Informal Institute for National Security Thinkers and Practitioners

Quotes of the Day:

"Life's most persistent and urgent question is, 'What are you doing for others?'"

– Martin Luther King, Jr.

"The liberties of a people never were, nor ever will be, secure, when the transactions of their rulers may be concealed from them."

– Patrick Henry

"Our government... teaches the whole people by its example. If the government becomes the lawbreaker, it breeds contempt for law; it invites every man to become a law unto himself; it invites anarchy."

– Louis D. Brandeis

!. Everyone’s Rattled by the Rise of DeepSeek—Except Nvidia, Which Enabled It

2. 90-Day Breakup: America’s Policy Misstep in Pausing Foreign Assistance

3. Trump’s Move to Put Tariff Hikes Ahead of Tax Cuts Has Spooked Almost Everyone

4. Beijing Prepares Its Opening Bid to Talk Trade With Trump

5. The Dumbest Trade War Fallout Begins

6. Donald Trump’s Tariffs: A 21st Century Smoot-Hawley Disaster?

7. Trump’s Tariffs Usher In New Trade Wars. The Ultimate Goal Remains Unclear.

8. Trump moves to wrest control of USAID as Musk says ‘we’re shutting it down’

9. Deliberately Degrading American Government

10. One Response to Trump’s Tariffs: Trade That Excludes the U.S.

11. The Tulsi Gabbard hearing: A rare Washington demonstration of courage by Douglas Ollivant

12. Manufacturing Towns Hit by the ‘China Shock’ Bounced Back. The Workers Didn’t.

13. ‘We’ve got to get faster’: Army’s top enlisted leader sees how new war strategy fares in German crucible

14. “America First” vs. Primacy by Reid Smith; Mitch McConnell

15. The Path to a Transformed Middle East

16. Russian Malign Influence Campaigns Expand Onto Bluesky

17. Will DeepSeek deep-six the US economy?

18. Questioning China's ability to actually fight

19. Trump's path to Ukraine peace becoming more apparent

20. Inside the Pentagon’s War Games: Can the U.S. Military Defend Taiwan from China?

21. The Electricity Front of Russia’s War Against Ukraine

1. Everyone’s Rattled by the Rise of DeepSeek—Except Nvidia, Which Enabled It

Follow the money,

Everyone’s Rattled by the Rise of DeepSeek—Except Nvidia, Which Enabled It

Nvidia’s stock swooned and regulators are restricting its chip sales, but the American AI giant sees a long game in China

https://www.wsj.com/tech/ai/nvidia-jensen-huang-ai-china-deepseek-51217c40?mod=hp_lead_pos7

Nvidia CEO Jensen Huang showed a processor at the Consumer Electronics Show in Las Vegas last month. Photo: allison dinner/Shutterstock

By Raffaele Huang

Follow, Stu Woo

Follow and Asa Fitch

Feb. 2, 2025 9:00 pm ET

On President Trump’s inauguration day, Nvidia NVDA -3.67%decrease; red down pointing triangle Chief Executive Jensen Huang wasn’t sitting by the president’s side at the Capitol like many tech moguls. He wasn’t invited, an Nvidia official said, so he had gone to Beijing.

At a gathering there, Huang told customers and employees of his strong commitment to the Chinese market, according to a recording. That meant Nvidia intended to keep selling chips for artificial intelligence in China, holding back their performance to comply with ever-tighter curbs imposed by Washington.

A week later, Nvidia’s stock price fell 17% in a single day, after Chinese company DeepSeek said it achieved a leap in its AI capabilities using less-advanced Nvidia chips. Some investors interpreted the advance as undercutting the market in the West for Nvidia’s top-of-the-line products.

Yet Nvidia knew that risk came with what it was doing in China, the country identified by both political parties in Washington as America’s biggest global rival.

The Silicon Valley company argues that selling to Chinese customers helps it bring in revenue to keep its global lead in AI. Better to have those customers paying Nvidia billions of dollars and remaining hooked on its chips—plus the software surrounding them—than to send them searching for a Chinese alternative, company officials say.

For the past three years, Nvidia, valued at around $3 trillion thanks to its dominance in AI chips, has battled to keep doing as much business as possible in China. Each time the U.S. increased restrictions on what it could sell, Nvidia rushed to design new chips that satisfied the rules but offered a competitive product—frustrating the national-security officials in Washington trying to regulate them.

Nvidia shares fell after DeepSeek said it had advanced AI capabilities. Photo: bryan r. smith/Afp/Getty Images

Nvidia described DeepSeek’s models as further evidence of how Nvidia chips can power advances in AI, and said companies moving the industry forward would continue to need truckloads of the most advanced chips. It said DeepSeek’s advances didn’t change its view of how its chips should be regulated.

“We scrupulously adhere to all export restrictions,” Nvidia said, adding, “Our success opens doors for American industry globally.”

Huang, the Nvidia CEO, met Trump on Friday at the White House. People familiar with the discussion said the two, meeting for the first time, talked about AI policy. One person said the subject of DeepSeek came up and that Huang told the president that the public was overreacting.

Long-term market

Nvidia has urged the Trump administration to reverse restrictions put in place by the Biden administration, which further capped international sales of advanced AI chips just days before leaving office.

“America wins through innovation, competition and by sharing our technologies with the world—not by retreating behind a wall of government overreach,” said Ned Finkle, Nvidia’s vice president of government affairs.

The battle between Nvidia and its regulators gets to a fundamental question in Washington about the U.S. and China, the world’s two biggest economic powers. Is the ruling Chinese Communist Party such a threat that any substantial business ties should be dissolved? Or can the two nations continue trading in high-tech areas even as they compete for global influence?

“Our open society will always out-innovate the rigid surveillance state imposed by the CCP, but if we keep allowing the CCP to steal our ideas and technological breakthroughs, it won’t mean a damn thing in terms of staying ahead,” wrote Trump’s national security adviser, Michael Waltz, in a book published last year.

Trump’s pick for commerce secretary, Howard Lutnick, said at a confirmation hearing Wednesday that he doesn’t want American technology aiding innovation in China. “Nvidia’s chips,” he said in the hearing, “drive their DeepSeek model. It’s got to end.”

For Nvidia, the fight is less about sales in the short term. In the four quarters that ended in October, Nvidia had $113 billion in sales, with about 12% from China. Those China sales could easily be replaced elsewhere because of high demand.

Nvidia’s thinking is long-term: It believes China will be an important market for years to come. As the world’s pre-eminent manufacturing powerhouse, the country is likely to be among the leaders in AI-related areas such as robotics and autonomous driving. People at Nvidia said the company needs to do business there to stay relevant, especially as AI functions are incorporated into everyday devices that are often made in China.

Part of Nvidia’s dedication to its China business is shown by its work to keep its 4,000 employees there, who are coveted by rivals.

Xie Weide, a headhunter in China, said some companies were offering Nvidia engineers and marketing managers double their current salaries. For months, Xie said he has spent lunchtime at a coffee shop near Nvidia’s Shanghai office, approaching staff to recruit them for Huawei and another Chinese company.

Nvidia’s H100 is effectively banned for export to China. Photo: NVIDIA/REUTERS

At the recent Beijing gathering, Nvidia’s Huang boasted that Nvidia’s annual employee turnover in China was just 0.9%, less than Nvidia’s global average of 2%.

“Once you join Nvidia, you don’t leave,” Huang said. “If you join Nvidia, you’re going to grow old with me.”

The CEO toured several Chinese cities to celebrate the Lunar New Year, attending staff parties where he danced to the latest pop hits. He met robot startups using AI technology that have been praised in state media.

“Together over the last two decades, we have contributed to the modernization of one of the greatest markets, the greatest countries in the world,” Huang told his Chinese audience. “And we’re extremely proud to be a part of your ecosystem.”

Cat-and-mouse game

The battle between Nvidia and the U.S. officials trying to regulate its China business began in earnest in late 2022, around the same time OpenAI’s chatbot ChatGPT kicked off the AI frenzy. Nvidia had the best chips to train AI models, and all the top players—OpenAI, Google, Amazon, Microsoft, Meta and more—clamored for as many as they could get.

Since late 2022, Nvidia’s shares have increased 10 times, from roughly $12 a share to about $120 a share now, and the company has at times been the world’s most valuable by market capitalization.

Former Commerce Secretary Gina Raimondo sought to control exports of advanced AI chips to China. Photo: Steven Senne/AP

Chinese companies wanted to be in the vanguard of AI, too, especially DeepSeek, then a virtually unknown research unit inside a Chinese hedge-fund operator. In a presentation for an Nvidia conference in March 2022, an executive at the hedge fund described how it had amassed 10,000 of Nvidia’s then-cutting-edge A100 chips. The company was the first in China to put together a server with those AI chips, he said.

The Biden administration wanted to restrict China’s access to the technology, recognizing that AI was sure to have military applications, such as guiding a smart drone to identify the best target. With tensions rising over Taiwan, the U.S. didn’t want Beijing to gain an edge in a conflict.

In October 2022, it put in place the first export controls specifically targeting AI chips, including the A100s DeepSeek had bought—setting off a cat-and-mouse game of regulations to limit the spread of the chips.

Nvidia’s engineers soon rolled out a chip called A800—a variant of the A100 that met U.S. rules and that Nvidia would effectively sell only within China. The development came at breakneck speed for an industry where new chips often take years.

Nvidia then developed another chip, the H800, an adaptation for the Chinese market of the company’s next-generation H100 AI chips, which were also effectively banned for export to China.

The new chips complied with Washington’s limits but used workarounds elsewhere that enabled them to be almost on par with its top products at the time, analysts said.

Huang after the opening ceremony of a partner company’s new factory in Taiwan last month. Photo: Jameson wu/ Maxppp /Zuma Press

China’s biggest tech companies, including TikTok parent ByteDance, have placed billions of dollars of orders for the chips Nvidia designed specifically for China. DeepSeek said in a research paper in December that it used around 2,000 H800s to train a model behind its chatbot.

Nvidia’s strategy to sell modified chips angered U.S. officials, who were upset the company wasn’t being more helpful to curb China’s AI advances. They thought Nvidia wasn’t acting in the spirit of the rules, while the company said it was following them as written.

