My Review of Odd Arne Westad's "The Coming Storm: Power, Conflict......"

 War Clouds on the Horizon

In a previous blog I noted that we are living in a prewar era analogous to the runup to the start of World War II. (See: https://shulmaven.blogspot.com/2023/11/reliving-1930s-part-5.html ) Here Yale historian and global affairs professor Odd Arne Westad argues that a more appropriate analogy would be that of the prewar period approaching World War I. In many respects his argument parallels that of Graham Allison’s Thucydides Trap where the rise of China is inducing fear in the United States that has the potential to make war inevitable. ( See: https://shulmaven.blogspot.com/2017/08/my-amazon-review-of-graham-allisons.html ) Instead of the Balkans being the hotspot in the pre-1914 world, today we China-Taiwan, Israel-Palestine, Russia-Ukraine, and Pakistan-India. Anyone of which that could put the great powers in play.

 

In the pre-World War I era it was the rise of Germany that was threatening Britain, but Westad goes further by stating the bipolar world of the Cold War is over, and, in fact, we are now living in a multi-polar world with many strong regional actors such as India, Türkiye, Brazil and Iran.  He further analogizes that Russia is the Austria-Hungary of our day by being China’s junior partner. Similar to our time, the pre-World War I era was characterized by rising nationalism and a growing dissatisfaction with globalism. Fear and resentment were the motivating forces of the era. Sound familiar? 

 

My problem with Westad’s book is that he doesn’t offer real solutions, but who can, to the U.S.-China antagonism and for the regional hotspots. Because the book was written prior to the current Iran War, which has the potential for a great power conflict, Westad doesn’t have much to say.  There is also little discussion on the current revolution in military affairs involving drones and artificial intelligence which is greatly influencing the diplomatic chessboard. That said, if pre-World War I is the appropriate analog, we are in for trouble.

 

Venezuela: Too Early to Tell

Much has been written about the rendition of Venezuelan President Nicolas Maduro to the United States to stand trial on drug trafficking and arms smuggling charges. We have had predictable reactions from the Right hailing it as successful operation to remove an anti-American  dictator and from the Left attacking it as a throwback to the Yanqui Imperialism of the early 20^th Century that will lead to a quagmire.

 

To me, it is far early to tell how it will turn out. What we do know is that Maduro was an evil dictator who tortured and murdered his people with abandon and the country has a heavy presence of Russian, Chinese, Iranian, and Cuban forces. Thus, Venezuela represented a threat to U.S. security. Whether the threat is imminent or not is an open question. We also know that Venezuela possesses the largest oil reserves in the world, but much of it consists of tar sands which is costly to produce and that the oil fields are operating in a dilapidated condition causing oil production to drop from three million barrels a day to just under a million barrels a day over the past 20 years.

 

We are far from being reassured by Trump talking about oil and not talking about a return to democracy. Indeed, the entire security apparatus of the Maduro state remains intact. We do not know to what degree Vice President and now President Delcy Rodriguez will cooperate with Trump. She has given off very mixed signals, and we don’t know where the army will end up. We can surmise that given the intelligence that was available to the U.S military, it is likely that someone on the inside is working for us. Who that person or persons are, and their future role will be critical in the days ahead.

 

Trump is opting for stability over democracy. That may work in the short run, but if there aren’t any plans for elections after six months this whole adventure could go south very quickly. It is obvious that the Democratic Opposition would win an election; they did so under Maduro’s control. The question is whether or not the Maduro security apparatus will allow an election to take place and if it does take place will they allow the winner to be seated. Before rushing to judgement let’s give it some time for events to play out.

 

Outside of Venezuela both China and Russia are looking on. They too can make similar moves in the Taiwan straits or the Baltic States, respectively.

Some Thoughts on Trump's National Security Strategy

Earlier this week the Trump Administration released its updated National Security Strategy. (See: https://www.whitehouse.gov/wp-content/uploads/2025/12/2025-National-Security-Strategy.pdf ) Needless to say that given the howls that went up, it was far from being universally applauded, especially in Europe. Europe is rightly concerned that the era of having a NATO umbrella over the continent is over. However, given earlier commentaries coming from Vice President Vance, in particular, the document should not come as a surprise. Trump’s policy of selling out allies and cozying up to adversaries is all there in black and white.

I have three preliminary thoughts on the strategy. First, it is harkening back to the America First of 1939-1941. It focuses in on hemispheric security to the exclusion of Europe and just has America First leader Charles Lindbergh was open to a modus vivendi with Nazi Germany, here we have America open to a condominium with Putin’s Russia. It certainly does not bode well for Ukraine and for that matter Israel. Further, the strategy puts policy muscle behind Trump’s Caribbean buildup against Venezuela. To the Trump Administration Latin America is now part of an American economic zone.

Second, there is the strong smell of Yalta in the document. Instead of Roosevelt and Stalin dividing up Europe, we now have Trump, Putin and especially Xi dividing up the world into spheres of interest. The glue holding the deal together is economic self-interest. Where Taiwan fits into this over the longer term is very ambiguous.

Third, there are some hard policy realities behind the document. Europe has the ability to defend itself against Russia; it only lacks the will. Russia remains bogged down in Ukraine after more than three years of war indicating it is not as strong as once thought. If Ukraine can hold its own against Russia, so too can a much larger Europe.

