Jack’s Spring Forecast, March 2017

TAG President Jack Devine provides his Spring Forecast, including his predictions for the Trump administration, U.S. foreign policy, threats to national security such as North Korea and Iran, and key issues related to trade, health care, oil, and ISIS.

Spring 2017 Forecast

As anticipated, Trump is controlling the political agenda at home and abroad. It is no surprise that he continues to tweet, nor that the media and political world are still having great trouble dealing with his unorthodox approach to presidential politics. What we haven’t seen yet is any sign of self-discipline which would take the edge off his populist approach in dealing with the electorate. If this doesn’t change, Trump should expect to get burnt regularly by his open-ended use of Twitter, and face a commensurate drop in popularity ratings. Over time, this will compel him to moderate his tweets, especially those that have a direct impact on national security matters.

In the meantime, the media pundits will remain in high dudgeon. The growing frustration with the lack of objectivity across the political spectrum and the press, as well as a heightened skepticism about what is news and what is “fake news,” will gradually push Americans to tune out the perpetual partisan thunder. Already political fatigue is setting in, and a “Spring Break” is needed to unwind from the election and to focus on other less politicized national and international issues. Unfortunately, it is hard to see this resetting this spring.

Reinstate Moscow Rules
The recent political storm about the Trump team’s alleged collusion with the Russians in the U.S. political process, and the countervailing accusation that Obama tapped the Trump campaign for political reasons, will produce in the end goose eggs on both sides. With more smoke than fire on these alleged conspiracies, and no prosecutions or lasting political benefits flowing from them, the public will be left scratching its head and asking why so much time was wasted on these issues, instead of tackling the more serious geopolitical and economic issues America is really confronting. This doesn’t mean there isn’t a very serious problem with Russian hacking. The use of cyber tools to penetrate the military, political and economic infrastructure of potential adversaries is universal. What is new in the case of the Russians is a violation of the “Moscow Rules;” namely, using these breaches to directly influence internal political elections. This is a potentially dangerous game-changer that has to be walked back behind closed doors in Moscow and Washington. Hopefully, this is being done.

Because of the FBI investigation and the overall dust-up about Russia, Trump’s plans for a reset with Putin are going nowhere fast.

Foreign Policy Team Will Steady
The good news for Americans unsettled by the divisive 2016 presidential election and a tumultuous transition is that we have likely seen the low watermark of the Trump Administration’s management of national security issues. No doubt there will be periodic snafus on specific issues, but the longer arc of government will become better organized and focused as the pragmatists take charge at the NSC, State, Defense and the Intelligence Community. As anticipated, the internal struggle between the ideologues and pragmatists will continue for months to come, but the early departure of NSC Director Flynn has put the wind at the pragmatists’ back. Also, as Trump’s team gets its sea-legs and begins to line up with the career professionals within the respective departments and agencies, the White House will become more grounded on the key national security issues. Also, through the inevitable osmosis process of continuous briefings, Trump will become more knowledgeable and less prone to substantive slip-ups. This is a process that all presidents experience, whether they like it or not.

Despite the many global problems confronting the Administration, there are relatively limited parameters within which it will be able to work. This will be particularly true in our dealings with Russian aggression in Ukraine and Crimea, Chinese military expansion in the South China Sea and ISIS-driven terrorism. For the most part, the policy will likely reflect a continuation of the post-WWII “containment strategy” which was designed primarily to keep in check our adversaries. Whether it is robust or soft containment remains to be seen, but it is a good bet that on many issues Trump’s foreign policy will retain the same general outline as his predecessors. It will be hard to embark on a genuine game-changing strategy, with the exception of Iran and North Korea, where the Administration may be forced to act boldly despite an inclination not to do so.

North Korea Will Remain Intractable
North Korea may be the toughest national security issue that the Trump administration will have to face this year. The nuclear genie is out of the bottle in North Korea, and it will be extraordinarily difficult to get Chairman Kim Jong-un to cease and desist from exploiting it to the fullest. The “strategic patience” strategy we have pursued over the past several years has had no impact. North Korea already has over 20 nuclear weapons in its arsenal, and is fairly quickly developing a ballistic missile capability to deliver these weapons against our allies, particularly South Korean and Japan. And, in the next five years, if not stopped, these missiles will be able to reach the continental U.S.