“That’s not productive,” said then-Commerce Secretary Gina Raimondo in December 2023. “Our national security goal is to have no AI special sauce in your chips.” Later that month, she toned down her criticism, calling Nvidia a good citizen and saying it was important to allow the company to continue to compete in the world.

The U.S. put in new controls in October 2023 that required a license for Nvidia’s China-specific A800 and H800 chips. Again, Nvidia developed a new batch of chips that complied with the controls, including a model called the H20.

Battle over latest chip

While Chinese customers initially were concerned about the repeated downgrades in Nvidia’s chips, it became apparent by last year that the H20 was still plenty powerful for AI tasks, said people involved in the China AI business. Chinese rivals such as Huawei struggled to produce chips that could compete with Nvidia’s in sufficient quantities.

Nvidia had stuffed into its chip package an additional AI-oriented memory unit to augment the H20’s capabilities, the people said. Thanks to the improvement, the H20 for China actually outperformed Nvidia’s H800 chip in certain scenarios, even though it had to comply with new U.S. restrictions, they said.

Nvidia offices in Shanghai. Photo: Qilai Shen/Bloomberg News

Meanwhile, Chinese customers who weren’t satisfied with the H20 found ways to get more advanced Nvidia chips by accessing computing power remotely or bringing the chips to China via third countries.

Eventually, DeepSeek was likely able to amass an estimated 50,000 Nvidia chips, a mix of H800s, H20s and the banned H100s, according to supply-chain data compiled by Dylan Patel, the founder of industry analysis firm SemiAnalysis.

OpenAI said it was investigating whether DeepSeek used its models to train its chatbot.

Nvidia said it believes it didn’t take a lot of chips for DeepSeek to accomplish what it did, and that instead it only needed smart engineers and access to OpenAI’s advanced models to help it create a competitor. It said it saw DeepSeek as an inevitable “fast follower.”

DeepSeek didn’t respond to requests for comment.

Biden administration officials could see what was happening, but they often disagreed on what to do about it. Officials sympathetic to companies that sell abroad squared off with national-security hawks who feared China would beat the U.S. in the AI war.

Some officials wanted to crack down on Nvidia’s China business and do it quickly, according to people familiar with the discussions. But actions were sometimes delayed because other officials were sensitive to the risk of hitting revenue at Nvidia and other big American companies.

Toward the end of the Biden administration, White House and Commerce Department officials discussed putting controls on Nvidia’s H20 chips as they realized their growing value to how AI is developed, according to people familiar with the matter.

Ultimately, the officials couldn’t agree on whether to implement a ban before time ran out.

People who know Huang, the Nvidia founder, describe him as a businessman who loves making and selling cutting-edge tech products and doesn’t enjoy getting mixed up in government policy debates. The Taiwan-born CEO, who grew up in the U.S. and is a U.S. citizen, didn’t keep a serious government-relations office in Washington until after the export-control battle flared up.

Nvidia and the Biden administration generally kept their relationship civil in public, but the gloves came off after the November election. The administration was preparing a final sally of measures adding curbs on the sale of chips to third countries that could serve as conduits to China.

As drafts of the rules circulated in Washington, Nvidia summoned some of the biggest tech names for a December meeting at which Nvidia urged them to lobby against the rules, said people familiar with the meeting. The chip maker argued that adding red tape on sales to most countries around the globe would hobble the entire industry and hurt America’s competitiveness.

Some, including Oracle, joined Nvidia in making that case to the U.S. The new rules moved forward anyway.

In recent weeks, Nvidia sales staff have told Chinese customers that the H20 chips would remain available in China because the latest Biden curbs don’t ban them.

Some members of Congress are now advocating such a ban. In a letter released Thursday, leaders of the House Select Committee on the Chinese Communist Party called for tighter controls on Nvidia, including a possible H20 ban. The lawmakers said DeepSeek’s extensive use of Nvidia chips shows that “frequently updating export controls is imperative.”

The decision will ultimately be up to Trump, whose administration also contains both China hawks and people more sensitive to the business imperatives of American exporters such as Nvidia.

Some Chinese tech executives said they were concerned about losing access to H20s because they don’t have immediate substitutes—echoing a remark by DeepSeek founder Liang Wenfeng last year that his biggest problem wasn’t finding funds but obtaining advanced chips.

At the same time, the executives said Chinese companies were again looking at workarounds, such as moving computing-intensive tasks overseas where Nvidia chips are easier to get.

China is pushing to keep its companies’ access to Nvidia chips while urging them to find Chinese alternatives wherever possible, according to the executives. In December, Chinese regulators said Nvidia might have violated local antitrust laws, in a move interpreted as a warning that Beijing, too, has cards to play if Washington gets tough.

Amrith Ramkumar, Dustin Volz and Liza Lin contributed to this article.

Write to Raffaele Huang at raffaele.huang@wsj.com, Stu Woo at Stu.Woo@wsj.com and Asa Fitch at asa.fitch@wsj.com

2. 90-Day Breakup: America’s Policy Misstep in Pausing Foreign Assistance

Conclusion:

It is imperative to remember that the United States Government’s intent with foreign assistance is not genuinely altruistic; it is bound to the betterment of the U.S. writ large. From rebuilding Europe after World War II, to supporting partners in the Middle East, the intent of foreign assistance is to help the U.S.’s strategic interests in one form or another. So, although it is well within the rights and responsibilities of a new administration to reassess foreign assistance programs, halting all funding for 90 days is neither practical nor strategic. The numbers alone illustrate the infeasibility of conducting thorough and effective reviews of thousands of programs within a constrained period.

Additionally, this policy risks undermining U.S. credibility, emboldening adversaries, and creating opportunities for further exploitation. Foreign assistance is not just a financial expenditure but a critical component of U.S. national security and global leadership. It reflects American values of promoting national security, human rights, and international stability.

Rather than a blanket pause, a more targeted and phased approach would ensure that foreign assistance programs continue to support U.S. interests without unnecessary disruption. Regular audits, strategic reviews, and congressional oversight are already in place to address concerns about fraud and inefficiency. Jeopardizing ongoing programs and partnerships for optics is sacrificing long-term gains for short-term political theater.

90-Day Breakup: America’s Policy Misstep in Pausing Foreign Assistance

https://smallwarsjournal.com/2025/02/03/90-day-breakup-americas-policy-misstep-in-pausing-foreign-assistance/

by Jerritt Lynn

02.03.2025 at 06:00am

Introduction

A 90-day pause to United States foreign development assistance to review its efficacy and alignment with U.S. foreign policy is shock and awe politics from a new administration that seeks attention and visceral responses over sound policy that promotes the U.S.’s interests abroad. However, this approach compromises American leadership, as well as our political, military, and economic advantage overseas. This strategy will only embolden the U.S.’s adversaries and risks conveying that the United States is not a reliable, long-term partner. Additionally, a comprehensive stop-hold is an impractical timeline and excludes sound methodology for assessing whether foreign assistance programs are adequate or aligned with U.S. government foreign policy objectives.

Do the newly elected President Donald J. Trump and the newly appointed Secretary of State Marco Rubio have the authority, the right, and the obligation to ensure government funding and programs align with foreign policy? Absolutely. I would argue that routine reassessment is necessary to prevent fraud, eliminate no longer needed programs, and identify areas of opportunity. However, that already happens through mandatory internal audits of the U.S. government, third-party audits, and routine budget requests that require approval from Congress. Since Congress enacted the Foreign Assistance Act of 1961, assistance has only been suspended a handful of times due to legal violations (Table 1). A complete halt on funding programs that are already underway is a strategic blunder and an administrative nightmare for the U.S. Government and the U.S.’s tens of thousands of implementing partners. It creates genuine national security concerns as we inadvertently cultivate new opportunities for the nation’s enemies to exploit at America’s expense.

Table 1 (Source: Author)

Congress Supports U.S. International Leadership and Foreign Assistance

Let us begin with the fact that the U.S.’s elected officials have supported, and continue to support, foreign assistance. Since its enactment under President Kennedy’s administration, the Foreign Assistance Act of 1961, routinely amended by Congress, provides legal standing, funding, and priorities for foreign assistance overseas (Table 2). To put a finer point on it, the 118th Congress (the most recent) amended and enacted the most recent version into law on December 23rd, 2024, explicitly stating, “The Congress finds that fundamental political, economic, and technological changes have resulted in the interdependence of nations. The Congress declares that the individual liberties, economic prosperity, and security of the people of the United States are best sustained and enhanced in a community of nations that respect individual civil and economic rights and freedoms, and which work together to wisely use the world’s limited resources in an open and equitable international economic system.

Table 2 (Source: Author)

Americans Generally Support U.S. International Leadership and Foreign Assistance

If we are talking about mandates from the American people, foreign assistance shouldn’t be receiving the treatment it is. A June 2024 poll by the Reagan Institute highlights that over three-quarters of Americans believe U.S. leadership is essential for promoting trade and boosting our economy (78%) and that America has a moral obligation to stand up for human rights and democracy around the world (77%). An even more significant percentage (86%) believes that a strong U.S. military is essential for maintaining peace and prosperity at home and abroad. The primary deterrent for Americans wanting to assist overseas is their desire for increased domestic spending on healthcare (67%), education (66%), improvements to public infrastructure such as highways, bridges, and airports (66%), and Social Security (58%) (Table 3). While America’s education, health, and safety net programs do need an overhaul, the policy environment need not be either-or between domestic spending and foreign affairs.

Table 3 (Source: Ronald Reagan President Foundation and Institute)

Money and Security

The $63 billion budget for U.S. foreign assistance programs in fiscal year 2023 accounted for approximately 1% of the U.S. budget. If all Americans chipped in equally, that would amount to $420 per U.S. taxpayer. This isn’t to argue that this relatively low number absolves Congress of its responsibility to ensure it is spent in the nation’s best interests. Instead, it demonstrates that if money is an underlying argument for the knee-jerk reaction toward reevaluating foreign assistance, it is inaccurate. The current FY 2024 foreign assistance total obligations have been the lowest since 2002 and are nearly half of the $63 billion total obligations of FY 2023 (USAID & U.S. State Department, 2024).

