Friday, June 24, 2022

... and now for something completely different (2022)

Hace casi exactamente cuarenta años, en agosto de 1982, México declaró una moratoria de la deuda. Esto marcó el comienzo de la crisis de la deuda latinoamericana y la llamada "década perdida", caracterizada por el estancamiento económico y la inestabilidad financiera. La causa inmediata de la crisis de la deuda fue el Volcker shock. Bajo su entonces presidente, Paul Volcker, el banco central americano endureció fuertemente la política monetaria para acabar con la inflación americana desenfrenada. Esto empujó a la economía estadounidense a la recesión, mientras que las altas tasas de interés, un dólar fuerte y la disminución de los precios de las materias primas causaron inestabilidad financiera y económica en América Latina durante la década siguiente.

¿Está América Latina hoy enfrentando con un choque comparecido? Sorprendido por la alta inflación, el banco central americano se ve obligada nuevamente a un rápido ajuste monetario con tasas que se prevé que aumenten de cerca de cero a principios de 2022 a casi 4% en 2024. Si bien es mucho menos dramático que los niveles del 20% alcanzados a fines de los años 70/ 80, una política monetaria más estricta rara vez reduce la inflación sin desencadenar una recesión en los Estados Unidas. 


En una encuesta reciente del Financial Times, el 70% de los economistas académicos esperan una recesión para mediados de 2023. Mientras tanto, las tasas de interés necesarias para reducir la inflación también mantendrán fuerte al dólar, aumentando así el servicio de la deuda de los países latinoamericanos. Por otro lado, muchos países habían sobreendeudado en los años previos al choque Volcker. Hoy en día, tanto los niveles de deuda como su estructura son generalmente menos vulnerables que hace cuarenta años. Y los regímenes cambiarios generalmente más flexibles funcionan como amortiguadores.

Los precios de las materias primas más o menos se mantienen por ahora, aunque hay una gran variación entre varios productos básicos. Copper acaba de caer a su nivel más bajo en 16 meses, y los precios de otros metales industriales se han visto presionados a medida que aumenta el riesgo de una recesión en Estados Unidos y el crecimiento chino sigue siendo moderado debido a las continuas restricciones de Covid. Por el contrario, es poco probable que los precios de la energía y los alimentos se desplomen dadas las limitaciones de suministro, principalmente debido a la guerra en Ucrania. Así el impacto de los precios más bajos de los productos básicos variará dependiendo de la canasta de exportación de los varios países de Latino América. Exportadores de metales serán más afectados que exportadores de energía y productos agrarios y alimenticios.

No hay razón para esperar que Chile, Perú o México caigan en una crisis financiera. A pesar de los diversos desafíos, sus fundamentos económicos siguen siendo suficientes. Por el contrario, Argentina ya está en crisis, y lo ha estado desde al menos 2018, con inflación muy alta y vulnerabilidades de deuda externa importantes. Y, increíblemente, la economía de Brasil no ha experimentado ningún crecimiento en la última década, su deuda pública está altísima, y el panorama político es desafiante en vista de las elecciones presidenciales de este año. En resumen: un contexto económico y financiero global en deterioro resultará desafiante para América Latina, si no tan desafiante como el shock de Volcker hace cuatro décadas. Sin embargo, será un viaje lleno de baches, potencialmente más accidentado para algunos que para otros.

Wednesday, June 1, 2022

Why America Is Not Going To Turn Isolationist (2022)

The Trump administration shook European’s belief in America’s reliability as a military ally and economic partner. Transatlantic relations have improved significantly under Joe Biden, in party helped by the war in Ukraine. Europeans are rightly concerned about the possibility of second Trump presidency. But beyond Trump, how concerned should Germany and Europe be about the general thrust of American foreign policy in light of domestic polarization and political populism?

Public Opinion is Far from Isolationist and Not Obviously in Favor of Protectionism

Some analysts draw a direct link between the rise of populism and the weakening of America’s international reliability. But even if it is granted that public opinion is an important driver of foreign policy, it is far from being supportive of isolationism and protectionism. 

The annual survey conducted by the Chicago Council on Global Affairs shows that more than 2/3 of Americans support America playing an active role in international affairs, compared to less than 1/3 who do not. Respectively, 68% and 59% of Americans say alliances with Europe and East Asia benefit both the United States and its allies. 73% support maintaining or increasing American commitments to NATO. (Note that this poll was conducted before the war in Ukraine!) Between 70% and 80% of those surveyed support increasing or maintaining America’s military presence in the various regions of the world. 

As far as foreign economic policy is concerned, however, 58% of Americans say that trade between the US and China weakens US national security. On the other hand, 68% of Americans believe that globalization mostly benefits the United States. This suggests that analysts make rather too much of the link between political populism and an alleged new isolationism and protectionism. The data suggest that there is broad support for international engagement, cooperation with allies and countering antagonists. Perhaps surprisingly, a majority believes that international trade benefits America and Americans.


