Category: Foreign policy

What to do about China?

“China’s much anticipated post-pandemic recovery appears to have flopped, with signs of a significant slowdown after decades of supercharged growth and data flashing warning signs.” Bloomberg “China’s failing recovery”

“Signs of deflation are becoming more prevalent across China, heaping extra pressure on Beijing to reignite growth or risk falling into an economic trap it could find hard to escape.”

What, if anything, should the U.S. response be? That depends on whether we see China as a competitor or an enemy. That should depend on our assessment of China’s objectives. Does China want to expand its territory one way or another, or to expand its influence in the global order? China’s behavior might support either assessment.

China claims sovereignty over almost the entire South China Sea, including the Paracel and Spratly islands, which are also claimed by Vietnam, the Philippines, Malaysia, Brunei, and Taiwan. In 1947 China asserted its claims with a map depicting a U-shaped line covering almost 70 percent of the South China Sea, known as the nine-dash line. In 2016, an Arbitration Tribunal rejected many of China’s maritime claims as lacking a basis in international law.

The UK returned Hong Kong to China July 1, 1997, with the understanding that it would be self-governed independently of the Peoples Republic of China for fifty years. China violated this agreement with its full takeover in 2020.

In 1972 President Richard Nixon confirmed that Taiwan was part of the People’s Republic of China but would continue to govern itself independently until it agreed to merge its government with the mainland’s. In the Taiwan Relations Act of 1979, the U.S. committed to providing defensive weapons to Taiwan to defend itself from invasion (as opposed to the volunteer absorption into the Peoples Republic envisioned in the One China Act). What we provided instead were heavy weapons irrelevant to Taiwan’s defense but prized by America’s defense industries. “Taiwan-China policy assurances military” The U.S. has more recently seemed to even question its commitment to the One China agreement.

These aggressive moves by China are better seen as solidifying its borders (much in the same way the US worries about its borders with Cuba) than military expansions. On the other hand, China joining the World Trade Organization, pressing for representation in the IMF and World Bank that is more reflective of its economic size, and its Belt and Road, Asian Infrastructure Bank and BRICS initiatives reflect China’s desire to gain status in the global system comparable to that of the U.S. In short, they reflect the behavior of a rising economic competitor.

We seem to be treating China as an enemy rather than the trade and economic competitor they see themselves as. Among sportsmen, competition takes the form of doing your best—of being the best you are capable of. Within our economy we rightly see competition as good and healthy. With fair competition, both sides benefit. The world is made wealthier. Kneecapping our competition is the approach of bad guys. I explored this more fully in my blog “Competing with China”

But China is not competing fairly either. We would be wiser to use the mechanisms of the global system of rules to push and pull them into compliance. We should end our own tariff—industrial policy violation of these rules as well. We might start by restoring the dispute resolution body of the WTO. While there will be genuine security justifications for trade restrictions, they should be very limited.  They should not include taxing steel purchased from Canada. Trade is win, win.

A recent G-7 statement clarified that: “We are not decoupling or turning inwards. At the same time, we recognize that economic resilience requires de-risking and diversifying.” US Treasury Secretary Janet Yellen stressed this message during her recent visit to China. We should facilitate and encourage China’s economic rise as it contributes to our own. The opposite direction—treating China as an enemy—ends in war.

America’s Unipolar period has corrupted us. We demand that others follow rules that we violate ourselves when we don’t find them convenient. We have become a bully. My hope is that we adjust to the fact that we are no longer the world’s sole superpower by strengthening the rules we helped develop and competing fairly under them: “Goodbye unipolar world and good riddance”

My Travels to Kosovo

Post-World War II Yugoslavia consisted of the federation of Bosnia and Herzegovina, Croatia, Macedonia, Montenegro, Serbia, and Slovenia. Though its residents were predominantly Albanian, Kosovo was a province of Serbia. During part of its post-WWII history, Kosovo was relatively autonomous within Serbia, while part of the time it was ruled directly by Serbia. Frictions between Albanian and Serbian Kosovars escalated in the 1990s into armed conflict, which ended only with the North Atlantic Treaty Organization’s (NATO) bombing of Serbian Army forces in Kosovo and Serbia proper from March 24 to June 10, 1999.

Following the June 10 end to the fighting, the United Nations Mission in Kosovo (UNMIK) took over the governance of a ruined Kosovo. Among the normal needs to be restored most urgently (food, water, electricity, etc.), was the ability to pay for things. Kosovo’s banks were closed, and its financial and monetary connection with Belgrade and the rest of the world was not functioning. There was an urgent need to revive Kosovo’s ability to make payments while also determining what sort of financial systems to build for a future, more integrated with the rest of Europe.

If only by using it, Kosovars themselves had answered what currency they wished to use—the German mark (DM). But arrangements were urgently needed for how to acquire and maintain DM banknotes and coins (I remember well the tattered currencies in post-war Bosnia and Iraq), and to adjust the procedures of banks and other money handlers to the use and safekeeping of DM, rather than the Serbian dinars previously supplied by the National Bank of Serbia.

The International Monetary Fund (IMF) joined with the United Nations, the World Bank, the United States Agency for International Development (USAID), and other international organizations to provide the needed emergency humanitarian assistance and to help in the rebuilding of a potentially transformed economy. I led the IMF missions to address the money and banking aspects of this effort. The revival and/or restructuring of Kosovo’s monetary capacities needed to be achieved in days and weeks rather than months and years. This was a tall order.

My latest book documents our work to revive and transform Kosovo’s monetary system and some of the challenges and adventures we encountered in the process. Most of us only see the public face of our payment systems (currency, ATM machines, credit cards). In recounting our experiences in restoring and transforming Kosovo’s payment system, I will endeavor to pull back the curtain a bit to expose what is behind and generally out of sight.

If this interests you, you can buy the paperback or kindle versions here. https://www.amazon.com/s?k=Warren+Coats&i=stripbooks&crid=10ON15E99H8X6&sprefix=warren+coats%2Cstripbooks%2C63&ref=nb_sb_noss_1  This will also give you the opportunity to rate the book. I hope that you will enjoy it.

Goodbye Unipolar World, and Good Riddance

“Power tends to corrupt and absolute power corrupts absolutely.” Lord Acton. The United States has accomplished a lot—a lot of it good—as the world’s indispensable nation.  But as Lord Acton said, power tends to corrupt and as the time of American dominance has gone on its diplomatic skills have eroded. It behaves more and more like a bully that expects to get its way. It is in our interest to recognize and adjust to our diminished relative power and to rebuild our diplomatic, soft power skills of persuasion. It will help us better adhere to the values and rules we preach to others but increasingly ignore ourselves.