Humanitarian assistance (a subset of foreign aid) accounted for only 20% of funding in FY2019, with peace and security being the most funded sectors in FY2019 and FY2020 (Morgenstern & Brown, 2022). This means that most of the few hundred dollars spent per taxpayer was spent on overseas programs to bolster U.S. national security. More specifically, funding objectives and program areas included counterterrorism, combating weapons of mass destruction, counternarcotics, and transnational crime. While the FY2024 budget emphasizes health, humanitarian assistance, and economic development, that does not mean these programs do not benefit the average American or the country. One must only look back at 2020 and the impact COVID-19 had on the international community regarding health and economics. Our national security is not limited to our ability to train and equip other militaries. It is also forever tied to the health and economic viability of the global community.

Many don’t realize this, but the U.S. Department of Defense and military assistance is a prominent piece of U.S. foreign assistance. Through the Defense Security Cooperation Agency (DSCA), American interests are achieved through humanitarian assistance, foreign military education, partner nation capacity building, foreign military equipment, and defense trade and arms transfers. These programs each have subsets of activities that military units are conducting as you are reading this article. It is unclear how this executive order will adversely affect these activities and military units. The best-case scenario creates distrust amongst our partners and reduces their willingness to partner with us in the future. In the worst-case scenario, military units supposed to conduct activities abroad must stop during these 90 days. Either case creates security concerns for those individual units abroad and strategic U.S. national security goals.

Feasibility

Foreignassistance.gov highlights that the U.S. government disbursed funds for 13,000 activities, assistance projects, programs, cash transfers, delivery of goods, training courses, research projects, debt relief operations, or contributions to international organizations for Fiscal Year 2024. Assuming all of these are under review, all 13,000 must be assessed within an even shorter period than stated in the executive order. Recommendations must filter through various levels of bureaucracy before reaching the executive by the 90-day mark. 90 days is used in this article for a simple calculation because the internal timeline could be more compressed.

Ninety days from January 20th (the date of the executive order) is April 20th. There are 26 weekend days within this timeframe, reducing the overall days available for review to 64. Assuming an 8-hour workday leaves approximately 512 hours to evaluate 15,000 programs. That is roughly 2 minutes per program to assess its worthiness of retention against all other programs. Additionally, USAID Senior Procurement Executive Jami Rodgers issued a memo stating that the process for waivers, as the review process for activities, is forthcoming. So, the timeline becomes even more obscure. In addition to the condensed timeline of the 90-day breakup, the pause implies a lack of oversight. The State Department, USAID, DoD, and DSCA all have internal auditing programs. Outside those agencies are the Government Accountability Office, Congressional Research Service, and Congressional Budget Office, to name a few. All of whom conduct reviews and provide information/recommendations to policymakers. The argument here is not that the incoming administration shouldn’t evaluate programs to ensure alignment with existing or new policy objectives, but that it certainly won’t be done effectively in less than 90 days, especially with the sword of Damocles hanging over the auditors’ heads.

Conclusion

It is imperative to remember that the United States Government’s intent with foreign assistance is not genuinely altruistic; it is bound to the betterment of the U.S. writ large. From rebuilding Europe after World War II, to supporting partners in the Middle East, the intent of foreign assistance is to help the U.S.’s strategic interests in one form or another. So, although it is well within the rights and responsibilities of a new administration to reassess foreign assistance programs, halting all funding for 90 days is neither practical nor strategic. The numbers alone illustrate the infeasibility of conducting thorough and effective reviews of thousands of programs within a constrained period.

Additionally, this policy risks undermining U.S. credibility, emboldening adversaries, and creating opportunities for further exploitation. Foreign assistance is not just a financial expenditure but a critical component of U.S. national security and global leadership. It reflects American values of promoting national security, human rights, and international stability.

Rather than a blanket pause, a more targeted and phased approach would ensure that foreign assistance programs continue to support U.S. interests without unnecessary disruption. Regular audits, strategic reviews, and congressional oversight are already in place to address concerns about fraud and inefficiency. Jeopardizing ongoing programs and partnerships for optics is sacrificing long-term gains for short-term political theater.

Tags: American Foreign Policy, Donald Trump, foreign assistance, Foreign Policy, U.S. foreign policy

About The Author

Jerritt Lynn
Jerritt A. Lynn is an Army veteran with over 20 years of distinguished service and more than five years of deployment tours throughout the Middle East, Central Asia, and Southeast Asia. He earned a Master of Arts in Strategic Security Studies from the National Defense University and is completing his Graduate Certificate in College Teaching from the University of North Dakota. Additionally, he is pursuing a PhD in Public Policy with a concentration in Foreign Policy from Liberty University. He can be found on Instagram @jerritt_lynn and on Linkedin at jerritt_lynn24.

I guess we now know for sure that the military and foreign aid and development will no longer be the primary tools of national security and foreign policy (except for flag waving and threats). It will be all about tariffs and more specifically economic warfare. I just hope we are not going to be a one trick pony.

I think he is firing the first shots in economic warfare to lay the foundation to extract concessions from enemies, frenemies, and friends, partners, and allies through later negotiations (and coercion).

Trump’s Move to Put Tariff Hikes Ahead of Tax Cuts Has Spooked Almost Everyone

The president has an ambitious economic plan, starting with trade, and doesn’t appear interested in negotiations—yet

https://www.wsj.com/politics/policy/trumps-move-to-put-tariff-hikes-ahead-of-tax-cuts-has-spooked-almost-everyone-7b9b1813?mod=hp_lead_pos2

By Lindsay Wise

Updated Feb. 3, 2025 12:25 am ET

President Trump defended his tariffs, saying, ‘it will all be worth the price that must be paid.’ Photo: Ben Curtis/Associated Press

WASHINGTON—President Trump’s aggressive move to place tariffs on hundreds of billions of dollars in imports, ranging from crude oil and auto parts from Canada to Mexican avocados and raspberries has rattled investors, economists and some lawmakers, who are all wondering: What exactly is the goal?

Larry Summers, the former U.S. Treasury secretary under President Bill Clinton, said that Trump’s move amounted to “a self-inflicted supply shock.” Kentucky Republican Sen. Rand Paul said: “Taxing trade will mean less trade and higher prices.” The head of the National Association of Manufacturers, Jay Timmons, said it put American jobs at risk. “The ripple effects will be severe,” he said.

For many of those reasons, tariffs were the part of Trump’s economic plan investors disliked the most. Markets have cheered Trump’s promises of tax cuts and reduced regulation, but he has vaulted his trade plan ahead of virtually everything else.

Other countries have already moved to retaliate, and Trump acknowledged on Sunday that there could be some “pain” for U.S. consumers.

Canada is planning tariffs on $100 billion of goods, including alcohol, shoes, steel and aluminum and aerospace products. China, which also faces new U.S. tariffs, and Mexico prepared similar counterattacks.

Trump defended his tariffs, saying in an all-caps post: “Will there be some pain? Yes, maybe (and maybe not!)” He added that “it will all be worth the price that must be paid,” and repeated a call to turn Canada into America’s 51st state.

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President Trump’s move to place tariffs on imports from Canada, Mexico and China has triggered a trade war. WSJ’s economics reporter Jeanne Whalen explains how the tariffs can drive up prices for consumers. Photo Illustration: Hunter French

Republicans over the weekend were largely supportive of Trump’s efforts. “We are just two weeks into the Trump administration and Washington does not know what hit it,” said Sen. John Barrasso (R., Wyo.), the No. 2 Senate Republican, on “Fox News Sunday.” Asked if he was concerned that the tariffs could undermine the administration’s other policy goals, Barrasso said no.

Rep. Jason Smith (R., Mo.), who chairs the tax-writing House Ways and Means Committee, said the tariffs would bring in billions of dollars in new revenue to the U.S. government.

During his presidential campaign, Trump telegraphed that tariffs would be a key part of his governing strategy, saying repeatedly that “tariff” is his favorite word. Many investors believed that this was part of a negotiating ploy with other countries and that he would try to extract concessions before following through.

So far, Trump hasn’t spent much time negotiating with any other country. His top trade adviser, Howard Lutnick, his nominee for commerce secretary, hasn’t yet been confirmed by the Senate. The confirmation hearing for his pick for trade ambassador, Jamieson Greer, hasn’t occurred yet.

Wall Street analysts and economists are virtually unanimous that tariffs of the sort Trump unveiled this weekend will, if sustained for more than a few months, hurt U.S. growth and boost inflation. After the White House on Friday announced the forthcoming tariffs, stock indexes reversed daily gains to close solidly lower, and long-term bond yields, a key measure of U.S. borrowing costs, edged higher.

“The market needs to structurally and significantly reprice the trade-war risk premium,” said George Saravelos, head of foreign-exchange research at Deutsche Bank.

A national home-building group said the tariffs threaten to slow residential construction. American fuel producers said it could mean higher gas prices. The generic drug industry trade association said it could increase drug shortages. Zippy Duvall, president of the American Farm Bureau Federation advocacy group, said U.S. farmers and rural communities would “bear the brunt of retaliation.”

“It was Donald Trump who campaigned on lowering costs, and now it is Donald Trump who will raise them,” said Senate Minority Leader Chuck Schumer (D., N.Y.).

The border crossing between Ontario and Michigan. Photo: geoff robins/Agence France-Presse/Getty Images

The precise impact will depend on how long the tariffs stay in place and if other countries retaliate. The Tax Policy Center, a think tank, estimates the average household’s after-tax income will fall 1%, or $930, in 2026 because of the tariffs. Goldman Sachs economists estimate the tariffs on Canada and Mexico, if sustained, would raise consumer prices by up to 0.7%, and knock 0.4% off the level of economic output.

In theory, the direct cost to consumers of tariffs could be offset by further tax cuts. But tariffs will have other, less tangible costs such as forcing consumers to alter what they buy because of cost or availability. The Peterson Institute for International Economics estimates tariffs will leave the U.S. economy about 0.25% smaller next year and 0.1% in the long run.