Many policymakers and Asia experts believe China is the best pressure point on North Korea. While that may be true in the abstract, we definitely should not count on China, especially in light of its response to the March 5, 2017 firing of four missiles into the Sea of Japan. Instead of showing outrage and calling North Korea on the carpet, the Chinese Government lashed out at the U.S. and South Korea. It blatantly criticized the U.S. decision to move forward with installing the anti-ballistic missile defense system (THAAD) in South Korea and has put increased economic pressure on South Korea to reject THAAD. Even if China weighs in to help, the U.S. needs to keep hardening our military position in the region, working existing diplomatic channels, maximizing economic sanctions on North Korea, acting covertly to undermine North Korea’s nuclear program and even consider positioning tactical nuclear weapons in South Korea. The threat of tactical nuclear weapons in South Korea may be one way that China can be brought around to support us on this existential threat. But, it will take more President Xi visits to Mar-a-Lago and Secretary of State Tillerson trips to Beijing to do it.

Iran Heading Toward Treacherous Waters
Running nip and tuck for the top thorny issue for Trump on national security will be the nuclear deal with Iran. Trump and the Republicans will try to modify the agreement, and in the process apply more sanctions. Iranian internal politics will not allow a rewrite of the deal or significantly increased sanctions. It is very likely they will feel compelled to tear up the agreement and press ahead with the development of nuclear weapons. The big question: Now what? We certainly can increase sanctions on Iran and squeeze its economy hard, but this won’t lead to a regime change or a step back in its nuclear policy. The Europeans will strongly resist an increase in sanctions, but it’s a 50-50 bet that in the end they may sign up in solidarity, and to avoid triggering negative economic consequences for themselves. Hanging in the balance is the reelection bid of “moderate” President Hassan Rouhani in Iran’s May election, which is staked in large part on economic benefits from the nuclear deal. If Trump follows through on further sanctions and challenging the agreement, realistically we are back to the drawing board with covert action programs and war planning as our only options. Not a good place to be.

Going It Alone on Trade
Notwithstanding these national security issues, arguably the biggest Trump international initiative to watch in the months ahead is the coming policy changes on trade, which will not only have major consequences on the economy, but also on our international relationships. The two hottest points of friction will be Mexico and China. While the NAFTA agreement won’t be abrogated, it will be revised enough to sour the relationship with Mexico and uncap nationalistic sentiments which would be economically unhealthy and unproductive for both sides of the Rio Grande. It certainly will compel all of Mexico’s likely presidential candidates in 2018 to run on an outspoken nationalistic platform with anti-American undertones. Look out for the potential rise of leftist leader AndrĂ©s Manuel Lopez Obrador as a consequence. It will take great diplomatic and political finesse by all to avoid this problem. Much like Mexico, future trade policies will rankle the Chinese, put a chill on the overall relationship and nudge Chinese nationalism upward. Now that the United States has officially pulled out of the Trans Pacific Partnership (TPP), China already has increased its efforts to lead on trade initiatives and negotiate multilateral agreements that leave the U.S. out. This will be especially tricky considering that China’s economy is contracting more than admitted publicly. As with Mexico, great diplomacy and artful maneuvering will be required to keep the relationship on a positive track. Hold on tight to your seat on trade issues.

Health Care, Oil and ISIS
Democrats are still reeling and not coming to terms with the long-range implications of their defeat last November. However, the Republican plan to reform Obamacare gives the Democrats a good whipping boy to keep the fight fair. Many a politician has broken his/her pick on health care, and House Speaker Paul Ryan and President Trump won’t be an exception. It’s hard to see how the Republicans can craft a plan which doesn’t cost them part of their constituency. The struggle over health care also will likely push tax reform and infrastructure spending further down the road on the congressional agenda. And, at least in the short term, it will give the Democrats a powerful issue to stake out a clear position and possibly refocus itself in the process. It will also reveal more clearly Trump’s relationship with Congress going forward, which is muddled at this point. Aches and pain lie ahead for the Republicans on this issue.

Keep an eye on oil prices. It is unlikely prices will move much above $55 for the foreseeable future due to the dramatic improvement in recent years in U.S. energy capabilities and technology, and because of China’s shrinking economy over the long run. Recent suggestions that the Chinese economy is improving will be short-lived. On the geopolitical front, low oil prices will have a particularly significant political and economic impact on Saudi Arabia and Russia. They both need oil prices above $50/barrel to meet their budget minimum requirements and to keep a lid on political dissent. If the prices fall below $50 a barrel for a protracted period, you can count on internal tensions in Russia and Saudi Arabia. Continued low prices will also have a worsening impact on Venezuela’s instability. Venezuela is already in deep economic and political turmoil and this could become an even more urgent crisis for the hemisphere.

ISIS will continue to weaken in the months ahead. But, remain alert for a terrorist event at home or in Europe designed in desperation to attract new recruits to the ISIS cause.

If you or your firm would like individualized consultation or information, please contact Jack Devine at The Arkin Group.