Tariffs, Tax Cuts and the FED – The US Strategy to Defeat China

China Petrodollar

The current trade war underscores China’s role as the number one geopolitical competitor to the U.S. The Trump administration, with the support of the Federal Reserve Bank (FED), has embarked on a plan to economically defeat China. Back in April, President Trump could not deny that in the midst of a trade war that ‘there won’t be a little pain’ but predicted the U.S. will ‘have a much stronger country when we are finished’. But, at a rally last week in Montana, President Trump confidently stated ‘The war was lost on trade many years ago… but now we’re gonna win it and because we have all the cards’. This was somewhat puzzling as China has been slowly devaluing the yuan over the past two months and has withheld implementing its biggest card (the sale of its U.S. treasury holdings).

Tariffs
Last year, the U.S. posted a $375.6 billion deficit in goods with China with a large segment due to computer and electronics imports. In addition, an often-overlooked cause of this trade deficit is the manner in which China acquired its technology. A recent internal investigation found Chinese theft of American intellectual property costing between $225 billion and $600 billion annually. American trade officials cited the Chinese government’s method for acquiring valuable trade secrets as motivation for additional tariffs. The NY Times outlined how China stole designs from Micron Technology to enable it to build a $5.7 billion microchip factory. President Trump has effectively stopped prior administration’s ‘sellout’ policy of allowing Chinese purchases of strategic U.S. assets. While the Chinese government currently owns approximately $1.18 trillion of U.S. treasuries, any chance to swap this debt to equity and effectively colonize the U.S. is virtually zero.

Tax Cuts
The Tax Cuts and Jobs Act of 2017 signed into law by President Trump last December has met optimistic expectations as revenues from federal income taxes were $76 billion higher in the first half of this year, compared with the first half of 2017. It may be why President Trump recently hinted at a second phase of tax cuts that would involve a further reduction in the U.S. corporate tax rate and more stimulus for the middle class. One of the consequences of this tax cut have been greater budget deficits. While undoubtedly a long-term concern, the short-term results have yielded great benefits.

The FED
Large budget deficits, a trade war with China are being coordinated with the policies of the Federal Reserve. As summarized by a report from Palisade Research:

  • The always-rapidly-growing U.S. deficit requires constant funding from foreigners. But with the Federal Reserve raising rates and unwinding their balance sheet through Quantitative Tightening (QT) – meaning they’re sucking money out of the banking system.
  • These two situations are creating the shortage abroad. The U.S. Treasury’s soaking up more dollars at a time when the Fed is sucking capital out of the economy.
  • Not to[o] mention the strengthening dollar and higher short-term yields are making it more difficult for foreigners to borrow in dollars. Especially at a time when Emerging Market’s are imploding.

Clearly, the Trump administration views China as a greater threat to US interests than the Federal Reserve Bank at this time. As a candidate, President Trump had harsh words for Wall Street such as ‘I know Wall Street. I know the people on Wall Street…. I’m not going to let Wall Street get away with murder. Wall Street has caused tremendous problems for us.’ and ‘I don’t care about the Wall Street guys… I’m not taking any of their money.’. He even tweeted about the importance of auditing the FED. To date, his administration has not matched his prior rhetoric as they openly sided with banks and waived punishment over prior crimes. While some would question any type of coordination with a central bank, the President obviously does not share any such rigid ideology to constrain him. Still, alliances can be transitory and there is nothing to preclude the Trump administration from shifting policy at a later date.

China’s Options
We learned a few weeks ago that in fact Russia sold off half of their U.S. treasury holdings in the month of April. This coincided with a spike of 35 basis points on 10-year treasury bond yields. Perhaps, this was a test in preparation for a larger future sell-off. A treasury sale by the Chinese government could potentially have a devastating impact on the U.S. economy. Note that seven out of nine previous yield curve inversions have preceded a recession.

