One hundred twenty-one years ago almost to this day, President Teddy Roosevelt used the phrase “speak softly and carry a big stick” to define America’s foreign policy. One year ago, almost to the day, President Joe Biden withdrew the last American troops from Afghanistan. TR followed his policy statement by sending a four-mile long armada of 16 battleships, all painted white, on a 43,000 mile, 14-month, around-the-world tour, stopping at twenty ports on six continents, “to demonstrate to the world America’s naval prowess.” Biden followed his military withdrawal with a foreign policy based on the use of economic power, replacing major reliance on American military power. The new era of economic warfare The Economist labels it.
Putin Yet To Suffer
In the case of Vladimir Putin’s invasion of Ukraine, exercise of that economic power consists of placing sanctions on Russia, and financing Ukraine’s military. The effect has not been all that one might wish. Russia is rolling in cash, earning about $20 billion per month from oil and gas sales this year, compared to $15 billion last year, and running a current account surplus more than three times what it was at the same time last year. It is benefitting from prices driven ever-higher by the sanctions that are supposed to damage it, and Putin had Western Europe shivering in 40.3°C heat in anticipation of fuel shortages a few months hence, even before his threat that the Nordstream I pipeline will not resume full deliveries d until “the collective west” lifts its sanctions against Russia.
Zelenskyy Commits More American Dollars and Bullets
Meanwhile, as is generally the case with beneficiaries of a third-party payer system, Ukraine has increased its demands for weapons and finance by changing its goal from “peace” to “victory”, as its gallant president, Volodymyr Zelenskyy, puts it. Never mind that the US military is complaining that its suppliers are unable to ramp up production to prevent its stores of ammunition and weapons from being dangerously depleted, as Biden steps up shipments to Ukraine while cutting military spending in real, inflation-adjusted terms.
XI Takes The Measure Of Biden
Which brings us to China, a country ruled by a communist party in turn ruled by its President, Xi Jinping. During a recent telephone call, Xi warned Biden, “If you play with fire, you get burned. I hope the US side can see this clearly.” Biden responded that the US “strongly opposes” China’s efforts to “undermine peace and stability across the Taiwan Strait.”
But not very strongly when it comes to deploying the economic weapons – its equivalent of Teddy’s “big stick” in theory, a fly swatter in practice – available to it. In less than a month after the People’s Liberation Army’s Eastern Theatre Command “successfully completed various tasks” in the Taiwan Strait, complete with live-fire drills, the Securities and Exchange Commission proudly announced that it had agreed “a framework” that will give Chinese companies better access to America’s capital markets, described by the SEC as “the largest, deepest, most liquid markets in the world”.
China has agreed to allow SEC inspectors to enter China to inspect auditor firms and their audits of Chinese companies trading on US securities markets. But Chinese regulators will determine what documents these inspectors will be allowed to see. Xi, modelling his compliance agreement on Iran’s nuclear deal, has given up nothing in return for being certain that the more-than 260 Chinese companies listed on US exchanges, with a total value of around $1.3 trillion, will retain their listing and be able to raise necessary capital. More to follow.
Big Threats, Small Print
Having improved the ability of Chinese companies with close ties to the government and the military to raise capital, the Biden administration has made certain that the small matter of national security does not interfere with China’s access to US technology. The Commerce Department has required export permits for less than half of one per cent of technological goods headed for China, and approved 94 per cent of those few required applications. The good news is that late last week the list of chips on the export-ban list was extended, but no word on the procedure for exemptions.
As The Wall Street Journal summarizes the situation, “The U.S. continues to send to China an array of semiconductors, aerospace components, artificial intelligence technology … [that] could be used to advance Beijing’s military interests … improperly giving priority to U.S. commercial interests over national security.”
All of this shortly after the Biden administration waived for two years tariffs on solar panels imported largely from China, which makes about 80 per cent of the world’s panels. Its heavily subsidized companies will be the major beneficiaries of the President’s elevation of his green agenda over a trade policy designed to enhance the growth of domestic manufacturing. Thereby ignoring still another former President. Some 232 years ago George Washington, in his first State of the Union message, warned that “the safety and interest of a free people … require that they should promote such manufactories as tend to render them independent of others, for essential, particularly for military purposes.”
Strike While China’s Economy Is Struggling
There you have it. America’s economic weapons, as they are being used, are insufficiently powerful to change its adversaries’ behavior. With the Chinese economy in deepening economic trouble – the unemployment rate among young Chinese is 19.9 per cent, the over-leveraged real estate industry is suffering as buyers withhold payments on mortgages on unfinished apartments – now is the time for serious application of existing economic weapons and development of new ones. As is a re-reading of the words of our first and 26th Presidents. Neither is likely, leaving both Biden and Xi free to concentrate on their campaigns for re-election.