Tax-cut talks could begin soon in Congress, though that process is likely to play out over months. Trump wants to extend his expiring tax cuts from 2017 and add new measures such as tax-free tips and tax-free overtime pay. Republicans generally agree on his broader goals. But they are hamstrung by their narrow House majority and mired in internal disputes over how deeply to cut federal spending alongside the tax cuts. They may take the first formal step forward this week, bringing a blueprint to the House budget panel.

Trump’s push to cut government spending has already run into legal challenges and internal missteps. The White House believes high levels of government spending fuel inflation, and last week the Office of Management and Budget tried to put a temporary freeze on a range of government programs.

That initiative sparked confusion and was initially blocked by a federal judge. White House officials will have another opportunity to pursue spending cuts when they negotiate a budget bill with Congress before a March 14 shutdown deadline. However, they will likely need cooperation from Democrats if they want to pass any package in a way that could avoid a government shutdown.

A national home-building group said the tariffs threaten to slow residential construction. Photo: mike blake/Reuters

Another key part of Trump’s economic agenda is boosting energy production, which he believes will bring down prices on a range of products and even lower interest rates. So far, there doesn’t appear to be much appetite by other oil-producing countries or energy companies for a dramatic expansion of drilling, however. It is unclear what Trump might try to do to force compliance with this goal.

In 2018, when he launched tariffs aggressively, he said his goal was to bring back American jobs. This time, he seems more focused on the hefty import duties that tariffs could bring in, creating more money for his agenda.

Whether the tariffs could also force changes that Trump has sought remains unclear. Summers, who had correctly warned then-President Joe Biden in 2021 that his stimulus policies would lead to higher inflation, said Sunday on CNN’s “Inside Politics Sunday” that he didn’t think the tariffs would succeed in forcing other countries into accepting meaningful changes in policy.

“Think about what giving in to a bully does. It invites more bullying,” Summers said.

Greg Ip, Richard Rubin, Ryan Dezember and Jared S. Hopkins contributed to this article.

Write to Lindsay Wise at lindsay.wise@wsj.com

Appeared in the February 3, 2025, print edition as 'Administration’s Early Moves Stir Unease'.

4. Beijing Prepares Its Opening Bid to Talk Trade With Trump

It does seem strange to me (but I am way outside my element here) to inflict 25% tariffs on our neighbors Canada and Mexico, and only 10% on China.

Excerpts:

President Trump’s move to place tariffs on imports from Canada, Mexico and China has triggered a trade war. WSJ’s economics reporter Jeanne Whalen explains how the tariffs can drive up prices for consumers. https://www.wsj.com/video/trumps-trade-war-with-canada-mexico-and-china-will-drive-up-expenses/12DAF01A-DA92-4E27-ACCE-69E9F089462F.html

In an initial response without much bite, China’s Ministry of Commerce said it would challenge the tariffs at the World Trade Organization, whose mechanism for resolving trade disputes has been disabled since Trump’s first term. The ministry also urged “frank dialogue” between both sides. In a statement, the Chinese Embassy in Washington called on the U.S. to “correct its wrongdoings.”

As part of its effort to prepare for negotiations, according to the people, China’s initial proposal will center on restoring a trade agreement Beijing signed in early 2020 with the first Trump administration but didn’t implement.

The so-called Phase One deal required China to increase purchases of American goods and services by $200 billion over a two-year period. While Trump himself has described Phase One as the “greatest deal” ever made, many trade experts and business executives called it unrealistic to begin with.

Having failed to deliver on its pledge under the deal to increase U.S. purchases, Beijing now is preparing to talk to the Trump administration about areas where China can buy more from the U.S., the people said.

Other parts of China’s plan, the people said, include an offer to make more investments in the U.S.—in sectors such as batteries for electric cars, a renewed pledge by Beijing not to devalue the yuan to gain competitive advantage, and a commitment to reduce exports of fentanyl precursors.

Beijing Prepares Its Opening Bid to Talk Trade With Trump

As White House fires 10% tariff salvo, China sees room to negotiate

https://www.wsj.com/world/china/beijing-prepares-its-opening-bid-to-talk-trade-with-trump-ccec3ca4?mod=hp_lead_pos3

By Lingling Wei

Updated Feb. 3, 2025 12:27 am ET

Land used used for melon and cantaloupe farming in Firebaugh, Calif. Photo: david swanson/Agence France-Presse/Getty Images

Beijing is readying an opening bid to try to head off greater tariff increases and technology restrictions from the Trump administration—a sign that China is eager to get trade talks going.

However, what it is prepared to offer, according to people in both capitals familiar with Beijing’s thinking—chiefly focused on going back to a previous trade deal that didn’t work out—is likely to intensify debates in Washington over how to negotiate with China.

Even though the White House hit China with 10% tariffs starting Tuesday for its failure to crack down on chemicals used to make fentanyl, neither side appears ready to launch a full-on trade war. China, in particular, is in weak economic shape, and Chinese leader Xi Jinping has signaled his interest in engaging in negotiations with President Trump, who has also suggested he is open to dialogue by deferring most of his promised tariffs on China.

Beijing saw the 10% tariffs as Trump’s way of exerting pressure, the people familiar said, but also noted his first tariff move wasn’t the kind of “maximum pressure” the leadership would find intolerable. Trump has threatened tariffs of as high as 60%.

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In an initial response without much bite, China’s Ministry of Commerce said it would challenge the tariffs at the World Trade Organization, whose mechanism for resolving trade disputes has been disabled since Trump’s first term. The ministry also urged “frank dialogue” between both sides. In a statement, the Chinese Embassy in Washington called on the U.S. to “correct its wrongdoings.”

As part of its effort to prepare for negotiations, according to the people, China’s initial proposal will center on restoring a trade agreement Beijing signed in early 2020 with the first Trump administration but didn’t implement.

The so-called Phase One deal required China to increase purchases of American goods and services by $200 billion over a two-year period. While Trump himself has described Phase One as the “greatest deal” ever made, many trade experts and business executives called it unrealistic to begin with.

Having failed to deliver on its pledge under the deal to increase U.S. purchases, Beijing now is preparing to talk to the Trump administration about areas where China can buy more from the U.S., the people said.

Other parts of China’s plan, the people said, include an offer to make more investments in the U.S.—in sectors such as batteries for electric cars, a renewed pledge by Beijing not to devalue the yuan to gain competitive advantage, and a commitment to reduce exports of fentanyl precursors.

Beijing plans to treat control of TikTok largely as a ‘commercial matter.’ Photo: Kayla Bartkowski/Getty Images

Hoping to set a positive tone, Beijing also plans to treat TikTok largely as a “commercial matter,” the people said, in response to Trump’s remarks that he wanted U.S. and Chinese interests to split control of the app 50-50. That means the government intends to stay out of the way and let investors in TikTok’s Chinese parent company, ByteDance, negotiate a deal with interested American bidders, the people said.

However, it is unclear if Beijing would be willing to give up control over whether TikTok’s algorithm, the app’s secret formula for steering content to users that Beijing has added to its export-control list, could be part of any deal.

China’s opening bid reflects Xi’s interest in getting Trump in a dealmaking mood at a time of increased economic stress in China. At the same time, the Chinese leader is digging in on central control to gird China for prolonged competition with the U.S., especially in areas involving technology. Beijing also is putting in place a retaliatory tool kit to build up its own leverage for negotiations.

“The Chinese would be very happy to get into deal negotiation,” said Arthur Kroeber, founding partner and head of research at Gavekal Dragonomics, a China-focused economic consulting firm. “The objective would basically be to blunt the U.S. attack rather than gain anything material.”

Since coming to office, Trump has shown that he would be willing to use tariffs as leverage over China, on issues both economic and geopolitical.

Other parts of China’s plan include an offer to make more investments in the U.S., including in sectors such as batteries for electric cars. Photo: David Paul Morris/Bloomberg News

He has taken aim at China’s massive trade surplus with the U.S., often in hundreds of billions of dollars annually, indicating he wants Beijing to buy more from America to narrow that gap. Trump has also said he wants Xi’s help to end Russia’s war in Ukraine, while signaling he is willing to use tariffs as a potential bargain chip.

Xi has reasons to try to placate Trump before any planned summit between the two leaders takes place.

Trump has directed federal agencies to review the bilateral economic relations with China and given them until early April to make recommendations on what course of action the U.S. should take on China.

Given the many China critics on Trump’s team as well as the bipartisan support for a continued tough-on-China stance in Washington, those recommendations could lead to an overall package aimed at moving the U.S. economy further away from China’s, including higher tariffs on not only Chinese goods but also products containing China-made components, and expanded restrictions on the sale of American tech to China.

Xi’s envoy to Trump’s Jan. 20 inauguration, Vice President Han Zheng, told the new Trump team about Beijing’s willingness to discuss a range of topics including TikTok, fentanyl and trade, the people familiar with the matter said.

“Beijing is eager to see the asking price from the Trump team and explore room for negotiations, especially on tariff and tech,” said Yun Sun, director of the China program at the Stimson Center, a Washington think tank.

China wants to be allowed to buy goods it needs, such as American tech products. Photo: Justin Merriman/Bloomberg News

Trade talks centered on Phase One are likely to expose divisions within the Trump administration, renewing questions about the value of a deal based on pledges nearly impossible for Beijing to fulfill even when it was signed.

To hit the targets of increasing its purchases of U.S. products by $200 billion from the $186 billion China imported in 2017, before the trade war, U.S. exports to China would have had to jump by an average of 33% annually, about three times as fast as they had grown annually since China joined the World Trade Organization in 2001.

In the end, according to estimates by the Peterson Institute for International Economics, China bought only 58% of the U.S. goods it had committed to purchase, not even enough to reach 2017 levels. Put differently, analysts at the think tank noted, China bought none of the additional U.S. exports it had promised.

This time, Beijing is planning on again offering more purchases of U.S. farm, energy and industrial products, the people familiar with Beijing’s thinking said. But China will also make a case that it should be allowed to buy goods it really needs, such as American chips and other tech products that are now subject to export controls.

Within the new Trump administration, Treasury Secretary Scott Bessent said during his confirmation hearings that he would be receptive to talks to enforce Phase One purchase guarantees “and perhaps to push the Chinese for a catch-up provision” to make up for the past four years.