In the July, 2023 issue of Foreign Affairs, Justin Winokur offers an excellent review of the adjustments we need to make in The Cold War Trap How the Memory of America’s Era of Dominance Stunts U.S. Foreign Policy “Cold war trap-America foreign policy”

These days our most important international challenge is our relationship with China. While each sovereign nation is entitled to its own approach to its internal governance, its interactions with the rest of the world require mutual understandings and/or agreements. Following World War II, the rules for such cross border interactions have generally been developed by international organizations to which all or most countries are members, such as the UN and its many agencies, the World Bank and regional development banks, and the IMF. To take but one example, the skies full of telecommunications satellites would not be able to serve anyone properly without the rules and spectrum allocations via the International Telecommunications Union.

It is in America’s interest, as well as the interest of most countries, to draw China more fully into the international organizations established after World War II—the Bretton Woods and UN Institutions. “Chinese competition-Asia stability-institutional balancing”  But China is increasingly going its own way and creating its own international organizations. BRICS, China’s Belt and Road Initiative, Asian Development Bank, The Shanghai Cooperation Organization, Asian Infrastructure Investment Bank. Why?

Why have we failed to convince China that its interests are also serviced by joining and cooperating with the liberal international order? When China was admitted to the World Trade Organization on December 11, 2001, and requested help from the IMF with how best to satisfy the WTO’s rules, the IMF sent me. The officials I met with in China told me over and over that there was no differences of opinion in China over where it wanted to go (in joining the liberal international order). The debate was only over how fast to get there. In recent years this has changed. It has changed, in my view, in part because the U.S. has abused its dominance in the world and failed to yield (balance) appropriate power to China.

As I have spent most of my professional life with the International Monetary Fund, let me illustrate these points with the determination of IMF quota’s which is meant to reflect its members voting strength and financial contribution to world trade. A member country’s quota reflects its size and position in the world economy. The basic formula, which provided the base line for quota decisions is:  Quota = (0.50*GDP + 0.30*Openness+ 0.15*Variability  +0.05*Reserves)^K.

But when the IMF was created, the US wanted to ensure that it would dominate it. It insured that some important decisions could only be taken with super majorities. A few even required an 85% majority, such as to adjust quotas, or amend the IMF’s Article of Agreement.  The U.S. was initially given a quota well above that 15% that gave it veto power over these limited policies. As the rest of the world has grown, the size of the US economy relative to the whole world’s output has fallen from 40% in 1960 to 24% in 2019. “US share of global economy over time”  China’s GDP relative to world GDP, on the other hand, rose from 4.5% in 1960 to 16.3% in 2020. Thus, a strict adherence to the IMF’s quota formula should have significantly increased China’s quota and reduced the US quota.

Quoting from Wikipedia: “China has been trying to expand its political and decision-making power within the IMF. The IMF’s voting system weights each country’s vote based on the amount of that country’s monetary contribution to the Fund. China has been trying to raise its quota. In May 1980, the Chinese government appealed to adjust its IMF quota. With approval from the IMF board, the quota of China was increased from 1.2 billion SDRs to 1.8 billion SDRs. China also obtained a single-country seat on the IMF executive board, which expanded the number of IMF directors to 22 members. As of 2017 the quota of China in the IMF was 30.5 billion SDRs, giving it 6.09% of the total vote.

“To further rebalance power in the IMF, China appealed for changes that would transfer voting power to developing economies.[5] In 2010, the Chinese executive director of the Fund, Zhou Xiaochuan, addressed the board and asserted that giving more power to the emerging economies was critical for the group’s legitimacy, accountability and long-term health.” China and the International Monetary Fund – Wikipedia

Currently the IMF quota for the US is 17.43%, remaining well above the critical 15% needed to retain its veto power, while those of other larger economies are China 6.40%, Canada 2.31%, Germany 5.59%, Japan 6.47%, and UK 4.23%. This is not in keeping with the IMF’s base line quota formula.

This exploitation of American dominance is driving China away and dividing global cooperation to the detriment of the whole world, including the U.S. The current U.S. approach to “competing” with China is not consistent with our values nor our long run interest. “Competing with China”

Our economic and political success—the beacon on the hill that has attracted the best and the brightest to our shores—is the result of our individual freedom and rule of law, not our coercive power and its bullyish use. I hope that we wake up before it is too late. “Why do we promote growth in other countries?”

The politics of Trade

The post WWII history of international trade and the World Trade Organization has been one of gradual liberalization, i.e., a gradual roll back of tariffs and other trade restrictions. Each side offering freer imports in exchange for freer exports. But the game can work in revers as well. The U.S. has restricted –actually banned—the export to China of high end semiconductors that it fears might have military uses in China. China has responded by banning the export to the U.S. of rare materials needed to produce these chips. It sounds a bit like a joke—a bad joke.

Poor Janet Yellen, who is now visiting China. The Secretary is as sharp as they come but is in the middle of this impossible game.

“U.S. Treasury Secretary Janet Yellen criticized China during a visit to Beijing for imposing export controls on critical metals, expanding subsidies for state-owned firms, and imposing punitive measures on foreign businesses. Her harsh remarks spotlight the gulf between the U.S. and China, and the difficulty of translating calls for improved ties into actual improved ties. A top Chinese official told China Daily that the curbs on metals exports were “just the beginning” of efforts to combat U.S. restrictions on China’s semiconductor sector, and warned that Beijing could yet “escalate” if Washington were to toughen its rules further, a move it is reportedly considering” Semafor Flagship July 7, 2023

But as reported by Bloomberg she had more positive things to say as well:

“Yellen Says US-China Rivalry Not ‘Winner-Take-All’ Situation (Bloomberg)

U.S. Treasury Secretary Janet Yellen said competition between the world’s biggest economies is not a “winner-take-all” situation, and called for both sides to manage their rivalry with a fair set of rules. Yellen’s comments were delivered today during a meeting with Chinese Premier Li Qiang as she made a long-anticipated trip to Beijing, aimed at finding some common ground between the two superpowers. “We seek healthy economic competition that is not winner-take-all but that, with a fair set of rules, can benefit both countries over time,” the Treasury chief told China’s No. 2 official, adding that U.S. actions to protect national security should be “targeted.” Li also struck a note of optimism, telling Yellen he believed bilateral ties would eventually see a “rainbow,” after going through a period of “wind and rain.” He also urged Chinese entrepreneurs to brace themselves for “hardships” and “look further to the horizon.” From IMF News Report, July 7, 2023

Yes, these are from the same trip. How it turns out is anyone’s guess. But a return to freer trade is in everyone’s best interest—win win as we say. National security can be a legitimate (sensible) reason for restricting trade. But it must be very carefully applied if it is not to degenerate into counterproductive protectionism.