What perhaps pissed off Europe the most was that the document called out its “civilization decline.” Unfortunately, that is the reality, and Europe has to recognize that advanced welfare states cannot run a policy of open borders without severe consequences. Simply put, in a generation Europe will not be the Europe of history. Net net, the policy calls for the U.S. to be an offshore balancer with respect to the world outside of Latin America. (See: https://shulmaven.blogspot.com/2025/08/my-review-of-andrew-lamberts-no-more.html )

The Wall Street Journal Follows Shulmaven on Socializing the Economy

 Today's Wall Street Journal brought with it an important article by economics columnist Greg Ip entitled "U.S. Marches Towards State Capitalism...." (See: https://www.wsj.com/economy/the-u-s-marches-toward-state-capitalism-with-american-characteristics-f75cafa8?mod=hp_lead_pos5 , paywall) In the article Ip outlines how the U.S. is moving towards state capitalism with Trump's demands for a share of NVIDIA's chip exports to China, the golden share in the U.S. Steel takeover and Biden's industrial policy. In my words, socialism with American characteristics. 

Aside from the over-night news about chip exports, Shulmaven made the same case on July 27th where we added tariffs and Biden's DEI policies. ( https://shulmaven.blogspot.com/2025/07/on-road-to-serfdom.html )Whether we call it state capitalism, socialism or fascism, the result is the same. We are entering a world of state controlled economic activity which in the words of Hayek will put us on "the road to serfdom."

The Pentagon Makes a Play for Rare Earths

In taking a page out of Winston Churchill's playbook, where Britain acquired a 51% controlling interest in the Anglo-Persian Oil Company (now BP) on the eve of World War I, the Pentagon today made a $400 million dollar investment in rare earth miner/refiner MP Materials. The Pentagon on full exercise of its convertible preferred and warrants will own 14% of the company and become its largest shareholder. Paired with the investment is a long-term supply contract at fixed minimum prices thereby ensuring profitability. 

Rare earths are used to make highly sophisticated magnets that are used in advanced aircraft (think F-35) and guided missiles. At the present time the bulk of the rare earths used by the Pentagon and U.S. industry are imported from China, not the best of circumstances.

The Pentagon's logic behind the deal is identical to Churchill's over 100 years ago. As First Lord of the Admiralty Churchill was seeking a secure supply of oil for the Royal Navy. In addition to its investment, Britain secured a 20-year supply contract for Anglo-Persian's oil. 

As an aside, the preferred stock is convertible at $30.03 a share. MP Materials stock shot up to $44, so thus far the Pentagon is well ahead of the game.

Stocks too Complacent About the TACO Trade

 Last week brought with it the International Trade Court opinion declaring Trump’s use of the Emergency Economic Powers Act declaring his reciprocal tariffs on all of America’s trading partners to be illegal, the arrival of the new acronym TACO and a breakdown in trade talks with China. Coined by Financial Times columnist Robert Armstrong, TACO stands for “Trump Always Chickens Out.” That was brought home by Trump’s sudden pullback from his 50% tariff on the EU. (See: https://shulmaven.blogspot.com/2025/05/debt-tariffs-and-stocks.html ) When Trump was asked about it at a White House event he reacted very defensively because the one thing a bully can’t stand is being called “chicken.”

While the trade court ruling is being appealed, the Trump team said it would use all of the other powers available to him, of which there are many, to maintain his high tariff wall. On Friday he acted by doubling the tariffs on steel and aluminum from 25% to 50%. That will work as a dagger in the heart of America’s steel and aluminum using industries, namely automobile, aircraft, and machinery. This certainly won’t help Boeing, America’s leading exporter, on its road to recovery. 

The steel and aluminum tariffs will further estrange Canada from the U.S. where its direct exports will be clobbered, and it will make Canadian manufactured autos and parts even more expensive. If Canada weren’t heading for a recession before, it is now.

 

My guess is that in the long run the TACO trade maybe right, but in the short run, Trump will keep tariffs much higher than the 10% the market now expects. Thus, when the 90 day pause on high tariffs rolls around on July 2^nd, a whole new round of high tariffs will be put in place. Just when investors thought it was safe to go back in the water, a dangerous riptide will be pulling away from the shore

A Stock Market in Denial

Investors in the U.S. stock market are living in a state of denial. To be sure, the S&P 500 advanced nine days in row for the first time since 2004, and it has bounced 14% off the early April low, investors are wishing away the trade tsunami that is about to hit the economy. As I write this, the west coast ports are shutting down, bringing with it layoffs among dock workers and truckers. That malaise will soon spread eastward. 

Consumer confidence remains in the toilet. Thus, it is no surprise that year-over-year same store sales for McDonald’s, Chipotle, and Starbucks are down. Indeed, domestic airline travel is down, and foreign tourists are staying away from America in droves. On the business side, save for the Magnificent 7, capital spending plans are plummeting. Although the recent employment report for April was better than what I would have expected, my guess is that it will turn out to be the last good report we will see for quite some time. As a result, my March forecast calling for a recession starting in the current quarter still stands. (See: https://shulmaven.blogspot.com/2025/03/the-recession-of-2025.html ) 

Investors remain in denial that the postwar global architecture of the past 80 years is in ruins. (See: https://shulmaven.blogspot.com/2025/04/regime-change-end-of-economy-as-we-have.html ) To me this means that all of the old rules of thumb concerning the economy and the stock market are no longer valid. Simply put, we are entering a new world with unknown economic and geopolitical   consequences. In a nutshell, the world has become a much riskier place.