Other Trump advisers, including those on the national-security team and Peter Navarro, Trump’s senior adviser for trade and manufacturing, are expected to argue for the need to focus beyond just trade and address broader security threats from Beijing.

Trump’s pick for commerce secretary, Howard Lutnick, also appeared to be advocating stronger action, including preventing American tech from helping China’s industries.

At last week’s confirmation hearing, Lutnick suggested that DeepSeek, the Chinese artificial-intelligence startup, had evaded some U.S. export controls on chips to produce a chatbot rivaling U.S. ones. “It’s got to end,” he told senators, vowing a “very strong” response if he is confirmed.

For now, Trump himself appears to be Xi’s best hope for a deal to stave off a trade war.

“Trump doesn’t see China as a military existential threat to the U.S. as many of his advisers do, and he should be open to a deal,” said Bob Davis, a journalist who has written about the U.S.’s trade policy toward China and co-author of “Superpower Showdown.” “But it will be a big fight domestically.”

Write to Lingling Wei at Lingling.Wei@wsj.com

5. The Dumbest Trade War Fallout Begins

The President does not seem to have the support of the Wall Street Journal editorial board (at least on tariffs) . Is this his first "Walter Cronkite moment" of his second term.

I do not recall the American people signing up for any more pain (on the other hand it is good that the President is transparent with the American people). This is going to hurt (or it may not).

Excerpt:

“WILL THERE BE SOME PAIN? YES, MAYBE (AND MAYBE NOT!). BUT WE WILL MAKE AMERICA GREAT AGAIN, AND IT WILL ALL BE WORTH THE PRICE THAT MUST BE PAID,” Mr. Trump posted on Truth Social on Sunday morning. He also included a blast at these columns for leading the “Tariff Lobby” after our Saturday editorial called his 25% across-the-board tariffs on our friends and neighbors “the dumbest trade war in history.”

The Dumbest Trade War Fallout Begins

Canada and Mexico vow retaliation in response to Trump’s tariffs, amid new economic uncertainty.

https://www.wsj.com/opinion/the-trump-tariff-fallout-begins-canada-mexico-vow-retaliation-economic-uncertainty-da522b44?mod=hp_opin_pos_0

By The Editorial Board

Updated Feb. 2, 2025 5:44 pm ET

A truck drives on its way to enter the United States at a border crossing at the Canada-US border in Blackpool, Quebec, on Sunday. Photo: andrej ivanov/Agence France-Presse/Getty Images

President Trump conceded Sunday that there may be “some pain” from his sweeping tariffs on Mexico and Canada, but they will eventually lead to a new “GOLDEN AGE.” Nice of him to promise a glorious future because the pain is already unfolding, and the tariffs won’t even take effect until Tuesday.

“WILL THERE BE SOME PAIN? YES, MAYBE (AND MAYBE NOT!). BUT WE WILL MAKE AMERICA GREAT AGAIN, AND IT WILL ALL BE WORTH THE PRICE THAT MUST BE PAID,” Mr. Trump posted on Truth Social on Sunday morning. He also included a blast at these columns for leading the “Tariff Lobby” after our Saturday editorial called his 25% across-the-board tariffs on our friends and neighbors “the dumbest trade war in history.”

We appreciate Mr. Trump’s attention, though we’re anti-tariff and not lobbyists. But bad policy has damaging consequences, whether or not Mr. Trump chooses to admit it. Mr. Trump can’t repeal the laws of economics any more than Joe Biden could on inflation.

***

Tariffs are taxes, and when you tax something you get less of it. Who pays the tariff depends on the elasticity of supply and demand for the specific goods. But Mr. Trump wants American workers and employers to take one for the team. Hope you don’t lose your job or business before the golden age arrives.

The economic fallout began Saturday evening as Canada said it will retaliate with a 25% tariff on $30 billion (Canadian dollars) of U.S. goods, with another C$125 billion to follow in three weeks. Mexican President Claudia Sheinbaum also promised to retaliate.

Canada’s new border taxes will hit orange juice, whiskey and peanut butter—all from states with GOP Senators. Prime Minister Justin Trudeau said Ottawa’s tariff list would also include beer, wine, vegetables, perfume, clothing, shoes, household appliances, furniture and much more. He said Canada could also withhold critical minerals.

Note that Canada’s Conservative opposition leader, Pierre Poilievre, also called for retaliation. Mr. Poilievre is the favorite to be the next Prime Minister and he rightly said the trade war will damage both countries. But he said Canada had to stand up for its “sovereignty” and protect its economic interests.

Mr. Trump’s tariffs are already roiling North America’s energy markets, which are highly integrated. The President implicitly recognized the risk by hitting Canada’s energy exports to the U.S. with a lower 10% tariff. But that will still hurt Midwestern refiners that rely on Canadian oil. Canada and Mexico could send more of their oil elsewhere for refining, perhaps even China.

Canada’s expanded Trans Mountain pipeline runs from Alberta to the West Coast and has spare capacity. It could be used to increase tariff-free oil shipments to Asia that would hurt California refineries that now import oil from Trans Mountain. California could have to import more oil from the Middle East.

Mr. Trump says the tariffs will revive U.S. manufacturing. But Jay Timmons, CEO of the National Association of Manufacturers, said in a statement that “a 25% tariff on Canada and Mexico threatens to upend the very supply chains that have made U.S. manufacturing more competitive globally.”

He added that, while his members understand the need to reduce fentanyl flows to the U.S., “the ripple effects will be severe, particularly for small and medium-sized manufacturers that lack the flexibility and capital to rapidly find alternative suppliers or absorb skyrocketing energy costs.”

Many more trade groups have criticized the tariffs, including even U.S. aluminum makers who benefited from tariffs in the first term. Canada accounts for more than half of U.S. aluminum imports (owing to its cheap hydropower) that secondary and downstream manufacturers use.

***

None of this means the Trump tariffs will tip the U.S. economy into recession. U.S. growth may be strong enough to absorb the blow from tariffs, as it was after Mr. Trump’s more modest levies in the first term. But the same can’t be said about Mexico and Canada, where growth is weak and which depend on U.S. markets for much of their GDP.

The tariffs may also not cause a surge in the general U.S. price level. Overall inflation depends far more on the Federal Reserve’s monetary policy. But prices will increase for most tariffed goods, which will be painful enough.

The tariff broadside also adds new policy risk and uncertainty that could dampen business animal spirits. Markets have been pricing in an assumption that Mr. Trump would step back from his most florid tariff threats, or limit tariffs to China.

The hammer blow to Mexico and Canada shows that no country or industry is safe. Mr. Trump believes tariffs aren’t merely useful as a diplomatic tool but are economically virtuous by themselves. This will cause friends and foes to recalibrate their dependence on America’s market, with consequences that are hard to predict. How this helps the U.S. isn’t apparent, so, yes, “dumbest trade war” sounds right, if it isn’t an understatement.

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Journal Editorial Report: The week's best and worst from Kyle Peterson, Mene Ukueberuwa, and Dan Henninger. Photo: Mario Cantu/Andrea Renault/Zuma Press/Jemal Countess/Getty Images for Fortune Media

Appeared in the February 3, 2025, print edition as 'The Dumbest Trade War Fallout Begins'.

6. Donald Trump’s Tariffs: A 21st Century Smoot-Hawley Disaster?

It will be interesting to see how this plays out. We will not know for some time. And then we will see who can say "I told you so," either POTUS or the anti-tariff lobby.

What ever happened to the fundamental American value of free enterprise and a free market economy?

"In my book I don't just demonstrate that free enterprise is the most efficient way of organizing an economy - which it is. I also show that it's an expression of American values, and, thus, that a fight for free enterprise is very much a fight for our culture."

– Arthur C. Brooks

"I am a conservative Republican, a firm believer in free market capitalism. A free market system allows all parties to compete, which ensures the best and most competitive project emerges, and ensures a fair, democratic process."

– Sarah Palin

"I am convinced that the majority of American people do understand that we have a moral responsibility to foster the concepts of opportunity, free enterprise, the rule of law, and democracy. They understand that these values are the hope of the world."

– Richard Lugar

"I think global warming is the gravest threat. With global warming, it's the product of a war between old energy - between the carbon cronies, who, by the way, could not stay in business in a true free market capitalism."

– Robert Kennedy, Jr.

Excerpts:

In short, Mr. Trump has started his second term with a significant economic policy mistake. That mistake risks precipitating a world economic recession that will cause considerable harm to our economy.

At the same time, Mr. appears to have complicated the Fed’s task of meeting its 2 percent inflation target, thereby delaying the return to a world of lower interest rates. He appears to be setting himself up for a shellacking in the 2026 mid-term elections.

Donald Trump’s Tariffs: A 21st Century Smoot-Hawley Disaster?

19fortyfive.com · by Desmond Lachman · February 2, 2025

Dennis Robertson, the late Cambridge economist, never tired of saying that bad economic ideas were like going to the greyhound races. If you stood still long enough, the dogs would come around the track again.

Judging by President Donald Trump’s punitive tariff action this weekend against Canada, China, and Mexico, it seems that the bad idea of starting a trade war is back again for the first time in almost one hundred years.

Like the Smoot-Hawley Act of the 1930s, these tariff measures will likely end in tears for the US and world economies.

Didn’t We Learn from Tariff History?

If there is one thing that we should have learned from the Smoot-Hawley tariff experience, it is that tariff wars are a lose-lose proposition for the world economy.

By inviting retaliation in the form of reciprocal trade restrictions, international trade gets disrupted significantly. That inflicts real pain on all countries’ export sectors.

That, in turn, imparts an adverse shock to their overall economies. Almost all economists agree that Smoot-Hawley was a significant contributor to the length and depth of the Great Economic Depression.

Undaunted by the Smoot Hawley experience, Mr. Trump has made tariffs a central part of his economic program. Barely two weeks in office, he has imposed a 25 percent import tariff on Canada and Mexico, our two largest trade partners. He has done so in flagrant violation of the United States-Mexico-Canada agreement to get those two countries to take action against the influx of illegal immigrants and fentanyl into the United States.

In addition, Mr. Trump has slapped a 10 percent tariff on China and threatened heavy levies against Europe and the rest of our trade partners.