Why do we promote growth in other countries?

The world’s twenty largest economies give around $100 billion in aid to poorer countries each year, about 40% of which is to promote economic development. Promoting economic development and growth in other countries is not just charity or to buy peace. More prosperous countries, those that produce more, contribute to our own prosperity more directly as well. 

It is easiest to understand this fact if we think of growth within our own country or state or town. https://wcoats.blog/2023/01/22/trade-once-again/  When you sell something you made and/or own, you benefit from the sale or you wouldn’t have undertaken it. Similarly, the buyer benefits or it wouldn’t have made the purchase. As you have heard or read me and other economists state over and over again, trade is win-win.

But the benefits go beyond the win-win benefits of the transaction itself. Being able to buy some of what I need from others rather than having to make it myself frees up my time to specialize in producing for sale to others what I am best at. In short, and forgive me for repeating this for the umpteen time, world out increases from the specialization that trade enables. As the result of trade world GDP skyrocketed in just 50 years from $1.3 trillion in 1971 to $96.5 trillion in 2021. https://wcoats.blog/2018/03/03/econ-101-trade-in-very-simple-terms/

We benefit from the inventions of entrepreneurs anywhere in the world and should encourage such developments. Pfizer’s Covid vaccine was developing in Germany by BioNTech, with whom Pfizer partners to produce to large quantities demanded. China’s incredible growth over the last thirty years has contributed to our own growth as well. In 1991 the US exported to China $5.2 billion worth of goods, which had grown to $151.i billion in 2021. In 1991 the US imported $12.7 billion worth of goods, which had grown to $506.4 billion in 2021. Following Nixon’s famous trip to and recognition of China in 1972, I remember well a friend who asked “what would we possibly want to buy from China?” We should cheer the fact that China’s economy has grown dramatically to the benefit of us all.

In general, we should welcome and encourage the economic growth of all countries around the world. The exceptions might be for countries that threaten war on their neighbors or us. We might well block the export of our products and related technologies with clear military applications to countries that might pose a military threat. And we might be cautious not to rely on such products from such countries. While these would be sensible policies, they are also easily abused by domestic industries wanting to be protected from competition.

When I was in China in the summer of 2002 to help its compliance with the requirements of the World Trade Organization, those I met were excited about growing into the world trading system. China was a rising power, most certainly not an enemy. How did they become an enemy, if indeed they are. In a word, Taiwan. But I can see nothing China has done to violate their agree with the US about Taiwan as part of One China. If China has become an enemy—a threat to the US—we are largely responsible in my opinion by raising doubts about our commitment to the One China policy.

This is not to say that China has always behaved according to the rule. I and many others were there to help them move in the right direction. Now we have pushed them backward for no good reason. Hopefully the Biden administration is beginning to recognize this and we will return to promoting China’s growth rather than repressing it.   https://wcoats.blog/2022/10/23/competing-with-china/

Competing with China

China is now our main economic and political rival. Our proper and honorable response should be to strengthen our side—to be the best that we can be—in the way that one athletic team would fairly compete with another. Instead, we seem to be following the Michael Corleone—God Father—script of knee capping the enemy. Worse still, rather than pulling China into compliance with the international rules of commerce, we are moving toward their failing system of central guidance (industrial policy) of investment.

Deng Xiaoping, who served as the “paramount leader” of the People’s Republic of China (PRC) from December 1978 to November 1989, ended Mao’s repressive economic policies thus freeing up much of the economy under policies dubbed “socialism with Chinese characteristics.” Deng became known as the “Architect of Modern China.” “Since China began to open up and reform its economy in 1978, GDP growth has averaged almost 10 percent a year, and more than 800 million people have lifted themselves out of poverty.” When Xi Jinping took the throne in 2013, China’s annual GDP growth rate was 7.8%. As he increasingly reversed Deng’s economic liberalizations, China’s growth rate has steadily declined and is expected to average 2.8% in 2022. “World Bank – China”

The dramatic economic growth around the world since the start of the industrial revolution is founded in private property and trade. Trade enables individuals (and families) to specialize in what they have a comparative advantage in producing and trade it for what their neighbors are better at. Both are wealthier as a result. “Econ-101-Trade in very simple terms”    “Benefits of free trade”

Following President Richard Nixon’s page turning first visit to the Peoples Republic of China in 1972, when China’s total exports had drifted down from 4.3% of China’s GDP in 1960 ($2.6 billion) to 3.25% ($3.7 billion), until the U.S. formally established full diplomatic relations with the PRC under Deng in 1979, when its total exports were 5.16% of its GDP ($9.2 billion), exports remained a small part of China’s economic output. U.S. diplomatic recognition opened the door to increased trade with China.

At the time, a friend asked me what China could possibly produce that we would want to buy (I swear). While Chica’s exports changed little over those 19 years as a share of its GDP, it increased threefold in dollar value as a result of Chica’s overall economic growth.

Over the next 19 years (1979-1998) following Deng’s economic liberalization, China’s exports rose to 18.34% of its GDP and to $188.8 billion in absolute terms (over 20 times its exports in 1979). Income growth in developing countries normally reflect investment in capital, but in China’s case the larger share of its spectacular growth after its liberalization resulted from the improved efficiency of its resource allocations (increased labor and capital productivity). According to an IMF study “Analysis of the pre- and post-1978 periods indicates that the market-oriented reforms undertaken by China were critical in creating this productivity boom…. Prior to the 1978 reforms, nearly four in five Chinese worked in agriculture; by 1994, only one in two did. Reforms expanded property rights in the countryside and touched off a race to form small nonagricultural businesses in rural areas.” “Why Is China Growing So Fast”

But to maximize the win-win feature of trade, each person/firm must make its decisions about what to produce and trade without distorting outside interference (taxes, subsidies, buy American, etc.). Thus, communities develop rules and norms for “fair” trade. When trade extended beyond the community to the entire world, individuals and countries could maximize the mutual benefits of trade by extending such rules internationally. The U.S. had high protective tariffs on some Chinese goods under the Smoot–Hawley Tariff Act of 1930 (the Reciprocal Trade Agreements Act of 1934 allowed the US President to negotiate bilateral tariff reductions). China had many restrictions on foreign investments in China and a variety of government interventions in its export markets. These restrictive measures needed to be addressed as part of granting China membership in the World Trade Organization (WTO).

