – Poland, Hungary and the Czech Republic – were invited to join the NATO. By mid-90s, Poland, Hungary, the Czech Republic, and the Baltic states were also ushered into NATO – against the angry but ultimately futile protests by presidents Yeltsin and Mikhail Gorbachev.
In 2001, President George W. Bush wanted to reset US Russia relations. But after the White House was swept by 9/11 and neoconservatives’ increasingly unilateral foreign policy, it began incursions into Afghanistan, withdrew from the Anti-Ballistic Missile Treaty, and invaded Iraq. As NATO began looking even further eastward to Ukraine and Georgia, Russian protests turned angrier and more aggressive. Most Russians saw the Rose Revolution in Georgia 2003, and US effort to build an anti-ballistic missile defense installation in Poland with a radar station in the Czech Republic, as intrusions into its sphere of interest, along with US efforts to gain access to Central Asian oil and natural gas.
Like Clinton and Bush initially, President Obama wanted to reset US-Russia relations and by March 2010 both countries agreed to reduce their nuclear arsenals. Yet, the reset was not supported by Obama’s Secretary of State Hillary Clinton, Secretary of Defense Robert Gates and US ambassador to Russia John Beyrle. Subsequently, rising tensions in Crimea were seized to bury the effort.
In the campaign trail, Trump lauded President Putin as a strong leader, arguing in favour of friendlier relations. Meanwhile, FBI began investigating alleged connections between Donald Trump’s former campaign manager Paul Manafort, foreign policy adviser Carter Page and pro-Russian interests. In January 2017, Trump and President Putin began phone conferences as the White House still mulled lifting economic sanctions to reset relations with Russia. But in February, Trump’s security adviser Michael Flynn was forced to resign. As the Empire stroke back, Secretary of State Rex Tillerson said only two months later that US-Russia relations were at a new low point. And by May, Mueller was appointed to head the investigation into alleged Russian interference in the 2016 US elections. The Wolfowitz doctrine had prevailed – against four US presidents.
Who’s Afraid of the Big Bad Wolf-owitz Doctrine
Historically Washington has been involved in dozens of overt and covert actions aimed at regime change in other countries. The postwar list of covert involvement alone features some two dozen overseas attempts at regime change in overseas. Ironically, the list begins and ends with Syria (See Figure 1).
Source: Creative Commons
Figure 1: Covert United States Involvement in Postwar Regime Change
Now a regime effort is targeting the White House, say the Trump supporters. That effort relies on the Wolfowitz Doctrine, a highly controversial policy blueprint developed amid the end of the Cold War by Undersecretary of Defense for Policy Paul Wolfowitz, the prophet of the Bush neoconservatives, and his deputy Scooter Libby, later an adviser to Vice President Cheney until his indictment for leaking the covert identity of a major CIA officer.
The Doctrine announced the US’s status as the world’s only remaining superpower and proclaimed its main objective to be retaining that status. Its first objective thus was “to prevent the re-emergence of a new rival, either on the territory of the former Soviet Union or elsewhere that poses a threat on the order of that posed formerly by the Soviet Union”.
In December 1989, Soviet President Gorbachev and US President George H. W. Bush declared the Cold War over at the Malta Summit. In February 1990, then-Secretary of State James Baker suggested that, in exchange for cooperation on Germany, US could make “iron-clad guarantees” that NATO would not expand “one inch eastward”. Gorbachev acceded to Germany’s Western alignment on the condition that the US would limit NATO’s expansion. But behind the façade, Baker’s own top officials and Wolfowitz at the Pentagon began to push Eastern Europe in the US orbit inspiring “a call for 21st century American imperialism that no other nation can or should accept”, as Senator Edward M. Kennedy once put it.
It was the same Wolfowitz Doctrine that inspired the neoconservatives to initiate multiple wars in the Middle East following September 11, 2001; and that undermined the efforts of four post-Cold War presidents to reset relations with Russia. In each case, the “military-industrial complex” – about which President Eisenhower, a five-star general, had warned already in 1961 – played a critical but low-profile role behind the scenes. President Clinton did not oppose the military interests, as long as they supported US economic interests; Bush’s inner circle comprised Pentagon’s ultimate insiders; Obama talked against the military and security complex but became its cheerleader. In contrast, Trump fought efforts to kill the reset of Russia relations – until Mueller’s appointment.
The Mueller investigation does not indicate that the role of the US as the major global risk has now faded away. These investigations can lead anywhere, as President Clinton discovered after his affair with Monica Lewinsky. In the process, they can create great collateral damage, both at home and abroad.
The role of the US as a global risk is only about to begin.
Photo courtesy: Ethan Miller/Getty Images[/ms-protect-content]
About the Author
Dan Steinbock is the Founder of Difference Group and has served as Research Director of International Business at the India China and America Institute (US) and a Visiting Fellow at the Shanghai Institutes for International Studies (China) and the EU Centre (Singapore). For more, see http://www.differencegroup.net