For those who believe that the U.S. will win the trade war with China, I have a few words of caution. According to the “Sinocism” newsletter, the domestic Chinese media are portraying the trade war as a “protracted war.” The members of the Chinese Communist Party know full well that the term “protracted war” harks back to Chairman Mao’s 1938 pamphlet calling for protracted guerilla warfare against the Japanese aggressors. That war lasted for seven years. Further, Thucydides taught us 2500 years ago that nations go to war for “honor, fear, and interest.” To China the trade war with the United States is a matter of honor.

The bottom line is that soon the denial phase of the current bear market will soon turn to anger as investors realize that the Trump tariff policy will bring with it higher prices and reduced output yielding a stagflationary recession. When that realization crystalizes, the S&P 500 will breach the April low before too long.

My Review of Hampton Sides' "On Desperate Ground"

 The Chosin Few

Hampton Sides published his Korea War opus “On Desperate Ground” nearly seven years ago. It was highly acclaimed at that time, so don’t have much to add. All I can say his book portrays the heroism of the men of the 1st Marine Division in extraordinary personal detail. They were true heroes surrounded by Chinese and North Korean forces in the Chosin Reservoir who engaged in a spectacular breakout in the freezing cold. Through his words you can feel the snow and the winter cold at 4,000 feet in the North Korea of November 1950. 

To me the marine grunts are the true heroes of the book. However they benefitted from the great generalship of Oliver Prince Smith, who should be in the pantheon of great American generals. They also benefited from the engineering genius of Col. John Partridge who, under fire, constructed the landing field that would supply the surrounded marines and built a pontoon bridge that enabled the mass evacuation of the division. 

General Douglas Macarthur comes under withering criticism. After his very successful Inchon landing, MacArthur became blinded by his own ego. He ignored warnings of an imminent Chinese intervention and when it came, he was oblivious to its impact. It was the human wave attacks of the Chinese that made the defense of the Chosin Reservoir so perilous. Had the marines not benefitted from American air superiority, they would have been massacred. 

Although the Korean War took place 75 years ago, it still resonates today by asking the questions: Do we have soldiers of courage that would display the heroism of that time, and do we have the generalship to guide them? It goes without saying that Donald Trump couldn’t shine Harry Truman’s shoes. 

SHAME

I never felt so ashamed for my country than I did yesterday when I watched President Trump bully Ukrainian President Volodymyr Zelensky in the oval office in front of a worldwide television audience. In Trump’s mind Zelensky was guilty of not kissing his ass so Trump stood foursquare for Putin’s aggression in Ukraine and in the process seemed to abandon the Western Alliance. I really should not have been surprised because his administration threw Ukraine under the bus at the Munich Security Conference two weeks ago. (See: https://shulmaven.blogspot.com/2025/02/trump-and-new-hitler-stalin-pact.html) 

As I noted then what Trump is doing is not appeasement, but rather he has made the U.S. a co-aggressor with Putin’s Russia. This will end badly with China being the only real winner. If there is a small silver lining here it will be to rouse Europe from its slumber by forcing a massive increase in its hitherto inadequate military expenditures.

In the aftermath of Trump’s bullying, I was nauseated to watch his sycophants cheer him on. Secretary of State Marco Rubio, Secretary of the Treasury Scott Bessent and Senator Lindsay Graham all belong in the hall of shame. Trump wanted a cabinet of suck-ups; he certainly has one.

 

The Tariffman Strikes

Donald “the Tariffman” Trump will announce today a 25% tariff on all goods coming from Mexico and Canada and a 10% additional tariff on all goods coming from China. And this is only the beginning with additional tariffs on E.U. products and some specific duties coming. The tariffs on Canadian and Mexican products are an obvious violation of the United States-Mexico-Canada Treaty that Trump signed when he was president the first time. 

To put the tariff question in context, the U.S. imported $3.3 trillion of goods last year, about 11% of our GDP. On a purely arithmetic basis, a 10% tariff on all imports would raise the price level by approximately one percent and a 20% tariff would raise the price level by 2%. However, a potentially stronger dollar and foreign producers absorbing part of the cost would partially reduce the inflationary impact.

Although many economists poo-poo the long-term inflationary impact of the tariffs as a one-time increase, I am skeptical. Why? First, the tariffs will cause a costly rejiggering of supply chains in the longer run, and second in the short run there will be chaos at the Mexican and Canadian border points of entry where all goods shipment will be held up until the tariff is paid. Further it is not clear to me how consumers will respond to the price increases. Instead of thinking like an economist, many consumers might believe that a new inflationary spiral has started. Recall, all the talk about the transitory nature of inflation in 2022.

Importantly, we have to remember that tariffs are an excise tax on imports. As such they raise prices and reduce output with stagflation being the result. Throwing sand into the gears of the economy can hardly promote growth. To the contrary it will stifle growth and add to inflation.

My Review of Joseph Kanon's "Shanghai"

 Shanghai Dreams, Shanghai Nightmares

 

This is the third historical novel by Joseph Kanon I have reviewed. (See: Shulmaven: My Amazon Review of Joseph Kanon's "Defectors: A Novel" and Shulmaven: My Amazon Review of Joseph Kanon's "Leaving Berlin: A Novel" )  Here the scene shifts from Europe to Asia where journalist Daniel Lohr is escaping 1939 Berlin via first class passage from Trieste to Shanghai. We learn later that Lohr had ties to the Comintern which would become useful. On the ship he as an affair with Leah Auerbach, another Jewish escapee from Vienna. Auerbach is received in Shanghai by a Jewish welfare agency aiding refugees from Europe. Also, on the boat was a Col. Yamada, a member of the Japanese secret police. We will see much more of him as the novel progresses.