From joining the WTO at the end of 2001, China’s $272.1 billion in exports exploded to almost $3,550 billion over the next 19 years (2020), an increase of 13 times (essentially the same share of its GDP as the result of its extraordinary growth in total output). China’s imports followed a similar, but modestly lower, path, raising from 4.4% of GDP ($2.6 billion) to 17.42% of GDP ($3.090 billion) in 2020.  Prior to China’s admission into the WTO what had historically been generally balanced trade (imports and exports generally balanced) rose to a trade surplus of 4.45% in 1997. China sold more abroad than it bought from abroad and bought U.S. debt and property with the resulting surplus. It was hoped and expected that China’s pursuit of an export promotion policy based on an undervaluation of its exchange rate would be reined in by its adoption of WTO rules.

The Peoples Bank of China requested technical assistance from the IMF with complying with WTO requirements. In July 2002 the IMF sent me to discuss and organize the assistance for what was one of my most enjoyable missions (VIP tours of the Great Wall and the Forbidden City and some fabulous dinners). They wanted an American banking supervisor. One of my conditions was that he be given an office with an open door with the rest of the Chinese supervisors. The Deputy Governor approved our agreement, but the Governor vetoed it reflecting the existence of conflicting views on China’s way forward. The primary difference with the officials I talked to was how fast China should liberalize. They all agreed on the direction. The IMF report cited above stated that: “By welcoming foreign investment, China’s open-door policy has added power to the economic transformation. Cumulative foreign direct investment, negligible before 1978, reached nearly US$100 billion in 1994; annual inflows increased from less than 1 percent of total fixed investment in 1979 to 18 percent in 1994.” Direct foreign investment in 1994 was $34 billion and in 2020 it was $253 billion.

China’s gradual liberalization of its restrictions on capital outflows have resulted in larger outflows than inflows since early 2020. Between February and July of this year (2022), China suffered a record net outflow of US$81 billion via the Stock Connect and Bond Connect mechanisms, according to data from the Institute of International Finance (IIF). 

As developing countries catch up to the developed country leaders, their growth rates are expected to slow. But China’s continued heavy government direction of investment, while producing impressive high-speed trains and many thousands of high-rise apartments, and the resulting level of wasteful malinvestment is increasingly taking its toll. After speaking at a People’s Bank of China and Reinventing Bretton Woods conference in Hangzhou in 2014, I continued West to participate in the Astana Economic Forum, in Astana, Kazakhstan, stopping overnight in Urumqi, China, to celebrate my 72 birthday and change planes. Driving from the airport into a lovely Sheraton Hotel in downtown Urumqi, I passed row upon row of empty high-rise apartments (it was evening, and they were all dark) now the source of a major real estate crisis.

When Xi Jinping took over as China’s leader in 2013, the unfinished project of economic liberalization was stopped and put into reverse. The slowing of China’s growth rate accelerated. Clyde Prestowitz reported that: “The CCP [Chinese Communist Party] has long operated the economy on the basis of five year plans. In 2015, the new five year plan included the objective of: Made in China 2025. It listed a range of hi technology items with a target for making them in China by the year 2025. Semiconductors were high on the list, and as an advisor at the time to Intel, I can say that China exerted enormous pressure on that company and many others to move their production of semiconductor chips to China” “Tom Friedman has Biden and China Backward”

We are competing with China just as every firm competes with every other firm. It is mutually advantageous for both economies to grow. It is win win. But neither of us fully plays by the rules of fair trade. What should we do? While adopting policies to strengthen our own economy, we should encourage China to fulfil its WTO obligations. We are doing the opposite. We are taking the God Father mobster approach. As Edward Luce put it in the Financial Times: “Imagine that a superpower declared war on a great power and nobody noticed. Joe Biden this month launched a full-blown economic war on China — all but committing the US to stopping its rise — and for the most part, Americans did not react”  “Containing China is Biden’s Explicit Goal”

German Chancellor Olaf Scholz declared that “Globalisation has been a success story that enabled prosperity for many people. We must defend it…. Decoupling is the wrong answer…. 

We don’t have to decouple from some countries,… I say emphatically we must continue to do business with China.” “Decoupling China wrong answer says German leader”

“Mr. Xi and President Biden should focus their efforts on the future they seek, rather than the one they fear…. If a peaceful — if competitive — coexistence is the ultimate objective, Washington and Beijing do not need to knock each other out to win.” Jessica Chen Weiss in NY Times

We are restricting and reducing trade rather than encouraging its expansion. Not only has President Biden left former President Trump’s unjustified and damaging steel and aluminum tariffs in place (including on Canada) on national security grounds, but we have also directly knee-capped Chinese industries (Huawei, semiconductor chip supplies, etc.). “On 7 October, the Biden administration imposed a sweeping set of export controls that included measures to cut China off from certain semiconductor chips and chip-making equipment. Under these rules, US companies must cease supplying Chinese chipmakers with equipment that can produce relatively advanced chips unless they first obtain a licence.” “What do US curbs on selling microchips to China mean for the global economy”

Historically, such measures, as well as tariffs and bans on certain imports, have been motivated by protecting domestic firms or industries. “The Reign of Polite Protectionism”  The Jones Act of 1917, which forbids shipping goods between US ports in anything other than US built ships, is one of the most useless and embarrassing such laws (ask Puerto Rico). Banning the sale of some items to China can have a military justification but drawing the line between justifiable security concerns and the protection of uncompetitive domestic firms can be difficult. Trump’s 25% tariff on Canadian steel was (but cannot honestly be) justified on national security grounds. Whither justified or not, such restrictions make China and the U.S. (and the rest of the world) poorer. “Next salvo in Biden’s tech war on China expected to aim at quantum computing parts and artificial intelligence software.”  “US mulling bans to stunt China’s quantum computing”  Such restriction are examples of the knee-capping approach to competing with our rivals. “Trade protection and corruption”

But worse still we are now increasingly adopting China’s approach to economic management by the state—so called industrial policy. The recently adopted Inflation Reduction Act, for example, along with measures to reduce carbon omissions, subsidizes the domestic production of solar panels, wind turbines, batteries, and the processing of some critical minerals. A good economic case can be made for encouraging the use of low or non-carbon emitting sources of energy such as with the carbon taxes imposed in Europe. But there is no good case for incurring the higher cost of subsidizing the manufacture of low carbon emitting energy sources in the U.S. The same applies to subsidizing the domestic production of semiconductor chips as is established in this Act. The historical experience with government selection and support of particular products or technologies is not good to say the least. The Trump administration’s promise to buy successful Covid vaccines was a much better and very successful approach to encouraging the private sector.

