Fortnightly Review & Analysis - USA, Russia & EU (Vol 2 Issue I & II)

January 1-15, 2017 & January 16-17, 2017

January 1-15, 2017

USA

Donald Trump is struggling to put a credible team in place as infighting and turf wars dominate the transition process. The airing of internal difficulties is playing out against a damaging public spat between Trump and the U.S. intelligence community over alleged Russian hacking of the elections.

Transition from one U.S. administration to the next is always a difficult task given the large number of political appointments that must be made in a short time. Nearly 4,000 positions have to be filled, of which 1,212 require Senate confirmation. It is an enormous undertaking by any measure and some bumps are inevitable. But Trump appears to be having an especially difficult time, balancing the need for change with the need to find the right candidates who are respected by their peers. He has leaned towards generals and the rich as cabinet choices besides relying heavily on daughter, Ivanka, and son-in-law, Jared Kushner as advisers.

Reports say that his pick for defence secretary, retired Gen. James Mattis, is already in conflict with the transition team, headed by vice president-elect Mike Pence, over who should have the last word on personnel. The pence group is trying to fill senior positions without consulting Mattis to create separate lines of communication to the White House and the sprawling defence bureaucracy. Another big wrinkle to the process comes in the shape of Henry Kissinger, who is back with a bang as an informal, but regular, adviser to Trump on world affairs. Not only is Kissinger defending Trump in public, he also shares the president-elect’s views on Russia as a country that is important for any “new global equilibrium”. Kissinger’s former assistant, K.T. McFarland, has already been given a job as a deputy national security adviser. She is a hardliner and a strong critic of the Obama Administration’s foreign policy.

But key cabinet members, named thus far, are better known for their personal wealth than their populism – not the kind of people with whom his disaffected voters would identify as being sympathetic to their plight. Their combined net worth is said to be $14 billion, with two billionaires and nine multi-millionaires. Critics say Trump has already broken his promise to “drain the swamp” by picking a cabinet that has more insiders than outsiders. It is “big money” at its showiest, undermining the premise of his campaign against Hillary Clinton that she was beholden to Wall Street and corporate America. The net worth of Wilber Ross, Trump’s pick for commerce secretary, is estimated at $2.9 billion, with business interests in the energy, banking and transportation sectors. Betsy De Vos, chosen to be education secretary, is married into the Amway family whose fortune is estimated at $4.8 billion. Rex Tillerson, ExxonMobil’s CEO and nominated to be secretary of state, has $400 million in assets and portfolio investments, stretching from Walmart to Novartis to Sony. In addition, he signed a retirement package with Exxon for $180 million worth of additional stocks and benefits.

Tillerson’s ties to Russia are already in question and his acceptance of Kremlin’s Order of Friendship award in 2013 has been termed “alarming’ by some senators whose votes he needs for his confirmation. He negotiated an agreement with Russian oil giant Rosneft in 2011, betting billions on Russia’s oil resources and raising Rosneft’s stock by $7 billion in five days, according to Igor Sechin, the company chairman. But U.S. and European Union sanctions in 2014 against Russia for its annexation of Crimea and intervention in Ukraine hit Exxon’s bottom line hard. The company is said to have lost $1 billion in revenue. Tillerson’s stand on maintaining the sanctions will be one measure by which his future in the incoming administration may be decided. He has been doing the rounds of Capitol Hill, meeting key senators of the foreign relations committee and explaining his position on Russia.

Similarly, Ross as commerce secretary is an interesting choice because, if anything, he is a Sinophile, and a collector of Chinese art, not a China-basher like Trump and Peter Navarro, who will head the newly created National Trade Council. Ross has invested heavily in Chinese shipping and energy companies. In the past, he has called it “intellectually wrong” to make China a “whipping boy” in the U.S. as Japan was 15 years ago. But by September last year, Ross had changed his tune. In a paper he jointly wrote with Navarro, he called China the “biggest trade cheater” for weaving “an elaborate web of unfair trade practices,” dumping steel in the U.S. market and forcing technology transfers. But he is still seen as someone who would be a moderating influence and promote trade.

Trump has collected quite a team of rivals who could force new compromise positions. Apart from Ross and Navarro having different views, the interplay between retired Gen Mattis, the presumptive defence secretary, and retired Lt Gen Michael Flynn, Trump’s National Security Adviser (NSA - who resigned later), could produce fireworks. Flynn opposed the selection of Mattis, who outranks him and as head of US Central Command, had presided over an investigation of Flynn for leaking sensitive information to Pakistan about US intelligence capabilities used to monitor the Haqqani Network. Flynn’s career was affected but he was not punished. He was finally forced out by the Obama administration largely for demanding that stronger measures be taken against terrorism. Seen as a maverick with strong anti-Islam views, Flynn certainly doesn’t believe in political correctness. Mattis, on the other hand, is more old-school and establishment – he has repeatedly and faithfully argued that the Pakistan army is a valuable partner in the fight against terrorists.