While China has launched the heavily anticipated yuan oil futures contract, it has not been implemented by Saudi Arabia as of yet, thereby delaying the death of the petrodollar.

Conclusion
So, the immediate goal for the U.S. is to starve China of US dollars until it makes satisfactory concessions. There have been reports of China’s economy slowing. Historically, the initiation of trade wars is bad economic policy. However, this unconventional strategy may be the only way for the U.S. to economically defeat China.
If this plan does not work as well as the President thinks it will, it could spur more people to question the current system of debt and centralized banking. The answer to what replaces the current system is anyone’s guess.

CHAOS CONTINUES: Both Iran and US Lose Iraq

While the dust still settles in Iraq’s parliamentary elections, it has become clear that they have chosen Muqtada al-Sadr’s list.  Muqtada al-Sadr is the Shiite cleric whose Shiite militia fought against US troops in Iraq and is responsible for thousands of casualties. Sadr’s list is not merely made up of Shiite radicals, but of secularists as well.

It is a mistake to classify Muqtada al-Sadr as a Shiite radical only.  What has become clear to those who have interacted with him is that he is as much an Iraqi nationalist as a Shiite radical.

According to Johnathan Steele who is one of the few Western journalists to have interviewed Sadr, “He [Sadr] even dared to say that once IS had been defeated, he wanted Iranian forces and the Americans to leave Iraq. While he called the Americans ‘invaders’, he was diplomatic enough to call the Iranians “‘friendly forces’ – but his message that both sides should leave Iraq was bold. It went well beyond anything that Abadi or Ameri would say or want.” 

Steele went on to infer the following: “No wonder that Tehran has publicly declared it will not allow Sadr to take power or play the decisive role in the government that will be formed after this weekend’s elections. ‘We will not allow liberals and communists to govern in Iraq,’ Ali Akbar Velayati, the senior adviser on foreign affairs to Iranian Supreme Leader Ayatollah Ali Khamenei, said in February.”

If Steele is right Iraq’s turmoil may just beginning. Whatever coalition Sadr puts together will have to contend with an Iran that will not be willing to let go of Iraq and at same time the new Iraqi government will of course ask the US to leave.




It is easy to see how this can quickly turn an Iraq that has been torn apart by sectarian conflict to further wade into the abyss, torn between Iran and the US.

Of course, given the fact that Sadr is ultimately a Shiite radical as well as a crafty leader, he may opt to allow Iran to stay just long enough to ensure the US is forced to abandon Iraq.

 

Israel Refrains from Turning anti-Russia

In stark contrast to the US and the rest of NATO the Netanyahu government has continued to refrain from attacking Putin and Russia.  There are a few reasons for this.

While the US and NATO have used the poisoning of a former Russian spy and his daughter in England as a pretext for expelling Russian diplomats and making Putin enemy number one, there has been no actual proof it was Russia. The anti-Russian narrative of the West, while not completely without basis has served a culturally and economically challenged NATO to help find an enemy in a new multi-polar world.

Israel has consistently maintained good relations with Russia’s leaders.  It has held back from expelling Russian diplomats unlike its Western counterparts. This is part of Netanyahu’s personal belief in a neutral foreign policy.  This is not to say that neutrality means a lack of alliances. Israel has clear strategic alliances with the US and India, but an alliance does not mean going to the proverbial mat with your allies when you don’t have to.

With Russia, Israel’s situation is far more complicated, which prevents the Netanyahu government from getting on board with Trump’s new anti-Russian moves.  Putin directly or indirectly pulls the strings of Iran and Hezbollah, which are situated to Israel’s north.  With these two combatants aiming more than hundred thousand missiles at Israel, Netanyahu cannot afford to go full negative against Russia.

Israel also has a sizable Russian population, which has remained less integrated  than other immigrant groups. This creates a different sort of connection to Russian maneuvers in the region.