“French President Emmanuel Macron slammed US trade and energy policies for creating “a double standard” with Europe…. He complained that ‘they allow state aid going to up to 80% on some sectors while it’s banned here — you get a double standard…. It comes down to the sincerity of transatlantic trade….’ The EU has been chafing over the US stimulus package known as the Inflation Reduction Act, which provides subsidies for electric cars made in North America.” “Macron accuses US of trade double standard amid energy crunch”

The financial incentive for corruption in obtaining government financial support is obvious. But even without it, government agents are at best just as good at determining and funding the best new and promising technologies for the future as are private entrepreneurs. The difference is that the private entrepreneurs are risking their own money and the government is risking yours and my money. The vast majority of such undertakings fail. When funded by the government, however, there is less financial pressure to fold and move on when outcompeted by better products. The government landscape is littered with white elephants.  “Questioning industrial policy”

Our China related policies have become damaging to the US and the West in almost every respect. “The China Initiative, launched in 2018 by the administration of former US president Donald Trump, aimed to fight suspected Chinese theft of technical secrets and intellectual property as competition between the two countries intensified…. At least 1,400 US-based ethnic Chinese scientists switched their affiliation last year from American to Chinese institutions,… The US had been ‘losing talent to China for a while and particularly after the China Initiative’,” “1400 US based ethnic Chinese scientists exited American institutions”  Not only do they return with Western technical knowledge but they also return with a fondness for Western values and freedom. Many Chinese retain that fondness and the desire to import more of it into China. We should not kill off those desires.

Doug Bandow offers sound advice: “There is still much for the West to do. The future is not set, and contra Xi’s boastful rhetoric, freedom still is the better bet for the world. Washington should start by addressing its own weaknesses. Free and allied states can constrain the PRC when necessary while cooperating with Beijing when possible, addressing Chinese abuses without adopting the PRC’s authoritarian and collectivist strategies. Americans should continue to engage the Chinese people, especially the young, showing respect for a great civilization while making the case for a free rather than totalitarian society. America can remember the crises she has overcome in the past, and confidently confront the China challenge today.” “Xi plays Mao without the madness”

A land of Immigrants

Ken Burns’ latest documentary (with his co-directors Lynn Novick and Sarah Botstein), “The U.S. and the Holocaust” is a well-timed reminder of Americans mixed views on immigration. As we all know, aside from the native Americans living here when Europeans began arriving, all of us, or our ancestors, are immigrants. But once here, many Americans decided that was enough and further immigration should be significantly curtailed.

The Burns’ documentary also reminds us of immigration seen from the perspective of those wanting to come.  Before the fall of the Berlin Wall, some of us will remember cheering as East Germans escaped from East Berlin in the German Democratic Republic (DDR). We were happy to see them escape their communist oppressors, but some were less happy to see them arrive in their own countries. But logically, if someone leaves one country, they must enter another. “Emigration and Immigration”

Immigrants fall into two broad categories: those fleeing persecution or mistreatment and those seeking better opportunities in new countries (America’s promised land). Some combine both motives. Not all asylum seekers desire to move to wealthier lands. Many Jews fleeing Germany hoped to return to their homeland after the era of Hitler. They chose to move temporarily to nearby countries such as the Netherlands, France, Poland, and Belgium. Otto Frank of the “Diary of Ann Frank” fame moved his family to Amsterdam.

“The U.S. foreign-born population reached a record 44.8 million in 2018.  Since 1965, when U.S. immigration laws replaced a national quota system, the number of immigrants living in the U.S. has more than quadrupled. Today those born abroad account for 13.7% of the U.S. population, nearly triple the share (4.8%) in 1970. However, today’s immigrant share remains below the record 14.8% share in 1890, when 9.2 million immigrants lived in the U.S…. More than 1 million immigrants now arrive in the U.S. each year….  New immigrant arrivals have fallen, mainly due to a decrease in the number of unauthorized immigrants coming to the U.S. The drop in the unauthorized immigrant population can primarily be attributed to more Mexican immigrants leaving the U.S. than coming in.” “Key findings about U.S. immigrants”

The American economy and the standard of living of the average household have benefited enormously from immigration. Those seeking better opportunities are disproportionately the best and the brightest from their home countries. The founders and heads of some of our best fintec companies were born abroad.  In fact, surprisingly, population growth in general in countries with free markets, property rights and rule of law has increased the standard of living enormously for almost everyone. From the emergence of humans individual living standards barely changed. The advent of agriculture 10,000 years ago created a small improvement. That changed with discovery of the “new world” and related expansion of trade 530 years ago and accelerated with the Enlightenment and the industrial revolution just 350 years ago. In the last 60 years per capita real incomes increased 2,414% in Ireland and 232% in Mexico (the least growth of those countries for which there was data). Over the last 40 years alone per capita real income in China doubled every 7.1 years. Between 1900 – 2018 the average real income of unskilled workers in the U.S. increased 1,473%. These and other amazing data can be found in “Superabundance” and extraordinary collection of very interesting income and resource data.

Accepting refugees has a different purpose and motivation. We accept immigrants for our benefit and we accept refugees for their benefit. Countries have an obligation to provide asylum to anyone who arrives at their territory with reason to fear persecution under the convention’s criteria. Ken Burns Holocaust documentary confronts us graphically with why this is necessary.   “Asylum in the United States”

Asylum seekers are a small fraction of total immigration each year. In FY 2019, the most recent pre-pandemic year with available data, 46,508 individuals were granted asylum.  Most immigrants entering the U.S. each year are joining family already here or looking for better opportunities (better lives).  As noted above they invariably contribute to raising incomes of those of us already here.  

There are many problems with our immigration rules and their administration. Congress has tried for decades to address them without success. But the recent political stunts by the governors of Texas and Florida reflect America at its ugliest.

“The group of 50 migrants flown to Martha’s Vineyard, Mass., by Florida Gov. Ron DeSantis (R) last week had nearly all recently arrived from Venezuela. Another group of 100 dropped outside the vice president’s Washington, D.C., residence this weekend also included those fleeing the country. And buses sent to Chicago by Texas Gov. Greg Abbott (R) largely included Venezuelans. 

“The U.S. in recent weeks has seen an even greater shift in migration from Venezuela, Cuba and Nicaragua.”  “GOP stunts with migrants sweep up those fleeing regimes they denounce”

Governor DeSantis and Abbott where not helping these refugees await their court hearings in greater comfort. They did not alert the authorities in Martha’s Vineyard, Chicago, or DC to prepare for their arrival. Their purpose was to share the burden with (and punish) “sanctuary cities”. Their purpose was to make a political statement using the refugees as innocent pawns.