Apart from personality clashes, the issue of conflict of interest has come up repeatedly, with Trump’s own foreign business interests being put under the spotlight. He promised to hand over the leadership of his empire to his two older sons, but detailed plans of how he would do it are yet to be revealed. As long as he has a financial stake in his companies, he remains open to attack from the Democrats, who have already drafted legislation to start impeachment proceedings unless he divests. His real estate interests in India, Indonesia, UAE and other countries could all come under investigation unless he creates a blind trust and distances himself. Otherwise, he would be in violation of the U.S. Constitution’s “emoluments clause,” which prevents the president from receiving gifts from foreign governments.

The dust is not likely to settle any time soon as Senate confirmation hearings on Trump’s nominees get underway from the last week of January. Some Democrats have already declared that they are likely to be tough on the nominees.

January 16-31, 2017

USA

Donald Trump has made it amply clear that the old rules of doing geopolitical business won’t apply in his administration. The question is: can he put a new framework in place before the uncertainties of disruption become costly? The clues, so far, lie in the people Donald Trump has chosen as his cabinet members and confidants, many of whom are retired generals and wealthy businessmen. Above them all is Jared Kushner, his son-in-law who has been appointed special adviser, which essentially means he can walk into any meeting.

As Trump assembles his team, there is a distinct dominance of China hardliners in the cabinet, which has wider implications for the Asia Pacific region. By courting Russia and aggravating China – the reverse of what the American establishment wants – he has already taken a sharp turn even before taking the oath of office. Though mostly out of the news, the push for a more robust Asia policy is apparently coming from Stephen Bannon, a former navy man and Trump’s chief strategist. If Trump’s opening salvo against China was a telephone conversation with Taiwan’s president – a diplomatic thumbing of nose at Beijing – the nomination of Peter Navarro, a strident China critic, as the head of the newly created National Trade Council is seen as a declaration of war. Navarro, a professor of economics at the University of California, Irvine, will play an important role in crafting the new Asia policy. His book Death by China: Confronting the Dragon-A Global Call to Action, about China’s systematic flooding of U.S. markets and use of unfair means, was apparently an eye-opener for Trump.

The Trump transition team has let it be known through media leaks that it plans to put some teeth in the “pivot” and consequently its Asia policy - something the Obama Administration failed to do because of its own indecision and China’s extreme reaction. The pivot, meant to signal a continued and determined U.S. presence in Asia Pacific, ended up confusing both allies and enemies. Judging from Trump’s talk during the election campaign and after, indications are that he wants to expand U.S. naval presence in the Pacific. The signal should go some distance in calming the nerves of Asian allies, who have wondered aloud about President Obama’s commitment to Asian security. The Philippines and Malaysia are already under China’s sway, impressed by its promises of investment and frightened by its growing military might.

Interestingly, the first foreign leader Trump met was Japanese Prime Minister Shinzo Abe, an ally who will be critical to the success of any energized U.S. policy in Asia as would be India, Australia and South Korea. All share deep concerns about China’s influence in the region. It remains to be seen whether this meeting of minds could lead to more convergence and cooperation.

Europe

In her ‘Brexit speech’ in mid-January, Theresa May said that Britain would not be seeking access to the single market because London understands that for the European Union (EU), the ‘four freedoms’ are indivisible, especially because Britain seeks control of migration. According to a Report of the EU Council, UK and the EU-27 have differing views of migration that have complicated the Brexit talks. The free movement of workers is a founding principle of the EU. The European Court of Justice has, in the past, been very generous in expanding free movement rights but has now changed course. For the EU-27, the indivisibility of the single market is not political posturing aimed at exacting revenge on the UK during Brexit negotiations. Simple trade theory does suggest that the single market could work without free movement. But a more nuanced analysis shows that free movement of persons helps the single market to be more integrated, fairer and more efficient.

But the EU-27 fear domestic politics will drive Britain towards a very hard Br‎exit. But Theresa May is strong enough at home to resist such pressures, if she wishes to. For her part, Theresa May doesn’t like the term ‘hard Brexit’. That is because a hard Brexit – meaning a withdrawal that cuts many ties with the EU – will inevitably have negative economic consequences. But speaking in Lancaster House in January, May was fairly clear about the kind of Brexit she wants, and she edged towards recognising the trade-offs. She wants "a bold and ambitious free trade agreement" (FTA) to govern the future economic relationship. The prime minister doesn’t want the very hard Brexit favoured by some Euro-sceptics, according to which the UK would leave the EU and simply rely on World Trade Organisation (WTO) rules. Nevertheless some key officials in Brussels and other capitals fear that Britain may face a much harder Brexit than the version she sketched out: either exiting to WTO rules, or perhaps even falling out of the EU without any Article 50 agreement, leading to legal chaos for companies and individuals.

This pessimism stems from the officials’ reading of UK politics. They note that the domestic political pressures on May are nearly all from the shrill lobbies and newspapers which want a very hard Brexit. These officials worry that the pressures may prevent May from striking the kinds of compromise necessary – for example, over the money Britain is supposed to ‘owe’ the EU – for a deal to be reached. They also worry that the British government has overestimated the strength of its negotiating hand; the reality, they surmise, is that once Article 50 is triggered, determining that the UK must leave in two years, London has few cards to play. They fear that UK politics may drive May to storm out of the Article 50 negotiations and seek a bigger parliamentary majority in a general election.