 

Lohr’s trip was financed by his Uncle Nathan, a mobster from Berlin and the United States. He bailed from the U.S. after crossing the Mafia. Uncle Nathan puts Daniel in charge of running his new casino, The Gold Rush. He soon realizes that Nathan has partnered with two rival Chinese gangs in this venture that would ultimately put him in a crossfire.

 

As with his other novels Kanon gives us a real feel for the smells and the depravity of Shanghai as the international concessions await the full occupation of the Japanese. We also get a sense of the intrigue between the Japanese, the gangs, Chiang Kai-Shek’s government, and the rising communist movement. As with his other novels, Kanon tells the story with style and grace.

My Review* of Sergey Radchenko's "To Run the World: The Kremlin's Bd.........."

 The Rise and Fall of Soviet Foreign Policy

 

Johns Hopkins professor Sergey Radchencko has given us a deeply researched and encyclopedic book on Soviet foreign policy from 1944 – 1991 from the point of view of the Soviet leadership. He gets into the heads of Stalin, Khrushchev, Brezhnev, Gorbachev, and their foreign policy minions. The Soviet leadership faced the tension among three incompatible goals of maintaining its revolutionary ideology, the need for security and its search for legitimacy among the nations, especially the United States.

 

He starts off with Stalin as the ultimate European focused leader whose “percentages agreement” with Churchill in late 1944 opened the way for Soviet control over Eastern Europe. He argues that Stalin did not initially want to Sovietize the Eastern Europe economies until he witnessed the failure of the French and Italian Communist parties to win electorally in the mid-1940’s. I don’t really buy that because the hardening of the Soviet position occurred while the war was still going on. Further, Radchenko fails to mention the Duclos letter to the American Communist Party in April 1945 criticizing its softness which signaled a hardening of the Soviet position worldwide.

 

What Stalin envisioned in 1945 was that Russia, as in 1815, would be part of a new Concert Europe that would run the continent. Hence Soviet power would be viewed as legitimate. Russian actions in Poland, Czechoslovakia, and Berlin soon stripped away any sense of legitimacy, and in response NATO was formed. What I found fascinating was that anglophiles in the foreign ministry, Maksim Litvinov (ex-foreign minister and ambassador to the U.S.) and Ivan Maisky (ex-ambassador to the U.K.) played leading roles in developing Stalin’s European policies.

 

In Asia Stalin did not believe that Mao would succeed and for a time played the nationalists off against Mao’s communists. Mao accepted Stalin’s leadership as a junior partner. He would not feel such obedience under Khrushchev. In Iran Stalin was very cautious and he withdrew his forces from northern Iran thereby selling out the local communists who supported him.

 

Khrushchev was far more reckless. In Europe he ignited a Berlin Crisis, n caused a nuclear war over missiles in Cuba, and was an early supporter of Third World revolutionaries. Russian influence had to be reckoned with throughout the world. All the while the Soviets were building up their missile and nuclear capabilities in a direct challenge to the United States. This was crucial to Khrushchev because he sensed the unfairness of the United States having military bases surrounding the Soviet Union while he couldn’t have bases close to the United States. Hence, the big play in Cuba.

 

Khrushchev’s 1956 speech denouncing Stalin sent ripples throughout Communist Parties around the world triggering revolts in Poland and Hungary. While Chairman Mao respected Stalin, he had no such respect for Khrushchev and hence the long simmering Chinese jealousy towards Russia began to boil.

 

The split with China would widen to even include military action and a break in diplomatic relations with the Soviets and the opening of relations with the U.S. after the Nixon visit in 1972.  In 1978 Deng Xiaoping took power and embarked China on a capitalist road to prosperity. His goal was modernization, but as early as 1982, after he realized that the U.S. would stand by Taiwan, China gradually began its drift back towards Russia. In fact, two weeks before the 1989 Tiananmen massacre China resumed diplomatic relations with Russia. Thus, it should not be surprise to see Putin’s Russia and China cozying up in recent years.

 

In 1964 Brezhnev replaced Khrushchev and simultaneously accelerated the nuclear arms race and sought détente with the United States. In making arms deals with Nixon, Brezhnev at once lowered the risk of a nuclear holocaust and achieved the legitimacy he sought from the United States. One of the most powerful vignettes in the book is that Radchenko recounts that at the height of the 1973 Yom Kippur War Nixon was asleep and drunk and Brezhnev was zonked out on sleeping pills. The decision over war and peace was thus made by Kissinger and Andropov.

 

Brezhnev’s failing health later in the 1970’s was emblematic of sclerosis seizing up in the Soviet economy. Even allowing for Soviet gains in Africa, Soviet power was falling under the weight of its weakening economy. That economy would be put to the test with Reagan’s military buildup in the early 1980’s. Simply put the Russian leadership went into panic mode fearing they could not keep up. If you learn one thing from this book, it is that Reagan’s foreign and defense policies brought the Soviets to their knees.

 

Gorbachev tried to turn things around with his glasnost and perestroika, but the Soviets were too far gone. To ease the pressure on the economy he made a series of arms control deals with Reagan and Bush thereby legitimizing his country and he cut loose Eastern Europe because the economy could no longer afford to subsidize its satellites.

 

Gorbachev was a proponent of the Gaullist notion of a Europe from the Atlantic to the Urals. He called it “Our Common European Home.”  It was too late. Radchenko notes that there were discussions about limiting NATO’s reach in Eastern Europe. However, not commitments were reduced to writing and thus under Clinton NATO expanded to the borders of Russia.

