Category Archives: defense policy

A Start

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Thomas Duesterberg, a Hudson Institute Senior Fellow, proposed five steps for our Federal government to take to address the People’s Republic of China’s economy and growing technological prowess. They form the foundation for a good start in countering that nation’s rise against us.

• tighten export controls on technology and expertise related to AI or national defense. …also coordinate export controls with allies on semiconductor production and equipment

This should be expanded to include sourcing the raw materials, intermediate processed components, and finished products of any type from sources outside the PRC.

• work with Congress to limit Chinese access to US financing, with stronger outward investment controls and limited access to listing on American stock exchanges

This should include enforcing existing requirements that any company, foreign or domestic, must meet to be listed on an American exchange. Chief among these are that those listed must subject themselves to stringent American accounting practices and audits. The current requirements vis-à-vis PRC-domiciled companies listed or seeking listing are under discussion with the PRC; however, there is nothing to discuss here: either those companies satisfy, or they must be delisted or cannot be listed in the first place.

• impose sanctions on Chinese banks. Washington has largely not pursued them, though reporting indicates Chinese banks have facilitated and financed illicit commerce such as technology transfer to Russia, drug trafficking, and money-laundering, as well as the purchase of sanctioned Iranian and Russian oil

• show Chinese tech companies reciprocity. China effectively bars most American firms from its markets by either forbidding them or making entry contingent on ridiculous requirements, such as revealing source code. Washington should bar firms tit-for-tat, especially in response to intellectual property transfers demands from China

Not tit-for-tat, as that would work in both directions: were the PRC to reduce or drop those restrictions, we would then need reciprocate. The mistakes here are two: one is that the PRC cannot be trusted to stop its parallel…sub rosa…thefts of our companies’ source code, intellectual property, technologies. The second mistake is that we should be doing no economic business with the PRC in the first place.

• enlist allies in the fight. The administration has competing foreign-policy priorities, but limiting China’s ability to compensate for losing the US market would measurably enhance success

President Donald Trump’s (R) protectionist tariffs against friends and allies and others work at cross purposes with his foreign policy tariffs against the PRC (and against Russia, Iran, and northern Korea, albeit for these three the moves primarily are sanctions). Leaving aside the broader counterproductive nature of protectionism, such tariffs are counterproductive by reducing or eliminating the targeted nations’ incentive to work with us against the PRC, even with the PRC’s inimical practical and operational moves toward those friends and allies, and others.

In fine, more is needed for Duesterberg’s proposals. The PRC is an avowed—by it—enemy nation, committed to overcoming us economically, militarily, and so politically. The sort of steps proposed by Duesterberg need to be broadened in reach to address the entirety of the PRC economy, which would directly limit that nation’s military growth and improvement as well as its technology growth and improvement, which would indirectly limit its military. That, in turn, would limit its ability to overcome us politically.

There is, though, only so much our government can do by itself. Our private enterprises, small, medium, large, and international, need also to recognize the enmity the PRC has toward us and to recognize how much their own interactions with the PRC and with PRC-domiciled companies facilitate the PRC’s effort to dominate us. They need to move apace in withdrawing from those interactions and find non-PRC related sources for their production, from ores to processed ores to components for assembly to finished products. They need also to stop aiding and abetting the PRC through helping it develop its own technology base.

Naïve

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Holman Jenkins wrote this, regarding a peace deal for the barbarian’s invasion of Ukraine, in his Tuesday op-ed:

Even with Russian troops still on Ukrainian territory, NATO would be stronger, Russia would be thwarted, and the lesson would percolate globally.

Jenkins is naïve to the point of idiotic.

The only part of Jenkins’ remark that’s accurate is the first. NATO most assuredly would not be stronger in any material way, even with the accession of Finland and Sweden to the alliance. The European member nations have been so woefully and for so long neglecting their national defense establishments in parallel with their NATO solemn commitments that neither the alliance nor the member nations in their aggregate can mount a large enough force supplied for long enough to resist the continued Russian advance into the prior fallen Soviet empire that Russian President Vladimir Putin has promised he would be going after.

Fully a third of the member nations, now including Canada, continue overtly to refuse to honor their 2% of GDP financial and equipment commitments to NATO—an amount far short of the now-recognized need of 5% of GDP just to catch up. Germany, the economic powerhouse of the EU until very recently, does not even have enough soldiers on active duty to train replacements, much less expansion, and the nation does not have more than a regiment of combat ready armor.

Russia will not at all be thwarted. Putin wants to reconstitute the erstwhile Russian empire, and that includes recontrolling, if not outright reconquering, Ukraine, Poland, the Baltics, Moldova, and more. Even the heavily depleted Russian military can overmatch the NATO nations, especially with the ample and upgraded resupply from Iran, the People’s Republic of China, and northern Korea, along with soldier reinforcements from the latter two.

The lesson that will—and is already, to an extent—percolate globally is that the West, now including the US—does not have the stomach for fighting, if the sort of deal described by Jenkins goes through. That lesson puts eastern and central Europe at severe risk, and it puts the Republic of China at immediate risk, along with longer term risks to the Republic of Korea, Japan, Australia…and the US.

A Mistake

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The Trump administration may be getting soft on Iran, at least relative to past positions by then- and now-President Donald Trump (R).