Another aspect, is in connection to Afrin and the general abandonment of the Kurds by the USA. The Kurds had been offered a security pact by Russia to protect their enclaves, but the Kurds spurned the offer in hopes th USA would back them against the Turks.  With Afrin now occupied by the Turkish army and the militant FSA, Kurdish leadership has been forthcoming in their need to find common ground with the Syrian regime.

Israel has been placed in an eerily similar situation.  Prime Minister Netanyahu has decided to remain neutral when it comes to picking sides at this point.  With the US undecided about its future in the area,  Israel cannot afford to make a clear decision that could imperil the entire country.

TURKEY CORNERED: Claims Kurdistan is a Zionist Plot

Reactions to the unfolding Iraqi Kurdish referendum for independence have been varied, with countries like Canada saying they support it, while Iran and Iraq claiming to be prepared to go to war over it.  Yet, no reaction is as telling as Turkish President Erdogan’s who said the following:

“Tell Mr. Netanyahu that we are standing at opposing sides. How can our relations be in good shape while he is the only one recognizing the [referendum] of the Regional Administration of Northern Iraq? Tell him to abandon the support,” Erdogan said.

Earlier in the month Al-Monitor reported that the Turkish press claimed that Barzani had made a deal with  Israel to let 200,000 Kurdish Jews living in Israel move back to Kurdistan.  The problem is there is no where as close to that many in Israel.

Turkey’s fear and the reason for their reaction to Israel’s overt support for an independent Kurdistan is that for Turkey and Iran any Kurdish independence will directly impact and inspire their very large Kurdish populations to do the same. There are approximately 15 million Kurds in Iran and another 20 million Kurds in Turkey. An independent Kurdistan in Northern Iraq is seen as the gateway for the rest of the occupied  Kurdish homeland to break away from the countries that have annexed their land.

Many of the Iranian Kurdish groups have bases on the Iraqi side of the porous Iranian border. These groups are natural extensions of the KDP and PUK political parties in Iraq.

Both Turkey and Iran have claimed Kurdistan is some elaborate Zionist conspiracy built by Jerusalem to dismember their countries.  What they seem to be forgetting is that it is their own actions against the indigenous Kurds and their hate for Israel that have caused the very predicament they have feared the most.

Russia and USA Stand Quietly With the Kurds

While the Iranians have had free rein in Syria under Russian auspices, Putin has taken a different track with the Iraqi Kurds, which is similar to the US strategy.  While not publicly supporting Kurdish independence like Israel has, both Putin and Trump have decided to tacitly support independence from behind.

For the USA, Kurdish independence creates a counter weight to Iran, while Putin is willing to let Iran’s push towards regional control get stalled in order to payback Turkey, who Russia considers an arch and ancient enemy.

Israel and the American Jewish Crises

The key to strengthening and supporting the community is to bypass its failed leadership and speak and interact directly with American Jews.

As the New Year 5778 begins, 88% of Israeli Jews say that they are happy and satisfied with their lives. This makes sense. Israel’s relative security, its prosperity, freedom and spiritual blossoming make Israeli Jews the most successful Jewish community in 3,500 years of Jewish history.

The same cannot be said for the Jews of the Diaspora. In Western Europe, Jewish communities that just a generation ago were considered safe and prosperous are now besieged. Synagogues and Jewish schools look like army barracks. And the severe security cordons Jews need to pass through to pray and study are entirely justified. For where they are absent, as they were at the Hyper Cacher Jewish supermarket in Paris in 2015, assailants strike.

Western European Jewry’s crisis is exogenous to the Jewish communities. It isn’t the Jews who caused the crisis, which may in time cause the wholesale exodus of the Jews from Europe. The crisis is a function of growing levels of popular antisemitism spurred by mass immigration from the Islamic world and the resurgence of indigenous European Jew-hatred, particularly on the far Left.