Donald Trump’s Tariffs Are Coming at a Bad Time

While it is never a good time for the United States, the erstwhile leader of a free international trade system, to start a trade war, it is a terrible time for it to do so when many of the world’s economies are struggling.

China, the world’s second-largest economy, is amid the bursting of its housing and credit market bubble. The last thing that its slowing economy can afford is a body blow to its export sector. Meanwhile, Germany, the world’s third-largest economy, has been in recession for two years, and France is suffering from acute political dysfunction and unsustainable public finances.

Those countries, too, cannot afford a world trade war. In these circumstances, it is unwise for the United States to precipitate an economic recession in Canada, China, and Mexico by subjecting their economies to punitive tariffs.

Retaliation and Recession

A world in recession does not bode well for the United States export sector, US corporate earnings, or the US banking system with sizeable foreign loan exposure. Nor does it bode well for the US stock market, considering that around 30 percent of the S&P 500s profits are earned abroad.

As might have been expected, in response to Mr. Trump’s tariff action, Canada and Mexico are already threatening to retaliate by imposing import tariffs on sensitive parts of the US export sector. The same might be expected from China and Europe should Mr. Trump follow through on his threats of further tariff action.

That risks taking us down the economically disastrous road of the beggar-thy-neighbor policies that characterized the 1930s.

Trump’s Tariffs Could Spark More Inflation

In addition to risking a world economic recession, Mr. Trump’s tariffs will add meaningfully to inflation by raising the domestic cost of imports and food items. That will make it difficult for the Federal Reserve to resume its interest rate-cutting cycle.

One of the purported objectives of Mr. Trump’s tariff policy is to reduce the country’s large trade deficit. However, that objective will prove to be elusive, considering the significant tax cuts that Mr. Trump is proposing.

Donald Trump. Image Credit: Creative Commons.

According to the Committee for a Responsible Budget, Mr. Trump’s proposed tax cuts would add nearly $8 trillion to the budget deficit over the next decade.

By reducing national savings, those tax cuts are more than likely to cause a further widening in the trade deficit and take us back to the twin deficit problem of the 1980s.

In short, Mr. Trump has started his second term with a significant economic policy mistake. That mistake risks precipitating a world economic recession that will cause considerable harm to our economy.

At the same time, Mr. appears to have complicated the Fed’s task of meeting its 2 percent inflation target, thereby delaying the return to a world of lower interest rates. He appears to be setting himself up for a shellacking in the 2026 mid-term elections.

About the Author: Desmond Lachman

American Enterprise Institute senior fellow Dr. Desmond Lachman was a deputy director in the International Monetary Fund’s Policy Development and Review Department and the chief emerging-market economic strategist at Salomon Smith Barney.

19fortyfive.com · by Desmond Lachman · February 2, 2025

7. Trump’s Tariffs Usher In New Trade Wars. The Ultimate Goal Remains Unclear.

I am sure the American people would like to understand the ultimate goal.

Trump’s Tariffs Usher In New Trade Wars. The Ultimate Goal Remains Unclear.

The president’s trade assault, which makes no distinction between ally and adversary, is an assertion of U.S. dominance with significant risks

https://www.wsj.com/economy/trade/trumps-tariffs-usher-in-new-trade-wars-his-goals-remain-a-mystery-559d3190?mod=Searchresults_pos6&page=1

By Greg Ip

Updated Feb. 3, 2025 12:22 am ET

The planned tariffs seem to be a bet that Mexico and Canada have too much to lose from letting the trade war escalate. Photo: Jose Luis Gonzalez/Reuters

Until the moment when President Trump announced 25% near-universal tariffs on Canada and Mexico, many on Wall Street, in Washington and in foreign capitals doubted he would. They didn’t see how the changes served the U.S. economic, political or strategic interest.

That Trump did so anyway shows just how profoundly he is rewriting the source code of U.S. economic relations. The postwar bipartisan consensus that the U.S. prospers by fostering cooperation and integration with allies and neighbors is gone. In its place looms the prospect of continuous trade war driven not by traditional alliances and ideology, but the priorities of the day. The winner is the one who can inflict, and withstand, the most economic pain.

What comes next is highly uncertain because Trump’s motives are difficult to discern. He justified the tariffs, plus a 10% tariff on China, as a way to stop the flow of fentanyl and illegal migrants. Howard Lutnick, Trump’s commerce-secretary nominee, last week said Canada and Mexico “are acting swiftly” on those concerns, implying a resolution could come quickly. The tariffs are to take effect Tuesday.

Yet negotiators from both countries reportedly have struggled to figure out what would satisfy Trump. His officials have set vague-enough conditions that could justify tariffs indefinitely. Even if the tariffs announced Saturday are modified or removed, Trump can reimpose them at any time, and he is still considering broad tariffs on the entire world.

Drugs and migrants might turn out to be a pretext for bigger, long-term goals. Trump claims tariffs will usher in a “golden age” akin to the late 1800s. He sees them as not just a source of revenue and protection, but a sort of financial gunboat diplomacy that could force Canada to submit to annexation and Denmark to surrender Greenland.

President Trump is pursuing a profound rewrite of the source code of U.S. economic relations. Photo: Ben Curtis/Associated Press

“Will there be some pain? Yes, maybe (and maybe not!). But we will make America great again, and it will all be worth the price,” Trump wrote on social media Sunday.

Philip Verleger, a longtime energy analyst, writes in a forthcoming article that Trump “intends to ‘Make America Great Again’…by diminishing the power of every other country. Cooperation is not an objective. His focus is dominance.”

This trade war isn’t like the last

While Trump hit many countries in his first term, China was the focus. Most of the $380 billion of imports, annualized, subjected to tariffs were from China, noted Erica York of the Tax Foundation. By contrast, York estimates Trump’s latest tariffs will hit about an annualized $1.4 trillion of imports—mostly on U.S. allies.

His first administration was thick with foreign-policy hawks such as Vice President Mike Pence and national-security adviser H.R. McMaster, who thought tariffs on China complemented the mission of containing a geopolitical adversary. Trade ambassador Robert Lighthizer, the architect of Trump’s first-term tariffs, put China in a category all its own.

Trucks enter the U.S. from Canada in Blaine, Wash. A near-universal 25% tariff on Canada is to take effect Tuesday. Photo: David Ryder/Getty Images

Trump’s second-term actions make little distinction between adversaries and allies. He threatened tariffs against Colombia, a close economic and security partner, over its initial refusal to take back deported migrants. Then he sent an envoy to Venezuela, a longtime U.S. antagonist, to negotiate the return of migrants and the release of detainees.

In Trump’s first term, tariffs were levied using laws with narrowly prescribed conditions that allowed affected companies and individuals to weigh in and prepare. This time, Trump acted within weeks of taking office before his own Commerce secretary or trade ambassador were in place.

He used a statute, the International Emergency Economic Powers Act, usually reserved for terrorists and rogue states. It imposes almost no waiting period, is unusually broad and is difficult to block by Congress or via the courts. It effectively allows Trump to wage economic war with virtually no notice, oversight or expiration date.

The trade wars of his first term were mostly about trade. Trump used the threat of tariffs to persuade Canada, Mexico, Japan and South Korea to amend existing trade agreements that he thought unfair and the source of trade deficits.

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He has since added two goals. He has said the revenue from tariffs can pay for lower income taxes, which implies he intends them to be permanently higher.

And Trump is treating tariffs as an all-purpose tool to achieve a range of economic, political and strategic goals. “Previous Administrations have failed to leverage America’s combination of exceptional strength and its unique role in world trade to advance the security interests of the American people,” the White House said Saturday. “President Trump has not.”

There will be costs—short- and long-run

On Friday, anticipation of tariffs caused stocks to plunge and bond yields to edge higher, because investors expect tariffs to be stagflationary: hurting growth and raising prices. Goldman Sachs estimates the tariffs on Canada and Mexico, if sustained, would add 0.7% to consumer prices and knock 0.4% off economic output. (The lower, 10% tariff on Canadian energy would mitigate that.) Meanwhile, Mexico and Canada could fall into recession.

With time, economies adapt to shocks such as tariffs. Their employment recovers, but they end up poorer as goods that were once imported from the most efficient source are now produced domestically or farther afield. They change their buying patterns to adapt. In 2019, Deutsche Bank estimated a 25% tariff on Mexico would raise the average new-vehicle price in the U.S. by $1,300 and reduce annual sales by 18%, or three million units.

Long ago multinationals served the U.S. and Canadian markets separately, from local plants. With the Canada-U.S. free-trade agreement in 1988, localization gave way to globalization with plants in both countries serving the continental and sometimes global market.

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Economists warn that consumers may see prices rise on goods like groceries as a result of the new tariffs. Photo: Mandel Ngan/Agence France-Presse/Getty Images

Once companies accept tariffs as permanent, globalization will likely give way to localization again. On Saturday, Prime Minister Justin Trudeau urged Canadians to check the labels in supermarkets and favor Canadian-made products, and to vacation in Canada (a decision made easier by the lower dollar).

The U.S. imports most of its potash, essential for fertilizer, from Canada, the world’s largest producer. Australian mining company BHP plans to start production at a new potash mine in Saskatchewan next year. If exports to the U.S. are uneconomic because of tariffs, they would likely go to other markets, such as Brazil, said Ragnar Udd, the company’s chief commercial officer, in an interview. The U.S. would presumably import more from Russia and Belarus, two of the next-largest producers, he said.

Then there are the political ramifications. Trump seems to be betting that Mexico and Canada have too much to lose from letting the trade war escalate or diplomatic and security relations, such as over the southern border, to suffer. He has urged Canada to become the 51st state to avoid the pain of tariffs.

But Michael Froman, a former trade ambassador under President Obama and now president of the Council on Foreign Relations, said far from encouraging countries to draw closer to the U.S., coercion “tends to drive countries in the opposite direction. It gives rise to nationalism.”

Mexican pollster BGC Ulises Beltrán y Asociados has found 70% of Mexicans back President Claudia Sheinbaum’s stance toward Trump, and 75% approve of the job she’s doing.