But Partisan Differences Do Exist

The aggregate data may hide partisan differences. A Pew Research poll shows that maintaining military advantage over “all other countries” was a top priority in terms of long-term foreign policy goals in the eyes of 68% of Republicans/ leaning Republican but only 30% of Democrats/ leaning Democratic. “Improving relationships with allies” was seen as a priority issue by 44% of Republicans, compared with 63% of Democrats. Similarly, “getting other countries to assume more of the costs of maintaining world order” was a top priority for 57% of Republicans but only 30% of Democrats. Finally, as for “limiting the power and influence of China,” the split was 63% Republican vs 36% Democrats. Overall, the data suggest that while there are partisan differences in terms the prioritization (!) of foreign policy goals, neither Republicans nor Democrats are isolationist. But Republicans are clearly more supportive of hard power, more hawkish vis-a-vis China, and keener for allies to share the burden of international leadership. Coincidence or not, Trump and Biden foreign policies seem to reflect partisan differences quite accurately. 

In terms of economic policy, 85% of Republicans consider “protecting American jobs” the top foreign policy priority, compared with 67% of Democrats. Leaving aside for the moment whether protectionist trade policies are seen as protecting jobs, the data may be suggestive of the fact that support for free trade may be weaker among Republicans than Democrats. In this sense, trade policy under Trump and Biden does not seem to fly in the face of Democrats or Republicans. However, where ‘foreign policies’ are understood as an extension of domestic policies, such as international cooperation on climate change, immigration, and so on, partisan differences are very pronounced. A separate Pew Research poll also suggests that rural and less educated voters (aka the Republican base) are more likely to favor ‘inward’ foreign policy priorities, compared to ‘outward’ priorities. This is one reason why American presidents find it difficult to pursue cooperative policies at the international level, the other being strong opposition in Congress, whose support is often needed to ratify international agreements.


An important caveat is in order. If one grants that public or partisan attitudes affect foreign policy, it may not the balance of opinion that matter, but rather the opinion of the median voter electorally decisive swing states. Nevertheless, national data does not point towards support for isolationism and an ambiguously skeptical attitude towards free trade.

In Congress Politics Does Stop at Water’s Edge

Perhaps reflecting broader political polarization, Congress has become extremely partisan in recent decades. Bipartisan consensus is hard to come by these days – except, it turns out, when it comes to confronting China (and Russia). Straddling the partisan divide, support for free trade policies is, at best, shallow. And this does constrain the Biden administration’s Indo-Pacific (aka China) strategy. 

True, Republicans were often reluctant to oppose, or were unable oppose effectively, some of the foreign policy decision of Trump administration. But Republican lawmakers did object to the more egregious policies, such as the reduction of US troops in Germany or a watering down of American Russia sanctions. More recently, the Ukraine aid package benefitted from broad bipartisan consensus. Admittedly, a higher percentage of House members than Senators opposed to it. And this may be indicative the House’s greater responsiveness to short-term popular opinion, given the two-year elections cycle, compared to the six-year cycle as well as the greater importance of incumbency in the Senate. Nevertheless, the foreign policy consensus prevailed by a sizeable margin. It is also telling that since Trump left office there has been very limited criticism of the Biden administration’s alliance-based, as opposed to Trump’s unilateral, foreign policy. (Nord Stream 2 was the exception that proved the rule.) All this points to a broad and solid foreign policy consensus in favor of confronting China and Russia and maintain traditional alliances. 

No Way, Washington is Going to Throw in the Geopolitical Towel

It is the rise of China and the fear it instill in America that drives US grand strategy, to paraphrase Thucydides. Or at least, it determines Washington’s strategic objectives. After all, when is last time that a great power threw in the geopolitical towel without even trying to prevail? Great powers simply don’t do that. They slug it out, as Athens and Sparta did. Or as the US and the USSR did. Revealingly, American foreign policy has been characterized by relative continuity in terms of goals. Obama announced the ‘pivot to Asia,’ Trump declared a new era of renewed ‘great power competition,’ and Biden regards China as the ‘biggest geopolitical test of the 21st century.’ What made the Trump foreign policy different, aside from disorienting rhetoric, was its unilateral tilt.

Domestic and partisan politics may occasionally act as a constraint on individual foreign policies. But it will not and cannot prevent Washington from engaging in long-term geostrategic competition with China. Forcing the United States to direct greater resources to Asia and to demand greater allied support, US-Chinese rivalry will over time become a source of transatlantic tensions, regardless of who is in power in Washington. Germany will become a particular focus of American attention due to its low levels of defense spending, large economic resource base, and its extensive economic relationship with China.


None of this is meant to play down the very real risk of a second Trump administration and its nefarious implications for transatlantic relations in general and Germany in particular. But the view according to which populism is (or will be) driving the United States to international disengagement and isolationism misreads the historical record (great power don’t throw in the towel), underestimates the logic inherent in international politics (hegemonic powers defend the status quo, they don’t just pack and leave), misinterprets domestic political dynamics (or at least public and congressional opinion), and disregards psychological factors (sunk cost effect, status quo bias). Finally, it fails to recognize that ‘politics stops at the water’s edge’ in the words of Senator Arthur Vandenberg. National interests override partisan politics.

It is the shifting balance of power and, assuming China continues to rise, American domestic resource constraints that will force Washington to mobilize greater external resources to counter a rising China. In IR theory speak, Washington will pursue a strategy of both internal and external balancing. It will call on its allies in Asia as well as in Europe to support its China strategy. This is going to affect German security and especially economic interests Germany needs to prepare not for an isolationist America – an America retreating to the Western hemisphere is not going to happen – but for an America that will demand increasing and unwavering support in its quest to counter China.