The same cannot be said of the American Jewish community, which at the dawn of 5778 also finds itself steeped in an ever deepening crisis. And while antisemitism is a growing problem in America, particularly on university campuses, unlike their European counterparts, American Jews could mount and win a battle against the growing anti-Jewish forces. But in large part, they have chosen not to. And they have chosen not to fight the antisemites because they are in the midst of a self-induced identity crisis.

First, there is the problem of demographic collapse.

According to the Pew Research Center’s 2013 study of American Jewry, nearly 60% of American Jews intermarry. Based on the Pew data, the Jewish People Policy Institute published a report in June that noted that not only are 60% of American Jews who get married marrying non-Jews, only half of American Jews are getting married at all. And among those who are getting married, less than a third are raising their children as Jewish in some way.

Earlier this month, a study of American Jews was published by the Public Religion Research Institute. It found that not only hasn’t the situation improved since the Pew survey was published, the trend toward assimilation and loss of Jewish identity among American Jews has accelerated.

In 2013, 32% of American Jews under 30 said that they were not Jews by religion. Today the proportion of Jews under 30 who say they have no relation to the Jewish faith has ballooned to 47%.

Not surprisingly, the wholesale abandonment of Jewish faith by nearly half of young American Jews has taken a toll on the two liberal streams of American Judaism. According to the study, the percentage of American Jews who identify as Reform or Conservative Jews is in free fall.

Whereas in 2013, 35% of American Jews identified as Reform, today, a mere four years later, only 28% identify as Reform. The situation among Conservatives is even worse. In 2013, 18% of American Jews identified as Conservatives. Today, only 14% do. Among Jews under 30 the situation is even starker. Only 20% of American Jews under 30 identify as Reform. Only 8% identify as Conservative.

To be sure, the trend toward secularism and assimilation among US Jewry is not new. And over the years, Reform and Conservative leaders have adopted varying strategies to deal with it.

In 1999 the Reform movement tried to deal with the problem by strengthening the movement’s religious practices. Although the effort failed, the impulse that drove the strategy was rational. American Jews who seek spiritual and religious meaning likely want more than a sermon about tikkun olam.

The problem is that they also want more than a rabbi donning a kippa and a synagogue choosing to keep kosher.

This is why, as the number of Reform and Conservative Jews is contracting, the number of American Jews who associate with the Orthodox movement is growing. Between 2013 and 2017, the proportion of young American Jews who identify as Orthodox grew from 10% to 15%.

Moreover, more and more American Jews are finding their spiritual home with Chabad. Today there are more Chabad houses in the US than Reform synagogues.

Unable to compete for Jews seeking religious fulfillment, the Reform and Conservative movements have struck out for new means of rallying their bases and attracting members. Over the past year, two new strategies are dominating the public actions of both movements.

First, there is a selective fight against antisemitism. While antisemitism is experiencing a growth spurt in the US progressive movement, and antisemitism is becoming increasingly overt in US Muslim communities, neither the Reform nor Conservative movements has taken significant institutional steps to fight them.

Instead, both movements, and a large swath of the Jewish institutional world, led in large part by Reform and Conservative Jews, have either turned a blind eye to this antisemitism or supported it.

Take for instance the case of Davis, California, imam Amman Shahin.

On July 21 Shahin gave a sermon calling for the Jewish people to be annihilated. His Jewish neighbors in the progressive Jewish communities of Davis and Sacramento didn’t call the police and demand that he be investigated for terrorist ties. They didn’t demand that his mosque fire him.

Instead, led by the Oakland Jewish Federation, local rabbi Seth Castleman and the JCRC, they embraced Shahin. They appeared with him at a public “apology” ceremony, where he failed to apologize for calling for his Jewish colleagues, and every other Jew, to be murdered.

All Shahin did was express regret that his call for genocide caused offense.

On the other hand, the same leaders stand as one against allegations of antisemitic violence stemming from the political Right. In the face of an utter lack of evidence, when Jewish institutions were subjected to a rash of bomb threats last winter, Reform and Conservative leaders led the charge insisting that far-right antisemites were behind them and insinuated that the perpetrators supported President Donald Trump. When it worked out that all of the threats were carried out by a mentally ill Israeli Jew, they never issued an apology.