A “suit was filed in federal court in Massachusetts. It takes aim at DeSantis, Florida Secretary of Transportation Jared Perdue and the state of Florida.

“The core of the case is the allegation that the migrants were coaxed onto the flights by false promises — “fraudulent inducement” in legal terms — and that this means DeSantis and his allies infringed those migrants’ rights and committed fraud.

“It asserts that migrants were approached outside a shelter in San Antonio by mysterious people who won their trust by supplying them with minimal benefits such as McDonald’s vouchers.”   “What you need to know about the complex legal challenges to DeSantis’s migrant flights”

Nunca from Texas provides important information on who these refugees are and understanding those facts is important: 

“I volunteer as a translator with asylees coming through the Texas border and I wanted to make a thread on who these migrants are, what help is actually needed and why what DeSantis and Abbott are doing is so needlessly cruel….

“The first and most important thing you should understand, these are LEGAL asylum seekers. They are not illegals. They are not undocumented.

“They have been given permission by our government to enter the US pending their official court date. The law ONLY requires that asylum seekers be present on US soil and that they present themselves to officials to request asylum.  That is it.

“Anyone who calls them illegal immigrants is really telling on themselves and deliberately trying to confuse the issue. 

“Once they present themselves to border officials, they are processed and then given a court date to officially plead their case.  This court date is almost always a year away and in a major city far from the border, like Boston, NY, Miami, Chicago, etc. 

“You can always spot the asylum seekers coming out of detention facilities because they don’t have shoelaces (story for another day) and they have court papers in one hand.

“Another thing I would note, the Biden admin is STILL immediately deporting the vast majority of asylees. The folks that make it through come from the most harrowing conditions you can imagine. I have met whole families who had to flee El Salvador on foot because gangs threatened to kill them if their son did not join.

“I met a man who was attacked by police for leading a protest. In almost every case, these are smart, hard working CHRISTIAN refugees. Their ability to assimilate into America and thrive is limitless. They love America. They just want a chance to live and thrive in peace. 

“WHAT HELP DO THEY NEED?

“Because these groups already have court dates and in almost every case, they have family they can stay with, they only really need two things: short term food and shelter and transportation. And I mean short term. Usually less than 12 hours. 

“In most cases, these asylees only need help getting to the bus station and maybe a bite to eat while they wait. Sometimes they need to stay overnight until the next bus leaves and sometimes they need help buying a ticket, though family usually buys the ticket for them. 

Border towns and local non profits have been dealing with this for 4 years. This did not start with Biden. It was actually worse under Trump.

“But these areas already know what to do with these transient asylees and they already have the resource networks in place to manage them. In most cases, an asylee will leave detention and organizations like Catholic Charities are right there to greet them and figure out if they can go straight to the bus station or if they need temporary shelter. Local municipalities & non profits here have gotten real good at it 

“WHY IS “BUSSING” ASYLEES AROUND THE COUNTRY SO BAD?

“Initially, I didn’t complain too much about Abbott’s decision to bus immigrants because it actually helped them. It gave them a free ticket to get closer to family. And they weren’t being forced to go.

“But…. The problem with Abbott’s approach is that they are often lying to the migrants about where they are going and what will be waiting for them. And even worse, when they get to NY or DC, Abbott is deliberately choosing to drop them off far away from the resources they need.  Abbott could easily notify DC that they are coming and then he could drop the migrants off right at the doorstep of the bus station or non-profit ready to greet them. It would cost him nothing.

“But he is choosing to dump them where it harms the City and migrants the most. 

By dumping them in front of the VPs house, like he did this week, now local officials have to figure out, without any notice, how to get 50 people in the heart of the City out to where the resources are ready to receive them. 

“And what DeSantis did yesterday takes it up another notch. He deliberately lied to immigrants in Texas who were already being managed by non-profits and shipped them into MV where no one was ready to help them. It was deliberately cruel and created to maximize pain. 

“Credit to the people of Martha’s Vineyard who stepped up in a huge way and responded. They did exactly what they were supposed to: they took care of their immediate needs and helped them get on their way. What folks here in Texas have been doing for years. 

“If Abbott and DeSantis actually cared about helping relieve the burden created by asylum seekers, they could just as easily and far more cost-effectively funnel the millions they are spending on their cynical stunt and give it to the non profits already doing the job. 

“Do asylees create a burden on border communities? Sure. But it is a burden we have already learned how to manage and the only thing we really need is more resources. It would be far more effective to just buy migrants a sandwich and a bus ticket than a private plane to MV. This is the kind of deliberate misinformation Conservatives are being fed.

“These migrants SHOULDN’T stay in MV because they have family and court dates in other places. They were TRICKED into being there.”

***********  

In an interview with the Washington Post about his new documentary, Ken Burns said:  I made a comment about the [Florida Gov. Ron] DeSantis play in Martha’s Vineyard as being a kind of an authoritarian response, just as it was when Disney says we don’t agree with you, he punishes them. When a state employee doesn’t do what he says, he fires them. That’s the authoritarian thing. It’s not the democratic way that you handle it. But the right-wing media has said that I’ve equated what DeSantis did with the Holocaust, which is obscene. I mean, literally obscene to do that. But it is also classic authoritarian playbook to sort of lie about what somebody just said in order to make it so outrageous that then you can deny the complexity of what’s being presented.”  “Ken Burns holocaust documentary”

What DeSantis and Abbott are guilty of is fraud. They lied to those sent to Martha’s Vineyard and Washington DC about where they were being sent and what they would receive when they got there. Fortunately, most of us still believe in the rule of law where fraud is punished.

“’The Republicans are so quick to bash the Venezuelan government and to say, ‘But we love the Venezuelans.’ And then the minute that vulnerable populations from Venezuela arrive in our country, they then use them as political pawns. It’s really beyond reprehensible. It’s a really repugnant motivation,’ Rep. Veronica Escobar (D-Texas) told The Hill.”   “GOP stunts with migrants sweep up those fleeing regimes they denounce”

“Lawyers for Civil Rights (LCR), a Boston-based legal advocacy group, filed the lawsuit on Tuesday challenging what it called the “fraudulent and discriminatory” scheme to charter private planes to transport almost 50 vulnerable people, including children as young as two, from San Antonio, Texas, via Florida, to Martha’s Vineyard last week without liaising to arrange shelter and other resources.

“The two charter flights cost about $615,000 – $12,300 per person – of taxpayers’ money, according to the legal filing….

