Jack’s Summer Intelligence Report, July 2017

TAG President Jack Devine provides his Summer Intelligence Report, including his take on Trump politics, relations with Russia, global dynamics, security, and North Korea.

Jack’s Summer Intelligence Report

Trump Politics
Trump has been President for over five months and will remain so for at least the next 43 months, failing impeachment, which is very unlikely. As a country, we are conspicuously more divided and politically agitated than at any time since the 1960s and the Vietnam War. It is hard to see what will alter this political environment for the foreseeable future, other than a unifying major economic or national security crisis.

That said, the Russian investigation as well as the possible criminal and “obstruction of justice” investigations by the Special Counsel Robert Muller will plod forward at the expense of the Trump Administration’s domestic and foreign policy ambitions. All of Trump’s major objectives are slow in coming, and will remain so, including tax, health care and immigration reform, as well as infrastructure spending and job creation. While the road map for how Trump will govern has started to take shape, it remains blurry on all fronts.

Relations with Russia
In the meantime, a reset with Russia will be much harder given the strong indications from the Intelligence Community that the Russians hacked the 2016 U.S. Presidential Election. Despite the media’s obsession with the Russia story, including the recent news of Trump Jr.’s meeting with Russians during the campaign, I am sticking with my earlier Forecast that evidence of collusion between the Trump campaign and the Russian government will remain elusive. That’s not to say that the Special Counsel won’t find indications of murky contacts and business dealings and won’t feel compelled, especially after such a major investigation and cost, to bring a few lesser charges such as falsifying official documents and making false statements to law enforcement officials. But, ultimately no one will go to jail. The Administration will see it as vindication, and the Democrats will see it as fodder for the 2018 mid-term elections, (if the investigation is completed by then!).

The most important result in the long run will be the conclusion that the Russian Government, at its most senior levels, authorized the interference in the 2016 Election. This is a sea change for how Russia and the US deal with each other. During the Cold War, “Moscow Rules” were at play in which there was an unwritten understanding that neither side would meddle in the internal politics of it adversary. Putin’s seeming willingness to deviate from this principle has exposed a higher appetite for risk and a greater lack of political sophistication than I originally believed. It also demonstrates that Russia is seeking to challenge many of the geopolitical gains after the end of the Cold War, most notably the expansion of NATO and the EU and how much Putin wishes to undermine the general standing of democracy in the global order.

The recent Trump-Putin meeting at the G-20 was the first face-to-face opportunity for Trump to press the point of a mutual agreement not to use our cyber capabilities in each other’s internal elections. Despite Putin’s denials on intervening in the 2016 elections, it is unlikely that he missed the core of the message. Now we will have to wait to see how he responds. Russia’s continued cyber-attacks against Ukraine are providing a clear proving ground for their developing capabilities. We are on the doorstep of a Cyber Cold War that has manifold dimensions. Hopefully, the personal relationship established at the G-20 meeting will produce materially beneficial results in this regard.

Global Dynamics: More Status Quo that Upheaval
Prognostications of waning U.S. influence in the world are far overblown, including the description of the G-20 as being 19+1. While Trump may be disliked and even distrusted in Europe and parts of Asia, don’t expect European or Asian nations to rush into the embrace of a dominant Germany or China any time soon. Moreover, while Trump may make his point too crudely, it has been past time to shake the cobwebs off the NATO alliance. As I have said before, Europe will bend to accommodate Trump, and the historic alliance won’t break.

2% growth will remain the trend line for the U.S. economy in 2017. Despite global consternation over Trump’s foreign and trade policies, global investors continue to see the United States as a good bet as compared to many other markets. I don’t see this changing in the near term, no matter how low Trump’s approval ratings might sink. The World Bank continues to forecast a modest uptick in global growth while warning of global protectionist impulses.

Look for Trump to move forward with his intention to renegotiate the North America Free Trade Agreement (NAFTA) and to continue to press China hard over trade, although seasoned trade negotiators operating behind the scenes will search for every opportunity to implement a measured approach to a trade deal. For example, the preliminary deal on sugar between the United States and Mexico, which will help both sides avoid high tariffs, can be seen as a positive sign ahead of NAFTA talks. Trade in goods and services between the United States and Mexico was estimated at $579.7 billion in 2016 – so there is a lot at stake here.

A slowdown in China (or a trade war) would of course impact global markets, especially the commodity producing countries that have fueled China’s growth. In order to manage China’s fundamental economic fragility and ensure political stability, watch for further consolidation of power by Xi Jinping ahead of the impending Party Conference later this year. Xi has taken notes from Putin and is placing allies across China’s entire political, financial and economic infrastructure.

Oil prices have recently slid to a nine-month low due to oversupply in the market from OPEC members like Libya, Nigeria, and Iraq and an excess of supply from the United States. We could be looking at oil prices of $40 a barrel or even the mid-$30s in the near term. Political instability in countries heavily dependent on oil revenues such as Russia, Saudi Arabia, or Mexico could be the result. Look no further than Venezuela to see a prime example of a country on the verge of economic and political collapse. Still, don’t expect President Nicolas Maduro to resign willingly or for the military to step in just yet: Venezuela will continue to limp along and protests will subside as ordinary Venezuelans go back to the business of everyday survival.

Though Iranian President Rouhani’s reelection will provide general political stability, Iran will be reeling for a while from its recent domestic ISIS attack, which will fan the flames of sectarian tensions within Iran and across the entire region. And, we should expect even less restraint from the Iran-Russia-Syrian coalition in Syria as a result. Turkey’s cooperation has never been more tenuous since we decided to directly arm the Kurds. Turkey may well relax its cooperation on fighting ISIS, and will be harder to deal with going forward. We should expect the unexpected there.

The sporadic terror attacks in Europe will continue. It’s the inevitable cost of squeezing ISIS out of its territory in Iraq and Syria, and the flow of Muslim refugees into Europe. In response to waning strength, terrorist organizations have decentralized their efforts, motivating and recruiting supporters to carry out attacks in their own backyard. Expect to see more low-tech truck, small arms, automatic gun, and knife attacks. Police and security forces are improving their anti-terrorism capabilities quickly, but still lag behind in developing a more rigorous threat monitoring capability to stem the threat.

The U.S. will not be immune from terrorist attacks, either, including conceivably a spectacular terrorism event, as we continue to keep the heat on ISIS, al-Qaeda and their affiliates. It is hard to imagine that we will not see another incident soon. Terrorist attacks here and abroad probably will strengthen the Trump Administration’s hand, given the probable forceful response to them.

North Korea
North Korea will continue its saber rattling until the Trump Administration finds a way to engage it directly. “Left of launch” and other countermeasures are an insufficient deterrent, and China cannot be relied on to reign in Pyongyang on its own. Progress can best be made through the resumption of six-party talks, which would have the positive effect of bolstering the new Moon government in Seoul as well. But, there doesn’t seem to be much movement in this direction now. So, saber rattling will continue in the months ahead.

The Summer will be no less turbulent politically than the previous quarter. If you or your firm would like individualized consultation or information, please contact Jack Devine at The Arkin Group.