 

One last point the Soviet Union had two diplomats who were survivors, and they appear throughout the book. Andrei Gromyko was a power from 1945-1988 and Anastas Mikoyan was a major player from 1935-1966. It was though them that Soviet foreign policy has continuity and historical memory. Radchenko has written an important book, and it will be useful in gaining insights into how Putin’s policies are both a continuation and a departure from the history he has outlined.

*- I am engaged in a dispute with Amazon about my ability to post reviews on their site. Amazon alleges that I have gone afoul of their community guidelines. Amazon is very difficult to communicate with so dear readers if you have a way of weighing in with Amazon, please do.

My Amazon Review of David Sanger's "New Cold Wars: China's Rise, Russia's Invasion....."

Pre-War, Not New Cold Wars

 

New York Times national security correspondent David Sanger is way too close to his sources, National Security Advisor Jake Sullivan, and Secretary of State Antony Blinken, which is both an advantage and a disadvantage. It is an advantage because Sanger puts us behind the scenes to give us a very real sense of the diplomatic events of the past four years, especially the tick-tock of America’s warning to the world about the 2022 Russian invasion of Ukraine.  It is a disadvantage, because instead of being a clear-eyed reporter, he was sucked into the world views of Sullivan and Blinken, an apologia, if you will.  He buys into the idea that we will give enough aid to prevent a Russian win, but not enough to allow for a Ukraine victory.

 

In 2014 after Russia’s invasion of Crimea, I noted that this would the start of something big and both the U.S. and Europe would have to respond forcefully. (See:  Shulmaven: The Ukraine: What is to be Done )However, both the E.U. and the Obama White House accepted Russia’s aggression as a fait accompli. Thus, too me it was no surprise that given the lack of will in the West, that Putin would sooner or later go in for the kill.

 

 

If you want to put dates on the start of the new cold wars between the United States and Russia and China, you can start at the 2007 Munich Security Conference where Putin decisively separated himself from the West. In the case of China, you can use Chairman Xi’s 2013 address to the Communist Party where he girded the party cadre to prepare for the struggles ahead. Simply put, the whole policy framework that brought China into the global economy was a failure. In both cases Russia and China returned to their dictatorial roots with Putin viewing himself as the “new Tsar” and Xi as the “new Mao.” (See: Shulmaven: My Amazon Review of Fiona Hill and Clifford Gaddy's " Mr. Putin: Operative in the Kremlin")

 

Sanger rightly spends much time on the ongoing cyber war with both Russia and China being aggressors attacking both governmental and private web sites. It is here where such private companies as Microsoft, Google and Palantir play leading roles in defense of our country. We also can’t forget Elon Musk’s StarLink system initially saved the day in Ukraine.

 

Sanger picks up on Sullivan’s industrial policy views where the U.S. is now in the business of subsidizing America’s chip production. Because computer chips are at the core of both the modern economy and defense hardware, it makes little sense to import most of our chips from abroad, especially where the bulk of those chips come from very vulnerable Taiwan. (  Shulmaven: My Review* of Chris Miller's "Chip War: The Fight for the World's Most Critical Technology") Indeed, in the new Cold War, Taiwan is the new Berlin.

 

Sanger is too casual in his discussion of the new Russo-Chinese alliance that was formed at the Beijing Olympics in 2022 where the two partners stated their relationship was “without limits.” Hello, this foreign policy nightmare happened on the Biden Administration’s watch.  If Kissinger got credit for splitting the Soviets from China, shouldn’t the Sullivan/Blinken team get the blame. Within days Russia invaded Ukraine.

 

What is wrong with Sanger’s book is that he does not discuss defense policy. If we are in new Cold Wars with Russia and China, our stagnant defense budget certainly does not reflect that. Biden in his 2023 State of the Union address called attention to Franklin Roosevelt’s 1941 address discussing how dangerous our world has become. However, he did not mention that a week before Roosevelt called for America to become “the arsenal of democracy.”  ( See:  Shulmaven: President Biden's State of the Union: Strong on Form Weak on Substance) The defense budget would quadruple in the following year.  Similarly, Biden has yet to make the equivalent of the 1947 Truman Doctrine speech and Sanger has not reported any national security council memorandum equivalent to the 1950 NSC-68 which called for “a massive build-up of conventional and nuclear weapons.”

 

Sanger hardly discusses Iran and North Korea who are objectively aligned with Russia and China, a serious omission. It seems to me the world is a far more dangerous place than the new cold wars that Sanger suggests that are now with us. To me, we are in a far more dangerous pre-war period that we are ill-prepared to deal with it. (See: Shulmaven: Shulmaven Anticipates Hal Brands Foreign Affairs Article on Pre-WW II and Today)

For the full amazon Review see: Pre-War, Not New Cold Wars (amazon.com)

 

 

Sleepwalking on the Road to Perdition

 With Trump's 12 point victory over Nikki Haley last night in New Hampshire, it seems that we are getting the 2024 election that most Americans did not want. You can't argue that America is a forward looking country with two octogenarians vying for the presidency. Trump is looking backward to the 1950's where he grew up and to the 1930's antecedents to his America First ideas, while Biden is still stuck in 1970's industrial policy time warp and the extreme cultural liberalism of the1972 McGovern campaign which has been adopted by most of the Democratic Party. 