“’This cowardly political stunt has placed our clients in peril. Numerous laws were brazenly violated to secure media headlines,’ said Oren Sellstrom, litigation director for LRC.” “Martha’s Vineyard immigration lawsuit”

Immigration is a very complicated and fluid issue and what I have pointed out above is just one part of many parts of the problem. Racial and religious discrimination is another avenue of contention in the immigration debate. One wonders whether deSantis (or anyone opposed to immigration in general) would behave differently if these asylum seekers where of a different color and from a different country. My Afghan friends unable to escape from Kabul look enviously at the Western welcome of Ukrainian refugees. But that’s a discussion for another article.

May justice be done.  “Immigrants from hell”

Nancy Pelosi in Taiwan

Nancy Pelosi, the Speaker of the U.S. House of Representatives, just arrived in Taiwan. Why is this a big deal? Shouldn’t anyone be able to visit any country that has opened their doors to them? It depends on the context and purpose.

The civil war for control of China was won by the Chinese Communists lead by Mao Zedong in 1949. The opposition, led by General Chiang Kai-shek, fled to Taiwan and reestablished the Republic of China (POC) there. The civil war was fought on and off between 1927 and 1949 when the victorious Mao established the Peoples Republic of China (PRC) and designated Taiwan as its 23rd province. Both the PRC and POC claimed to be the legitimate governments of all of China.

Following President Richard Nixon’s historic visit to China in 1972, “the United States moved to recognize the People’s Republic of China (PRC) and de-recognize the Republic of China (ROC) in 1979, [and] the United States stated that the government of the People’s Republic of China was ‘the sole legal Government of China.’ Sole, meaning the PRC was and is the only China, with no consideration of the ROC as a separate sovereign entity.

“The United States did not, however, give in to Chinese demands that it recognize Chinese sovereignty over Taiwan (which is the name preferred by the United States since it opted to de-recognize the ROC). Instead, Washington acknowledged the Chinese position that Taiwan was part of China. To this day, the U.S. ‘one China’ position stands: the United States recognizes the PRC as the sole legal government of China but only acknowledges the Chinese position that Taiwan is part of China.

“Congress passed the Taiwan Relations Act in 1979 to protect the significant U.S. security and commercial interest in Taiwan. The TRA provided a framework for continued relations in the absence of official diplomatic ties….  The TRA sets forth the American Institute in Taiwan as the corporate entity dealing with U.S. relations with the island; makes clear that the U.S. decision to establish diplomatic relations with the People’s Republic of China rests upon the expectation that the future of Taiwan will be determined by peaceful means;… mandates that the United States make available defensive arms to Taiwan; and requires that the United States maintain the capacity to resist any resort to force or other forms of coercion that would jeopardize the security, or the social or economic system, of the people on Taiwan.”

“What is US one China policy and why does it matter?”

All American Presidents have affirmed this one China commitment while maintaining its “strategic ambiguity”. “U.S. Secretary of State Rex Tillerson said [that] the Trump administration is committed to the long-standing ‘One China’ policy as it reviews U.S. policy toward China, but also intends to keep all of its commitments to Taiwan.” June 13, 2017. “USA China-Tillerson committed to one China policy”

More recently: “Joe Biden made a potentially dangerous statement on Monday. In Tokyo, he gave a flat ‘yes’ to a reporter’s question of whether he was willing to ‘get involved militarily to defend Taiwan’. ‘That’s the commitment we made,’ the president claimed. In fact, the United States scrapped its formal commitment to defend Taiwan in 1979…. This is the third time in less than a year that Biden has publicly declared that the United States would use force to keep Beijing from seizing the island.  “Biden defend Taiwan-China invasion”

Pat Buchanan asks: “But if the U.S. went to war to defend Taiwan, what would it mean? We would be risking our own security and possible survival to prevent from being imposed on the island of Taiwan the same regime lately imposed on Hong Kong without any U.S. military resistance.”  “Is Taiwan’s independence worth war?”

What is Pelosi’s objective in going to Taiwan? What does she hope to accomplish with her poke in the Chinese eye? Our interest should be to promote the integration of Taiwan with the rest of China “by peaceful means.” Our diplomacy should be deployed to that end. President Biden’s repeated slips and Nancy Pelosi’s Taiwan visit do not provide the tone nor context for such diplomacy. I believe that her visit to Taiwan is a dangerous mistake. While we would be hard pressed from thousands of miles away to win a war with China, China would suffer enormously as well and probably has better sense than to start such a war. But what is the purpose of such a challenge?

Econ 101:  Oil Price Cap

Among U.S. (and E.U. and some other primarily Northern countries) objectives in reacting to Russia’s invasion of Ukraine, is to diminish its capacity to continue this war, in part by reducing its export (largely oil and gas) income with minimum damage to the U.S. and other embargo supporters and to pressure it to the bargaining table sooner rather than later (we are trying to do that aren’t we??). As you can see from the previous sentence, this is not a particularly simple issue.

One measure being promoted by U.S. Treasury Secretary Janet Yellen is to cap the price at which we are willing to buy Russian oil.  If we just stop buying Russian oil all together (effectively a price of zero), global oil supply would presumably fall, and oil prices would rise. We know, of course that Russia will redirect its sales to countries not participating in the embargo, such as China and India, to the extent it can and the oil these countries would have purchased from Saudi Arabia and other suppliers would then be available to us and global oil supply would not fall as much as we might have expected nor would prices increase as much as otherwise. Much could be written about this (the limited potential of embargoes if not everyone participates), but I won’t.

The idea of Secretary Yellen’s cap is that rather than buying no Russia oil we (and all embargo participants) would continue to buy it but at an agreed price that is below normal market prices in normal time (the price cap). Thus, hopefully, Russia would still sell its oil to the West but would earn less foreign exchange from it and the West would have more oil than with a total blockage and thus avoid sharp market price increases.

“There are several outstanding issues to settle on the price-cap idea. Those include figuring out exactly how to enforce it, convincing other nations to subscribe to it and deciding the sales price at which Western countries would permit the purchase of Russian oil. Looming over the proposal is also the presumption that Russia would continue to sell oil at a price mandated by the U.S. and its allies.”  “WSJ: Janet Yellen begins Asia trip to win support for cap on Russian oil price”

“Some economists and oil industry experts are skeptical that the plan will work, either as a way to reduce revenues for the Kremlin or to push down prices at the pump. They warn the plan could mostly enrich oil refiners and could be ripe for evasion by Russia and its allies. Moscow could refuse to sell at the capped price…. 

“Mr. Biden… moved swiftly to ban imports of Russian oil to the United States and coordinate similar bans among allies. In some ways, the price-cap proposal is an acknowledgment that those penalties have not worked as intended: Russia has continued to sell oil at elevated prices — even accounting for the discounts it is giving to buyers like India and China, which did not join in the oil sanctions — while Western drivers pay a premium….