Canada is politically weak, with the unpopular Trudeau on the way out and his ruling Liberals likely to lose an imminent election. Yet the major political parties have united around retaliation. Conservative leader Pierre Poilievre, sometimes compared to Trump and favored to win the next election, called for dollar-for-dollar retaliation and replacing “lost north-south trade with east-west trade…to make us self-reliant.”

The test of such defiance is whether it survives the coming era of trade war.

Write to Greg Ip at greg.ip@wsj.com

8. Trump moves to wrest control of USAID as Musk says ‘we’re shutting it down’

Who put Mr. Musk in charge? (rhetorical question because I know it was neither the electorate or the Senate). I wonder when the Constitutional challenges to actions will come.

When I called for an office of strategic distribution I was focusing on disrupting our adversaries, not ourselves.

But this is good work because it will save 0.46% of the overall federal budget. (note sarcasm - see additional facts below).

Since we are undoing President Kennedy's initiatives I wonder how Mr. Musk feels about the Peace Corps, the US Navy SEALS, and giving Special Forces the Green Beret since JFK was responsible for all of these.

Excerpts:

Over the weekend, Musk repeatedly denigrated USAID without offering evidence that those working there were corrupt. On X, he called the long-standing government agency “evil” and a “viper’s nest of radical-left marxists who hate America.”

“USAID is a criminal organization,” he added. “Time for it to die.”

Musk also had sharp words for the agency during an X Spaces livestream early Monday, when he was joined by Vivek Ramaswamy — former co-head of DOGE in its prior iteration, when it was an outside group empowered to make recommendations — and Sen. Joni Ernst (R-Iowa).

“USAID is a ball of worms,” Musk said. “There is no apple.”

“It’s gotta go. It’s beyond repair,” he added.

Established in 1961 by President John F. Kennedy, USAID oversees a vast portfolio of programs designed to provide humanitarian relief, combat poverty, support global health and more. In 2023, it managed appropriations worth $40 billion, according to the Congressional Research Service. USAID is present in more than 100 countries from Ukraine to Peru. The agency’s staff numbers more than 10,000, the majority of whom are overseas.

By Sunday afternoon, USAID’s X account had been taken down, with a message saying the account “doesn’t exist.” The agency’s Instagram account was also taken offline.

For context here are some addition facts about the USAID budget (the Washington Post could have used 2025 budget projections rather than 2023):

As of fiscal year 2025, the United States Agency for International Development (USAID) is allocated approximately $28.3 billion for foreign assistance programs that it fully or partially manages. This allocation is part of the combined $42.8 billion budget request for the Department of State and USAID.

Given that the total U.S. federal budget is approximately $6.1 trillion, USAID's budget constitutes about 0.46% of the overall federal budget. This is a slight decrease from previous years; for instance, in the last fiscal year, USAID dispersed $43.8 billion, accounting for 0.7% of the federal budget.

It's important to note that USAID's budget is a subset of the broader foreign assistance budget, which includes contributions from other departments and agencies. The allocation and percentage can vary annually based on policy decisions and budgetary considerations.

Trump moves to wrest control of USAID as Musk says ‘we’re shutting it down’

In the latest action, two top security officials at the independent agency were removed after they refused access to restricted spaces to Elon Musk’s representatives. Musk said early Monday he’s in the process of closing the agency.

Updated

February 3, 2025 at 2:45 a.m. ESTtoday at 2:45 a.m. EST

8 min

6482

USAID humanitarian aid at a warehouse at the Tienditas International Bridge on the border between Colombia and Venezuela in February 2019. (Fernando Vergara/AP)

By John Hudson, Ellen Nakashima, Missy Ryan, Mariana Alfaro and Faiz Siddiqui

The Trump administration and its allies moved to tighten control of the U.S. Agency for International Development over the weekend, signaling an intent to act forcefully to bring the U.S. foreign policy apparatus in line with the president’s “America First” approach to engaging with the world.

Current and former officials said the administration removed two top security officials at USAID on Saturday after they refused to allow representatives of the office led by billionaire Elon Musk access to restricted spaces at the agency.

The placement of the security officials — John Voorhees and his deputy — on administrative leave is alarming several lawmakers concerned about security protocols as the Trump administration and Musk aim to wrest control of the world’s largest provider of food assistance. Since President Donald Trump took office two weeks ago, the agency has been under siege and whipsawed by aid freezes, personnel purges and confusion.

Musk, heading a government efficiency effort under Trump, said on X early Monday that he is in the process closing the agency with Trump’s blessing.

Following World news

Following

“I went over it with him in detail, and he agreed that we should shut it down,” Musk said. “And I actually checked with him a few times [and] said ‘are you sure?’”

The answer was yes, he said.

“And so we’re shutting it down,” Musk said.

The episode over the weekend had added to the speculation that Trump would attempt to abolish the agency or merge it into the State Department and underscores the role of unelected figures — led by Musk, the richest man in the world — in the administration’s push to remake the federal government. It also highlights the new administration’s more transactional view of global engagement and its determination to refocus public spending on activities that yield tangible impacts for U.S. citizens.

Amid the turmoil, Matt Hopson, the USAID chief of staff and a political appointee, resigned, according to a current and former USAID official who spoke on the condition of anonymity to discuss a sensitive situation. Hopson did not respond to requests for comment.

Voorhees was put on leave after he did not allow officials from the “Department of Government Efficiency” to access a sensitive compartmented information facility — commonly known as a SCIF — an ultra-secure room where officials and government contractors take extraordinary precautions to review highly classified information, according to three current and former USAID officials.

A group of about eight DOGE officials entered the USAID building Saturday and demanded access to every door and floor, despite only a few of them having security clearance, according to a Senate Democratic staff member who spoke on the condition of anonymity to describe the incident.

When USAID personnel attempted to block access to some areas, DOGE officials threatened to call federal marshals, the aide said. The DOGE officials were eventually given access to “secure spaces” including the security office.

The Senate staffer also said top officials from USAID’s office and the bulk of the staff in USAID’s Bureau for Legislative and Public Affairs were put on leave later Saturday. Some of them were not notified but had their access to agency terminals suspended.

Katie Miller, a spokeswoman for DOGE, said on X that “no classified material was accessed without proper security clearances.”

Over the weekend, Musk repeatedly denigrated USAID without offering evidence that those working there were corrupt. On X, he called the long-standing government agency “evil” and a “viper’s nest of radical-left marxists who hate America.”

“USAID is a criminal organization,” he added. “Time for it to die.”

Musk also had sharp words for the agency during an X Spaces livestream early Monday, when he was joined by Vivek Ramaswamy — former co-head of DOGE in its prior iteration, when it was an outside group empowered to make recommendations — and Sen. Joni Ernst (R-Iowa).

“USAID is a ball of worms,” Musk said. “There is no apple.”

“It’s gotta go. It’s beyond repair,” he added.

Established in 1961 by President John F. Kennedy, USAID oversees a vast portfolio of programs designed to provide humanitarian relief, combat poverty, support global health and more. In 2023, it managed appropriations worth $40 billion, according to the Congressional Research Service. USAID is present in more than 100 countries from Ukraine to Peru. The agency’s staff numbers more than 10,000, the majority of whom are overseas.

By Sunday afternoon, USAID’s X account had been taken down, with a message saying the account “doesn’t exist.” The agency’s Instagram account was also taken offline.

USAID’s website has been down since Saturday. It was not immediately clear whether it was taken down because of the Trump administration’s focus on the agency or was down because of technical problems.

The purge of USAID personnel and freezing of foreign assistance have caused tension between Trump officials and congressional staff members, who have clashed over the value of key projects and the administration’s plans to fold USAID within the State Department, said U.S. officials familiar with the matter.

During those discussions, senior State Department official Peter Marocco was unable to provide answers on what aid was paused, including sensitive programs in Ukraine, which is fending off an invasion from Russia, the officials said. State Department spokespeople have also been unable to provide answers about what cases are exempt from Trump’s freeze.

The news of the top two security officials being put on leave was earlier reported by CNN. News of Hopson’s resignation was first reported by Reuters.

Late Sunday, Trump also implied that the ousters of USAID officials were justified, without citing any evidence.

“It’s been run by a bunch of radical lunatics. And we’re getting them out,” he told reporters after returning to Washington from spending the weekend in Palm Beach, Florida.

Top-ranking Democrats on Sunday demanded explanations for the DOGE officials’ actions and the sudden departure of the USAID security leaders.

Ten Democratic senators, including Sen. Jeanne Shaheen (D-New Hampshire), the top Democrat on the Senate Foreign Relations Committee, warned Secretary of State Marco Rubio in a letter that any steps to dismantle USAID would need congressional approval and asked for an update on the weekend’s events.

Shaheen, in a separate message to The Washington Post, said she is “seeking immediate answers about any implications for our national security and … bringing a group of bipartisan Senators together on this as soon as the Senate comes back tomorrow.”

“Reports that individuals without appropriate clearance may have accessed classified USAID spaces as well as American citizens’ personal information are incredibly serious and unprecedented,” Shaheen said.

Sen. Tim Kaine (D-Virginia), who sits on the same committee, said there is “no circumstance under which individuals without proper security clearances should be given access to our nation’s most sensitive secrets and systems.”

“This is exactly what China, Russia and Iran want,” Kaine said. “This potentially criminal incident must be investigated thoroughly and immediately. I commend the efforts of USAID staff who have shown time and again that their first and foremost priority is serving their country, not the whims of an unelected and corrupt billionaire.”

But congressional Republicans have expressed interest in shrinking — or losing — USAID as an independent agency. Rep. Brian Mast (R-Florida), chairman of the House Foreign Affairs Committee, told CBS News’s “Face the Nation” Sunday that he “absolutely” would be in support of changing USAID’s status.

Mast, however, did not answer a question on whether congressional approval would be required to close USAID as an independent agency, as would likely be required by law. Instead, he said that the office needs to be restructured and that “purging” officials throughout the State Department and other agencies, as well as the freezing of foreign aid, are all “very important and necessary steps to make sure that we secure America.”