So, too, the Reform and Conservative movements, like the rest of the American Jewish community, treated the Charlottesville riot last month like a new Reichstag fire. They entirely ignored the violence of the far-left, antisemitic Antifa protesters and behaved as though tomorrow neo-Nazis would take control of the federal government. They jumped on the bandwagon insisting that Trump’s initial condemnation of both groups was proof that he has a soft spot for neo-Nazis.

The problem with the strategy of selective outrage over antisemitism is that it isn’t at all clear who the target audience is. Survey data shows that the more active Jews are in the synagogue, the less politically radical they are and the more devoted to Jewish causes they are. So it is hard to see how turning a blind eye to leftist and Muslim antisemitism will rally their current membership more than they already have been rallied. Moreover, the more radicalized Jews become politically, the more outlets they have for their political activism both as Jews and as leftists. No matter how anti-Trump Conservative and Reform leaders become, they can never rival the progressive forces in the Democratic Party.

Prospects for success of the second strategy are arguably even lower. The second strategy involves cultivating animosity toward Israel over the issue of egalitarian prayer at the Kotel.

Last June, the government overturned an earlier decision to build a passageway connecting the Western Wall Plaza with Robinson’s Arch, along the Southern Wall, where egalitarian prayer services are held. The government also rescinded a previous decision to have representatives of the Conservative and Reform movements receive membership in the committee that manages the Western Wall Plaza.

The government’s first decision was non-political. The Antiquities Authority nixed the construction of the passage due to the adverse impact construction would have on the antiquities below the surface.

As to the second decision, it is far from a matter of life and death. The committee has no power to influence egalitarian prayers for better or for worse.

And yet, rather than acknowledge that the decision was a setback but it didn’t harm the status of egalitarian prayer at the Wall, the Reform and Conservative movements declared war against the government and dragged much of the organized Jewish establishment behind them.

The Reform leadership canceled a scheduled meeting with Prime Minister Binyamin Netanyahu, and the Jewish Agency Board followed suit.

Six hundred Conservative rabbis signed a letter to Netanyahu accusing him of betraying Diaspora Jewry and announcing they would be forced to reconsider their support for Israel.

Ambassador David Friedman, who had just taken residence in Israel a month before the explosion, used his first public remarks as ambassador to call his fellow American Jews to order.

Friedman said, “Yesterday, I heard something that I thought I’d never hear before. And I understand the source of the frustration and the source of the anger. But I heard a major Jewish organization say that they needed to rethink their support for the State of Israel.

“That’s something unthinkable in my lifetime, up until yesterday. We have to do better. We must do better,” he said.

But in the intervening months, the Conservative and Reform movements have not relented in their attacks. They have ratcheted them up.

The thinking appears to be that if they can make this problem look like a life or death struggle between Israel and progressive Jewry, they can both keep their dwindling bases engaged and attract members of the increasingly anti-Israel Jewish far Left.

The problem with this is that just as they cannot outdo the Democratic Party in their hostility toward Trump, so the Conservative and Reform movements cannot be more anti-Israel than Jewish Voices for Peace and other anti-Israel Jewish groups.

 The question for Israelis is what this failure of the mainstream American Jewish leadership means for the future of Israel’s relationship with American Jewry. Jewish survival and continuity through the ages has been predicated and dependent on our ability as Jews to uphold the commandment of the sages that all Jews are responsible for one another. As the most successful Jewish community in history, Israel has a special responsibility for our brethren in the Diaspora.

The first step toward fulfilling our duty is to recognize the basic fact that while it is true that the American Jewish community is in crisis, the leaders of that community are in an even deeper crisis. And the key to strengthening and supporting the community is to bypass its failed leadership and speak and interact directly with American Jews.

Originally published on the Jersusalem Post