Meantime the world has become more dangerous by the day with the new axis of evil consisting of China, Russia and Iran threatening U.S. interests around the world. While both candidates will likely focus on domestic issues, it is important to note policy mistakes in the domestic area can be reversed with subsequent elections, foreign policy mistakes are not so easily reversible. This is especially true with the wrecker caucus Republicans holding up much needed aid to Ukraine and Israel. (See: Shulmaven: Crunch Time for Ukraine, Israel and the Border ) If Biden were to show some leadership he should make a deal on the Border with the Republicans and get that issue behind him. If not, my guess is that the Republicans will sweep in November.

Further Biden has to get out of his sleepwalking mode and, if he is capable, he has to run an all-out campaign a la 1948 Harry Truman against the do nothing Congress. However, that "if" is a BFD, as Biden would say. To continue the Truman analogy, Biden should give an all-out speech calling for a big increase in the defense budget to deal with the axis of evil. Otherwise I fear that we would be sleepwalking on the road to perdition.

Reliving the 1930's - Part 5

We started this series in March 2014 ( Shulmaven: Reliving the 1930s)  with Putin taking Crimea and using his proxies in eastern Ukraine and the last one was in April 2017 with  Trump’s and Obama’s vacillation in Syria in 2013 and 2017. ( Shulmaven: Reliving the 1930s - Part 4) With this blog I go further in that I now believe that we are no longer in the Post-Cold War Era, but rather we are now in what future historians will call a pre-war era.

 

Instead of facing the Berlin-Rome-Tokyo Axis we now face the Russia-China-Iran North Korea Axis We see this new axis playing out in Ukraine, Gaza, and the Taiwan Straits. All the signs were there in the 1930’s with Japan invading Manchuria in 1931 and the heart of China in 1937; Italy invading Abyssinia in 1935, and Germany reoccupying the Rhineland in 1936. However, it was not until 1938 that they were taken seriously.

 

In terms of economic policy protectionism was the order of the day in the 1930’s and we now witness the Biden Administration continuing and amplifying Trump’s protectionist trade policies. Although Biden’s trade policies conflict, he remains a committed internationalist. However, the Republican Party is reverting to its 1930’s form with its America First withdrawal from the world.

 

At home America’s college campuses look like prewar Germany where in many cases it is no longer safe for Jews to walk freely to class. Although anti-Zionism has always been a cover for antisemitism, recent events have ripped off all of its pretentions of being anti-Israel while still liking Jews. Nevertheless, unlike the 1930’s, Jews in America have more to fear from the Left than from the Right when the Father Coughlin’s of the world ruled the airwaves.

 

Further unlike the 1930’s when America had real leadership under Franklin Roosevelt, today’s divided government is challenged by a Putinista faction in the Republican Party that is implicitly allied with the new axis of evil. Be warned the clock is ticking.

  

My Amazon Review of Calder Walten's "Spies: The Epic Intelligence War Between East and West"

 Intelligence Wars

I normally frown on long books, but Calder Walten’s book weighing in at 688 pages is an exception. In this deeply sourced book Walten covers the 100-year East vs. West spy war starting with the formation of the Cheka in 1918 and its nontrivial influence on history. Like it or not the West has been at war with the Russians from the beginning and if you want a later date for the start of the Cold War you can use 1943 with the emergence of the Cambridge Five occupying high posts in the British security services and the atomic spy ring at Los Alamos.

The initial Soviet target was the British, but with the U.S. recognition of the USSR in 1933 the way was open for the NKVD and the GRU to establish outposts in the U.S. via their embassy and consulates and with the formation of AMTORG, the Soviet trading corporation. From this modest beginning came high placed spies including Alger Hiss, Lawrence Duggan Laughlin Currie and Harry Dexter White. And working with the U.S Communist Party, an error in tradecraft, the Soviets recruited the Rosenberg spy ring. Indeed, had Henry Wallace become President his choices for Secretaries of State and Treasury were Duggan and White, respectively making for a true horror show.

For the most part both the U.S. and Britain were oblivious to the Soviet threat through World War II. A case in point is that the atomic spy, physicist, and German communist Klaus Fuchs was cleared by British intelligence. In fact, the British were prohibited from spying on the Soviets and the U.S. OSS was riddled with Soviet Agents. On the U.S. side the one hero in the piece was FBI chief J. Edgar Hoover who was alert to the spying threat. (See: Shulmaven: My Amazon Review of Howard Blum's "In the Enemy's House: The Secret Saga of the FBI Agent and the Code Breaker who Caught the Russian Spies")  Based on the information coming from his spies, atomic spies, Stalin authorized the start of the Soviet nuclear program while the Battle of Stalingrad was going on. Stalin was thinking ahead to the postwar rivalry.

 

As good as Soviet spying was on Britain and the U.S. it objectively failed with respect to Germany because Stalin refused to believe the warnings coming from his intelligence apparatus. He even ignored the clear warnings from his super spy in Japan, Richard Sorge. (See: Shulmaven: My Amazon Review of Owen Matthews' "An Impeccable Spy: Richard Sorge, Stalin's Master Agent )

 

So successful was the Russian spying, especially through to the efforts of Cambridge Five member Kim Philby as MI6 liaison to the CIA, was that Stalin knew about America’s intelligence efforts before President Harry Truman. Indeed, Kim Philby was best buddies with James Angleton, the head of the CIA’s counterintelligence division.