US special envoy Steve Witkoff said that the Trump administration is prepared to allow Iran to enrich uranium at a low level if it is subject to stringent verification, a significant shift from the White House’s initial demand that Tehran’s nuclear program be dismantled.

Witkoff said

They do not need to enrich past 3.67%. This is going to be much about verification on the enrichment program and then ultimately verification on weaponization.

This is the mistake. Iranian insistence on enriching past 3.67%–to 60% and above, with that 60% level just a kitten’s whisker way from bomb-grade purity—and its history of requiring weeks to months of advance notice on inspections, interfering with inspections, outright barring inspectors’ access, and its development and maintenance of secret sites outside the reach of inspectors demonstrate that the Iranian government cannot be trusted with uranium at any level.

The only appropriate level for Iran’s uranium enrichment program is 0.00%, with no notice inspections at any location the inspectors choose. Otherwise, the only legitimate solution is kinetic obstruction of Iran’s nuclear weapons—and its nuclear, generally—programs.

Bargaining Chips

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The People’s Republic of China is avidly intent on keeping its bargaining chips, of which two truly important ones are its TikTok app and its port businesses at each end of the Panama Canal.

What gets lost, even ignored, in this, though, is that bargaining chips have only the value the bargainee assigns to them, not what the holder of the chips claims to be their value. Not a red sou more than that.

TikTok, for instance, can be viewed as utterly without value as a chip to be played: current US law requires it to be shut down entirely and banned from the US unless and until it is sold in toto to an entity not under the control of the PRC. The only thing standing in the way of that way is the law’s provision that the deadline for sale can be moved back if our Federal government deems negotiations for the sale to be making sufficient progress. That’s where things stand under President Donald Trump, and that confers exactly zero value to the app as a PRC chip.

So it is, nearly, with those PRC businesses that are Panama Canal bookends. A BlackRock-led group has concluded a deal to purchase those two port businesses along with a number of others around the world from CK Hutchison Holdings, a PRC-domiciled (Hong Kong) company. The PRC is actively interfering to delay and potentially prevent that deal from coming to fruition. The appropriate response here is for the US to restrict, even block as far as may be, the ability of those two ports to get any business from the US or any other nations. That would deny those ports any value as PRC chips.

A Thought on Trade Deficits

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Set off by a post on Shrewd’m, which contains a plethora of useful discussion boards, including mechanical investing conversations.

Americans benefit from importing cheaper and/or better goods, which enhance our quality of life in myriad ways. Moreover, trade is part of a circular movement not only of goods but also of money. The US trade deficit of $918.4 billion last year was the mirror image of a $918.4 billion capital surplus, or infusion from overseas.
Sooner or later, all of the net $918.4 billion that Americans spent on foreign goods was invested in American capital assets such as stocks, real estate, bonds, or short-term assets such as Treasury bills.

That’s one of the problems with running a trade deficit, or “investment surplus,” which the poster suggested as an alternative term. It’s certainly true that in Ricardian fashion, truly free trade makes everyone financially more prosperous by letting those nations that do a few things better than others get the production trade and sell their goods to other nations in return for money or products that those other nations do better than anyone else. Financial prosperity is very good for all of us.

However, that sword has another edge, too. [A]ll of the net $918.4 billion that Americans spent…was invested in American capital assets such as stocks, real estate, bonds, or short-term assets such as Treasury bills. Not on manufacturing or on producing and processing the raw materials necessary for manufacturing in general. Especially not on manufacturing or on producing and processing the raw materials each category of which is a Critical Item for our defense establishment, our national security—our ability to secure ourselves from being dictated to by militarily superior enemies.

There were massive job losses in those manufacturing and raw materials production and processing industries, too, and those people are worse off for it, regardless of the injunction from some that these folks should learn to code.

Worse, those hard goods/raw materials producing companies have been closed long enough that we’ve lost the factories, mining, and personnel expertise central to those Items. Now, we’re dependent on other nations—including enemy nations—for raw materials like the rare earths that are specific Critical Items for our computers, communications, and weapons systems we need to maintain our freedom of action. We’re dependent on other nations—including enemy nations—for processing those rare earths and other materials (like graphite, another Critical Item) that we already produce some of for ourselves.

Our dependency on enemy nations is demonstrated by the People’s Republic of China’s restricting shipping to us rare earths and processed rare earths, both of which the PRC produces in ample quantities in response to the tariffs President Donald Trump (R) has applied to the PRC. Had we been producing and processing our own—and which we have ample quantities domestically but have chosen to leave them unmined and so have no processing capability, also—the PRC’s move would have been toothless. I’ve written about a similar situation a while ago.

Now a regionally militarily superior PRC is pressing its threats against the Republic of China and is in a position to cut the sea lines of commerce on which the Republic of Korea and Japan are utterly dependent and through which trillions of dollars of trade pass enroute to our own west coast. And we’ll soon—that cutoff of militarily critical rare earths—be helpless to stop them.

Fiscal prosperity is a Critical Item for our nation, and Ricardo was right on how to achieve that. Trade deficits, per se, are nothing about which to worry. But more so is military capability, without which we have no freedom of action and so no prosperity or even freedom. We need to redevelop our own manufacturing and raw material production and processing capability, even if we continue to source much of those outputs from overseas, and even if it’s more expensive to do so than getting them all from overseas.

The higher cost for such a domestic core production capability is part of the cost of our national freedom, and it’s far less than the cost of having our activities dictated to us by militarily superior enemies.