“The cap plan seeks to keep the Russian oil moving to market, but only if it is steeply discounted. Russia could still ship its oil with Western backing if that oil is sold for no more than a price set by the cap.”  “NYT Biden gas price cap Russia”

John Bolton, whose view I don’t generally share, said about Yellen’s oil price cap: “The proposal, academic and untried, faces multiple practical obstacles and uncertainties. Widespread sanctions violations by Russian maritime cargoes already exist, with no reason to think the oil-price cap is more enforceable.” “WP: Biden oil price cap-Russia Sanctions”

Such efforts to “hurt” Russia cannot avoid also hurting us. What other approaches might the Biden administration consider?

“The White House… has held off for months on backing a gas tax holiday, amid divisions within the Democratic Party and skepticism a roughly 18.4 cent-per-gallon discount would be passed on to consumers….  In private meetings with senior Energy Department officials to discuss ideas for boosting supply and lowering prices, some industry representatives have instead used the sessions to push for longer-term priorities like building pipelines and easing environmental restrictions.”  “Politico: White House-Biden-gas prices”

“Rep. Kim Schrier, D-Wash.,… called it “infuriating” that spikes in gas prices were “happening at the same time that gas and oil companies are making record profits and taking advantage of international crises to make a profit. This must stop.″ “PBS: House approves bill to combat gasoline price gouging”

When the supply of a product falls short of its demand, the gap can be closed in one of two ways. Both involve rationing a scarce commodity as is required for anything in limited supply which is virtually everything. The first approach—the market approach of price rationing—allocates the product to those who want it the most, i.e. those who are willing to pay the most for it. The second approach—the administrative allocation approach—allocates the product to those the government agency responsible for choosing who gets it, determine are most worthy or in most need of it based on the criteria the agency sets (which in practice invariably includes friends and relatives). History has clearly documented which of these methods of allocation works best.  Some of you will remember the long lines at gas stations when President Richard Nixon capped gasoline prices (another form of rationing).

That leaves measures that encourage increased supply from everywhere except Russia or that facilitate reducing demand. “Biden officials are openly pleading with Big Oil to pump more, not less. ‘We want them to get their rig counts up. We want them to increase production so that people are not hurting,’ [Energy Secretary Jennifer] Granholm said.”  “CNN: Gas prices-Biden-inflation” A higher price at the pump provides the market a strong incentive to increase supply, but that generally takes years to achieve much of an increase. In the interim profits of the suppliers will be higher than usual.

Some months back policy sought to reduce the consumption of carbon omitting products as part of our effort to slow global warming. For that objective an increase in gasoline prices would be a good thing, whether from a gas tax or restrictions on finding and pumping more oil out of the ground.

For the moment, encouraging more production by Saudi Arabia and other (non Russian) members of OPEC would be helpful. Finally rejoining the JCPOA (Iran deal), Trump’s withdrawal from which Max Boot called the “single worst diplomatic blunder in U.S. history” “WP: Trump-Biden Iran nuclear deal dead with no alternative”, would, among other important things, increase an important source of oil supply, as would dropping sanctions on Venezuela. If we can make deals with Saudi Arabia, given all it has done, deals with Iran and Venezuela should be no brainers.

Ending the war in Ukraine promptly is the most important measure for addressing the shortage of oil (and food more generally). “End the war in Ukraine”

End the war in Ukraine

With regard to Russia’s war in Ukraine, are you in the “peace camp” or the “Justice camp”? Do you want a peace agreement to end the war or do you want to punish Russia for the terrible things it has done no matter how long it takes?  “The Economist on Ukraine” It is rarely wise to take strategic decisions when enraged by someone’s behavior. It is currently hard not to want to flatten Russia for its illegal and brutal war with Ukraine (the Justice camp) but it would not be in our or the world’s interest to do so (Peace camp).  “The Russian war in Ukraine”

Everyone will suffer from continuing the war even without escalation. The world will suffer serious food shortages, oil and gas shortages, disruption and reorganization of the global trading system, and Ukraine and its economy will be in ruins.  And no one should forget that Russia is a nuclear power, in fact it has the largest nuclear arsenal in the world.

Ukraine President Zelensky said that he is willing to keep Ukraine neutral and out of NATO (but in the EU). He also demanded that Russia withdraw to the territories it occupied on February 23, 2022, which included the Crimea and parts of the largely Russian speaking Donbas. In a face-to-face interview with the managing editor of the Economist magazine on March 27 and as quoted in my blog above, Zelensky stated that: “Victory is being able to save as many lives as possible…because without this nothing would make sense. Our land is important, yes, but ultimately, it’s just territory.”

But on April 17, “President Volodymyr Zelensky told CNN that Ukraine is not willing to give up territory in the eastern part of the country to end the war with Russia.”   “Zelensky Russia war tapper interview-cnn-tv”  

Speaking at the Davos World Economic Forum last week, Henry Kissinger stated that “it’s time to think about a diplomatic settlement to end the war, and that settlement will have to include territorial concessions to Russia. ‘Ideally, the dividing line should be a return to the status quo ante,’ referring to the pre-war lines in which Russia controlled the Crimean Peninsula and approximately a third of territory in the Donbas. ‘Pursuing the war beyond that point would not be about the freedom of Ukraine, but a new war against Russia itself.’” “Does Henry Kissinger have a point?”

It is politically very difficult for either Ukraine or Russia to give up territory they hold or aspire to.  Edward Luttwak, a strategist and author of “The Logic of War and Peace” among many other books, has proposed a solution to this political dilemma, which like all political compromises should be acceptable to both sides without being fully satisfactory to either.  He proposes to settle the territorial issues via an internationally supervised plebiscite for determining the fate of each Oblast:

“That leaves the disposition of the Donetsk and Luhansk oblasts, substantial territories that Zelensky does not have the authority to give up, and without which Putin cannot leave the table where he has gambled and lost so much. While Putin cannot be given the two regions he demanded before starting the war, he can be provided with something that he can portray as a victory: plebiscites in both regions where properly certified residents, including returning refugees, would be allowed to vote on whether their oblast should remain Ukrainian or join Russia.

“Upon acceptance of the plebiscites in principle, a cease-fire would come into immediate effect, with Russia’s respect of their terms guaranteed by the ease of reimposing sanctions just lifted.”  “How the Ukraine war must end”  Allowing the residents of each region to determine their own affiliation can hardly be objectionable to the rest of us.

The Justice Camp and the military industry that cheers it on should yield to the Peace Camp in the interest of all of us.  “Ukraine’s and Russia’s war”