 

This is not to say that the U.S. and Britain were asleep. The U.S. developed Oleg Penkovsky as an asset in Moscow. He was extraordinarily helpful during the Cuban missile crisis by informing Kennedy about the limited number of missiles that were operational in the Soviet Union. The British had Oleg Gordievsky, a high KGB official, who while in London briefed both Gorbachev and Thatcher on the eve of their first meeting in 1985. ( Shulmaven: My Amazon Review of Ben Macintyre's "The Spy and the Traitor: The Greatest Espionage Story of the Cold )  It was also Gordievsky who alerted the West that Russia truly feared that the U.S. was about to launch a preventive war during the Able Archer exercises in late 1983. Reagan took note of that and cooled his hot rhetoric that came from his “Evil Empire” speech earlier that year.

 

Walten also tells of the CIA’s paranoia in fearing nationalist uprisings as the vanguard of a communist revolution in the global south. Big mistakes were made in Asia, Latin America, and Africa. However, he does not that it was the weak Chilean economy and the army and not the CIA who overthrew Allende in 1973. Both the CIA and the KGB were playing cat and mouse with each other in that country.

 

Walten covers far more than spies. Aside from HUMINT, he discusses signal intelligence (SIGINT), electronic intelligence (ELINT) and image intelligence (IMint). I learned that Dr. Edwin Land, the founder of Polaroid, came up with the idea of using high resolution photography that became the basis of first the U-2 spy plane and later satellite imagery. The U-2 that was shot down over Russia in 1959 was accomplished through the use of a proximity fuse that was obtained from the Rosenberg spy ring.

 

I also learned that the dissolution of the Soviet Union did not turn off Russian spying. The KGB reformed as the FSB and the SVR and used such highly placed agents as Aldrich Ames in the CIA and John Walker in FBI counterintelligence. The damage these two caused was incalculable including the fingering of Gordievsky who escaped Russia by the skin of his teeth.  It seems that Clinton did not care about intelligence, but the new Russia plowed ahead. Walten discusses how the War on Terror diverted resources away from Russia and China to the West’s detriment.  Of course, it goes without saying that the Russian security services played a nontrivial role in the 2016 and 2020 elections. However, he does note the U.S. success in calling attention to Russia’s planned invasion of Ukraine in February 2022 which prevented a Russian false flag operation.

 

Walten ends his book with a discussion on China whose Ministry of State Security represents a far greater threat than the KGB/GRU ever represented. China’s espionage is across the board that involves stealing corporate secrets, cyber warfare, SIGINT, and the use HUMINT, in particular involving Chinese nationals in the U.S.  Remember the Russians were never an economic threat; China is thereby defending against its commercial spying critical.

 

Calder Walten’s well-written book is true public service. He highlights the fact that we live in a dangerous world where, as they say, eternal vigilance is the price of liberty.

For the full Amazon URL see: Intelligence Wars (amazon.com)

My Amazon Review of Peter Zeihan's "The End of the World is Just Beginning......."

 

The Coming Global Disorder

 

Peter Zeihan “end of the world” thesis is based on the demography of collapsing birthrates and the globalization we have been living with since the 1944 Bretton Woods agreement is in terminal free fall. To him, the era of “order” is over and will soon be remembered as an aberration. I agree with him with respect to global demographics, but, although weakening, globalization will still be with us. Of course, if Zeihan’s view of the end of globalization is correct, the world as we know it will be in a world of hurt.

 

Simply put, much of the world has benefitted from the international division of labor brought about by the monetary stability of Bretton Woods and the presence of the U.S. Navy protecting freedom of the seas for all of the participants in the global economy. Instead of pirates trawling the seas, we have giant container ships bringing a harvest of goods to global producers and consumers.

 

Zeihan adopts a neo-Trumpian view of global trade where the U.S. worker has subsidized the rest of the world and as a result the U.S. will withdraw from the global economy no longer interested in enforcing international norms. Thus, with the unity of the Cold War struggle with the Soviet Union over, the support of Western Europe and East Asia less important. Less important, maybe; irrelevant not quite.

 

Where Zeihan is on much sounder footing is his discussion of demographics. Both Russia and China along with most of Europe and northeast Asia are rapidly depopulating. Simply put, the world is getting older at a very rapid pace and will soon be without workers. Watching Russia and China grow old might not be so benign for the world, because I fear that their leaders understand this and are in the process of expanding their reach before it is too late. Hence Russia’s invasion of Ukraine and China’s increasing aggressiveness over Taiwan. Further Zeihan under-rates the capabilities of the Chinese navy.

 

Zeihan goes into great detail in discussing global transportation, finance, energy industrial materials, manufacturing, and agriculture. In the case of the last the end of globalization will bring with it the prospect of mass starvation. During World War I the Central Powers were cut off from global agricultural trade bringing with it mass starvation.

 

According to Zeihan the United States, because of better demographics, its resource base and proximity to both Canada and Mexico is in far better shape than the rest of the world. To be sure the U.S. would end up poorer, but compared to the rest we would be looking pretty. Of course, a war with Russia or China would radically alter this picture.

 

Zeihan has a breezy writing style making the book easy to read. My guess is that he is directionally right, but he over-states his case.

For the full Amazon URL see: The Coming World Disorder (amazon.com)

My Review* of Chris Miller's "Chip War: The Fight for the World's Most Critical Technology"

 Chips: The New Oil

 

Tufts professor Chris Miller makes a strong case that computer chips have become to the 21st century what oil was to the 20th century in terms of global politics. Computer chips are now ubiquitous and have uncountable applications in industry, consumer products and military hardware. We found that out when pandemic related supply shortages shut down production in a host of industries.

