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The Day "Strategic Ambiguity" Died
07-19-2018, 07:31 PM,
The Day "Strategic Ambiguity" Died
The Day "Strategic Ambiguity" Died

<p><a href=""><em>Via Global Macro Monitor,</em></a></p>

<p><strong>The hits just keep on coming.</strong></p>

<p><a data-image-external-href="" data-image-href="/sites/default/files/inline-images/jul18_stratgeic-ambiguity.png?itok=cZZYYyW1" data-link-option="0" href=""><img data-entity-type="file" data-entity-uuid="030c5705-8b41-4139-b5db-89ada4aeaae5" data-responsive-image-style="inline_images" height="216" width="500" srcset=" 1x" src="" alt="" typeof="foaf:Image" /></a></p>

<p>There is a new sheriff in town, the old order is crumbling, and we are afraid the world is going to become much more unstable in the next few years. <strong> Assets markets are incapable of discounting or <a href="">pricing it in</a>.</strong></p>

<h3><u><strong>President Trump Throws Montenegro Under The Bus</strong></u></h3>

<p>In an interview with Fox’s Tucker Carlson last night, President Trump seemed to question the raison d’être of NATO and foreign alliances in general.</p>

<p><em><strong>Tucker:  So membership in NATO obligates the members to defend any member that is attacked.  So let’s say Montenegro, who joined last year,  is attacked, why should my son go to Montenegro to defend it from attack?</strong></em></p>

<p><em><strong>President Trump:  I understand what you are saying. I have asked the same question. You know Montenegro is a tiny country with very strong people… They may get aggressive, and congratulations you are in World War III…But that is the way it was set up, don’t forget I just got here. </strong></em></p>

<p>There are errors and misrepresentations in the above, such as NATO’s Article 5, which has only been invoked once in the aftermath of 9/11, and <a href="">does not apply when the NATO member is the aggressor</a>.</p>

<h3><u><strong>NATO Expansion Was A Mistake</strong></u></h3>

<p>Before going further let us state for the record, we believe the expansion of NATO without including Russia was a big mistake, unnecessarily provocative, and ruined the West chances of bringing Russia “in.”</p>

<p>With the fall of the Soviet Union and the sudden shift in the military balance in Europe in the early 1990’s, NATO faced an existential crisis.  Rather than winding down, the conventional wisdom was that NATO must go “<a href="">out of area or out of business</a>.” Bureaucracies don’t die easily.</p>

<p>The Russian backlash to NATO’s expansion was devastating.  In 1991, 80 percent of the Russian public had a favorable opinion of the United States.  After the expansion of the alliance and bombing of Serbia in 1999 without UN Security Council authorization,  Russians had a negative view of America.  In 2000, Vladimir Putin was elected president of the Russian Federation.</p>

<h3><u><strong>George Kennen</strong></u></h3>

<p>Listen to George Kennen in 1998, the architect of America’s successful containment of the Soviet Union and one of America’s great statesmen of the 20th century, who was “present at the creation” of NATO, and authored the anonymous 1947 Foreign Affairs article, signed ”X,” defining America’s cold-war policy for 40 years,</p>

<p><em><strong>”I think it is the beginning of a new cold war,” said Mr. Kennan from his Princeton home. ”I think the Russians will gradually react quite adversely and it will affect their policies. I think it is a tragic mistake. There was no reason for this whatsoever. No one was threatening anybody else. This expansion would make the Founding Fathers of this country turn over in their graves. We have signed up to protect a whole series of countries, even though we have neither the resources nor the intention to do so in any serious way. [NATO expansion] was simply a light-hearted action by a Senate that has no real interest in foreign affairs.” – <a href="">NY Times, 1998</a></strong></em></p>

<p>So, to some extent, we agree on many of the philosophical tenets that we think what President Trump believes.  The problem lies in implementation and execution.</p>

<p>Just as, we believe, trade disagreements should be settled in a rules-based multilateral framework, such at the WTO.</p>

<p>We  also agree with another American president about being suspicious and trying to avoid  “foreign entanglements.”   The web of <a href="">foreign entanglements among European nations led to World War I</a>, a war that nobody wanted.</p>

<p><em><strong>The nation which indulges toward another an habitual hatred or an habitual fondness is in some degree a slave. It is a slave to its animosity or to its affection, either of which is sufficient to lead it astray from its duty and its interest. Antipathy in one nation against another disposes each more readily to offer insult and injury, to lay hold of slight causes of umbrage, and to be haughty and intractable when accidental or trifling occasions of dispute occur. – <a href="">George Washington</a></strong></em></p>

<h3><u><strong>Xi’s One China Policy</strong></u></h3>

<p><strong>What worries us about the Tucker Carlson interview is a potentially destabilizing effect on geopolitics, especially with China.</strong></p>

<p>How do you think Xi Jinping, Trump’s new BFF,  who is becoming i<a href="">ncreasingly  aggressive about his “one China” policy</a>, interpreted the interview?</p>

<p>Maybe something like:</p>

<p><em><strong>“Why should my son go to <s>Montenegro</s> Taiwan to defend it from attack?”</strong></em></p>

<p>Wars begin with <a href="">misperception and miscalculation</a>.</p>

<p>Saddam Hussein misread ambiguous messages from the U.S. ambassador believing he could get away with invading Kuwait.  In 1950, North Korea may have misinterpreted the Truman administration policy statement, that South Korea was outside the American defense perimeter in the Pacific.</p>

<p><em><strong>We believe the world is becoming more unstable by the day especially with </strong>messag</em>es such as the one sent by the president last night.</p>

<p>We don’t like foreign entanglements, though we believe the U.S. should be the first among equals in the community of nations.  We also doubt the American public, at the end, of the day, is willing to send “their sons to defend Taiwan” but those are cards we have been dealt by past leaders.  To send mixed signals now only destabilizes and invites aggression.</p>

<p>We also sense that President Xi believes that even more than he did yesterday.</p>

<p>Taiwan may be about to get hot, hot, hot in the next year after last night’s Commander in Chief’s ambiguous message on defense treaties.</p>

<p><em><strong>To stave off an eventual crisis, both capitals must work to ensure that Taiwan does not stand alone, that Taiwan’s people continue to believe in the feasibility of a free and (de facto) independent future, and that the United States and Taiwan’s armed forces can deter and, if necessary, defeat Chinese aggression. – <a href="">The American Interest</a> </strong></em></p>

<h3><u><strong>Sidetracked By Geopolitics</strong></u></h3>

<p>We apologize to our readers for being sidetracked with geopolitics and will get back to economics and the markets tomorrow.  It is imperative investors and traders understand the magnitude and seriousness of, what we believe, is taking place in the world.</p>

<p><strong>The post-war order is crumbling before our very eyes </strong>(or, maybe, we are just seeing pink elephants in the clouds).</p>

<p><strong>Political and geopolitical risk is rising rapidly.  The warning lights are flashing.</strong></p>

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