 

Miller plows over old ground with his discussion of the invention of the transistor at Bell Labs in 1947 to the co-invention of the integrated circuit in 1956 by Jack Kilby at Texas Instruments and Bob Noyce who would go on to lead Intel. He then goes on to discuss the “traitorous eight” who bail out of Fairchild Semiconductor in 1968 to for what was to become the Intel behemoth. They all wanted to get rich.

 

The government plays a major role in supporting the industry. The need to reduce the weight of the Minuteman missile sent the Pentagon scurrying to buy integrated circuits from Texas Instruments. As the Cold War heats up more and more integrated circuits find their way into military hardware. I remember in 1967 when I was working for Litton Industries, I first noticed integrated circuits appearing in airborne guidance and control systems.

 

Not mentioned in the book, Texas Instruments benefited from the Kennedy/Johnson White Houses sending defense contracts to Texas and New England. Silicon Valley in California was left out in the cold, but more than compensated by going after the lucrative civilian market. 

 

To me most interesting was the role of Texas Instruments engineer Morris Chang who invented chip production processes. When he was passed over to be president of the company he moves to Taiwan and is instrumental in establishing Taiwan Semiconductor, now the largest manufacturer of chips in the world. Who knows what would have become of Texas Instruments if he became its president.

 

It is Morris Chang who makes Taiwan a semiconductor powerhouse and that is the reason why most of the world’s chips are made there today. Being located 100 miles from China is not exactly the safest place in world to manufacture this critical commodity. It is for this reason there now is a move to diversify production to other sources including the huge U.S. government subsidies now being funneled into the domestic chip industry.

 

Because both the Russians and the Chinese understand how critical computer chips they established their own industries. The Russians did what they do best which was to copy the west, but with the technology advancing so quickly that became a failing strategy. China, on the other hand, is making a huge investment in their own chip industry to wean their economy’s dependence on western made chips and equipment. In case of the latter there was a story today where Chinese spies obtained secrets from ASML, the Dutch monopoly supplier of extreme ultraviolet lithography equipment. Their machines are essential in the manufacture of chips and cost $100 million apiece.

 

The saddest part of the book is Miller recounting the decline of Intel. It seems the bean counters took over from the engineers. In 2008 Intel turned down Steve Jobs’ offer to them to make chips for the I-Phone ceding the market to Qualcomm. Thus, Intel was nowhere in communication chips and it is being rapidly displaced in the server market by graphics processing chips being made by NVIDIA and AMD.

 

Miller’s book reads like a fast-paced business thriller. There are great anecdotes and reader will learn much about what will shape geopolitics this decade and beyond.

*-Amazon has yet to post this review. The review was just posted 2:23MST at            Chips: The New Oil (amazon.com) 

 

Random Thoughts on the Economy and the Stock Market- No. 2

Because I received surprisingly good feedback on last week's blog, I am going to push my luck with this one.

* The surprisingly strong employment report for January which indicated a gain of 517k in nonfarm payrolls and was confirmed by an 894K gain in household employment. Further there were cumulative upward revisions to the payroll survey of 813k jobs. The ebullience in the job market sent the unemployment rate down to a cyclical low of 3.4%. All of this means that the Fed Funds rate will be higher for longer and those looking for a pivot in 2023 are in for a disappointment.

* Even after Friday's interruption, NASDAQ is up an astounding 14.7% YTD. To me this means the excesses of the pandemic bubble have yet to be purged from the market. 

*The Chinese spy balloon incident and news that Iran is building a drone factory in Russia makes it less likely there will be any cuts in defense spending. Indeed there will likely be an increase above current planning.

* The biggest geopolitical event thus far this year has been the unusually warm weather in Europe rendering Russia's energy weapon mute, thereby strengthening European solidarity in support of Ukraine. 

Goldman Sachs Just Might Have it Wrong on Defense Stocks

Barron's recently highlighted a Goldman Sachs research report by analyst Noah Poponak downgrading three large defense stocks stocks, namely Lockheed-Martin, Northrup-Grumman and Raytheon (See: Goldman Sachs Is Cautious on Defense Stocks, Cuts Lockheed, Northrop, Raytheon | Barron's (barrons.com)(Paywall) A key reason for the downgrade was that Poponak believes deficit and debt worries will spill over into defense appropriations putting at risk the record $800 billion scheduled for this year and future spending, as well. 

To be sure such an outcome would not be out of the question, but Poponak while recognizing the geopolitical threats the United States and its allies are facing, he ignores the fundamental fact that defense spending as a share of GDP is now running at a postwar low. According to FRED data (BEA series A824RE) defense spending as of the third quarter of 2022 accounted for 3.6% of GDP, its lowest share since 1940 when it accounted for 2.7% of GDP. 

Presented below is the history for selected dates:

Date           Defense Share      Comments

Q3:52              16.0%              Korean War peak

Q3:67              11.2                  Vietnam peak

Q3:86                7.9                 Reagan Buildup peak

Q4:00                3.8                 Peace Dividend

Q3:09-Q4:10     5.5                 Afghan/Iraq peak

Q3:22                3.6                 Current

Thus it would be just as easy to argue that given the growing threat coming out of China, a Russia off the rails in Ukraine, North Korean nukes and the potential for Iranian nukes; that from over-spending on defense the U.S., despite current budgetary issues, is grossly under-spending. The world is far more dangerous now than when the U.S. was the global super-power in 2000.

Note: In the interest of full disclosure I am long several defense stocks including two of those mentioned.