Trump named Musk as the head of DOGE, a new government office that was initially promised to comb through the whole federal bureaucracy searching for deep spending cuts. Since then, Musk has sought to exert sweeping control over the inner workings of the U.S. government, installing longtime surrogates at several agencies, including the Office of Personnel Management, which essentially handles federal human resources, and the General Services Administration, which manages real estate.

DOGE is now housed in a White House office formerly known as the U.S. Digital Service but now called the U.S. DOGE Service and has broad visibility into technology across the government.

The administration’s move to push out the top security officials at USAID came a day after Musk’s DOGE deputies gained access to a sensitive Treasury Department system responsible for trillions of dollars in U.S. government payments after the administration ousted a top career official at the department, according to three people who spoke on the condition of anonymity to describe government deliberations.

Jeff Stein and Aaron Schaffer contributed to this report.

9. Deliberately Degrading American Government

A brutal critique from the MiddleGround.

Excerpts:

He wants a world in which foreign governments obsequiously ask what they can possibly do to help the American president in return for the lowering of economically painful tariffs.

Imposing tariffs is the first step in making the first and the last of those examples a reality. And Musk’s seizure of payment systems at the Treasury Department and the Office of Personnel Management promises to help vastly expand Trump’s capacity to adjust government treatment toward different groups of Americans in a similar way—withholding funds to force obedience, and dispensing them to reward fealty, to the president and his party.

As I noted at the top of this post, we’re barely two weeks into the second Trump administration—and already the damage he appears capable of doing boggles the mind. For the better part of a century, we have worked to make government fairer, more competent, more professional, and less prone to corruption and favoritism—and Donald Trump appears eager to undo it all. And all because the fairer the rules, the more the president is constrained—and constraints are one thing Trump will not abide. Because he sees them, correctly, as standing in the way of him maximally advancing his own interests and power of maneuver.

That won’t be fascism. But it will produce a serious degradation in the quality of American government.

NOTES FROM THE MIDDLEGROUND

Eyes on the Right

Deliberately Degrading American Government

What we learn by thinking about Trump’s tariffs and Elon Musk’s acts of administrative sabotage as one

https://damonlinker.substack.com/p/deliberately-degrading-american-government?utm

Damon Linker

Feb 03, 2025

∙ Paid

Senior Lecturer in Dept of Pol Sci @ Penn. "Notes from the Middleground" at Substack; "Beg to Differ" pod @ The Bulwark; Senior Fellow, Niskanen Center; author of "The Theocons" & "The Religious Test"; former columnist w The Week

Tesla Founder Elon Musk walks on stage to greet President-elect Donald Trump during a rally at Capital One Arena in Washington, on January 19, 2025. (Photo by Tom Brenner for The Washington Post via Getty Images)

It’s hard to believe the second Trump administration began a little less than two weeks ago. So much has happened—or been attempted—in that limited time. But it’s two very different developments over the past few days that really concern me—more so than most of the early Executive Orders, the lawless firing of Inspectors General, or blustering proclamations about renaming the Gulf of Mexico.

The first of these developments is Trump following through on his promise to impose steep tariffs—not just on our adversaries but also on our closest trading partners (Canada and Mexico, and possibly the European Union as well).

The second of these developments is what Elon Musk is doing in the federal bureaucracy—which feels pretty unprecedented to me and points in very troubling directions.

I’ll examine each of these developments in turn, explaining why each individually has me so concerned—but also why contemplating both of them together raises even more chilling possibilities.

The Political Economy of a Mafia Kingpin

Virtually any economist in the world will be happy to explain why tariffs are bad. They impose an added cost on imports, which tends to be passed onto consumers in the form of higher prices. Moreover, when the imports are parts used in the supply chain for the manufacture of goods domestically, the higher costs make American companies less competitive globally.

But the agitated Trump-supporting protectionist intellectual responds: The United States had much higher tariffs during the unprecedented economic boom years of the late 19^th century. If they were compatible with a surge in economic growth back then, they can be compatible with the same today.

Except that international political economy in the 19^th century was far more mercantilist than today, when our baseline is much closer to the ideal of free trade. That makes Trump’s tariffs much more destabilizing and potentially ruinous for the American economy.

But what if Trump is imposing tariffs, as he sometimes implies, for reasons that go beyond economics? That could certainly be justifiable. In theory, I’d be willing to support a policy of higher tariffs on China, our most formidable geopolitical rival, if there were reason to believe it would strengthen our economic position and weaken Beijing’s, or prove useful for the sake of leverage in some future negotiation.

But Trump apparently plans to impose 25 percent tariffs on Canadian and Mexican goods while only imposing 10 percent on Chinese goods. What could possibly justify that? According to the president, he’s doing it as retaliation for migrant and fentanyl trafficking over the northern and southern borders of the country.

That opens the possibility that he will drop the tariffs as soon as either or both countries make some kind of symbolic move to impede the work of drug and human traffickers on their sides of their borders with the U.S. If that happens quickly, allowing Trump to declare victory and drop the tariffs before they have much of an inflationary effect, the immediate damage could be minimal.

I’m much more concerned about the longer-term damage likely to follow from the American president impulsively using tariffs as a spiked baseball bat to exact concessions and expressions of fealty and submission from our allies and trading partners around the globe. That’s the behavior of a mafia kingpin operating on a global scale.

One major advantage of what we’ve come to call the “rules-based international order” is that it smooths relations among states and establishes stable norms that encourage economic activity, including the making of economic decisions with the longest-possible time horizon. Outside of relatively rare, bad circumstances (a financial crisis, a global pandemic, a natural disaster, a war), businesses can know what to expect and plan for the future accordingly. But if one of the agents in the international system (especially when it’s the one that just so happens to have done more than any other to establish the rules) begins acting like a capricious predator, disregarding the rules, and using brute force to gain competitive advantage, the system breaks down, with businesses and governments around the world incapable of making long-term plans.

Trump looks eager to spread chaos across the system of international trade, in other words, and chaos is bad for business. It could also be very bad for the United States, if our rivals in the world begin to look like sources of comparative economic stability.

Musk: A Man on a Rampage

Even more unnerving for me than Trump’s tariff policy is the behavior of his apparent co-president, Elon Musk.

When Trump announced early in the transition period that Musk would be heading up something called the Department of Government Efficiency (DOGE) and tasked with drastically cutting costs across the executive branch, I thought it was probably a demagogic gimmick. DOGE wouldn’t be a real “department” staffed with federal employees forced to comply with reems of regulations and rules. Giving it that name was like naming a DC restaurant “The White House” just for the kick of getting people in the nation’s capital to say, “I ate at ‘The White House’ last night.” The whole thing sounded like a bullshit marketing ploy.

But now I’m much less sure of what it is. Musk and an entourage of computer engineers have been showing up at executive branch departments and agencies and making unprecedented demands of the career civil servants who work there. When they arrived late last week at the Treasury Department and demanded access to its payment systems, which control disbursements in the range of $5 trillion a year, Musk ran into resistance from the acting Treasury secretary David Lebryk. Over the coming hours, Lebryk was first placed on administrative leave and then promptly announced his retirement after 35 years of working for the government under Democratic and Republican administrations. Shortly thereafter, Scott Bessent, Trump’s recently confirmed Secretary of the Treasury, granted Musk the access he was seeking.

I can think of no past precedent for something like this: An (enormously wealthy) unelected private citizen not employed by the government, confirmed by Congress, or subject to administrative rules going into public agencies and demanding (and receiving) access to documents and payment systems. It’s truly extraordinary.

What will be the consequences of such unprecedented acts? It’s too early to say for sure. But I fear it will allow the president to exercise impoundment power far beyond anything imagined prior to passage of the 1974 law that stripped that power from the president. Through Musk and his minions, Trump could be capable of cutting off payments to any agency, employee, contractor, vendor, research institute or university, or any other private or public entity in the country that receives funds from the federal government (including recipients of payments from Social Security and Medicare), all the while bypassing Congress. He could do it to save money, which is what he will say to justify his actions. But he could also do it to impose punishment on anyone who dares oppose or antagonize him, his family, his businesses, his political allies, or his party.

Can anything be done to stop Musk from rampaging through our public institutions? I have no idea. Unlike an employee or government official, Musk can’t be fired or impeached. (And that’s assuming a Republican-controlled Congress could even be roused to attempt such a thing.) Could he be arrested? I suppose Lebryk could have called in U.S. Marshals when Musk first arrived at the Treasury building and attempted to have him and his hangers-on forcibly removed for trespassing. But Lebryk is no longer on the scene and the Secretary of the Treasury has now invited Musk to come on in. Are there federal laws on the books that cover what’s taking place at Treasury and the Office of Personnel Management? I very much doubt it, but I’m open to being told otherwise by experts in the relevant passages of the federal code. Too bad Trump is also in the process of purging lawyers at the Justice Department who might have been interested in looking into the question.

Systemic Corruption Achieved

All of that sounds pretty eyebrow-raising. But it’s much worse when both developments are considered as one—because I think together they show that Trump is trying (whether consciously or simply on instinct) to mold “the system” into a racket with himself at the center.

In his tariff policy and empowering of Musk’s strong-armed tactics, Trump is acting to personalize the presidency far beyond anything we’ve seen in any of our lifetimes across the full scope of its powers in both the domestic and foreign spheres. Political scientists call this “clientelism”—the exercise of power via patronage-based relationships and networks. Vote for me or do me a favor, and I’ll use my power to get you something you want; cross me and I’ll deprive you of something you want or need. Friends and enemies, rewards and punishments, and explicit quid pro quos—that’s the language and structure of clientelistic politics.

It was common in the United States prior to the mid-20^th century, especially in the machine-based politics of northern cities. It remains common today throughout much of the developing world, where it’s often considered perfectly normal to have to bribe officials to receive public services. But during the Progressive and New Deal eras, the U.S. began to develop a professional civil service modeled on those first devised in continental Europe. As a result, government became something far more impersonal and rationalized. Americans came to expect equal treatment from public institutions and officials simply by virtue of citizenship. Rich or poor, black or white, man or woman—everyone waits in the same line at the DMV and expects to be treated the same by the IRS and the Social Security Administration.

But Trump distrusts this system, both at home and abroad. Like an intuitive acolyte of the French postmodern philosopher Michel Foucault, he appears to think bureaucratic rationality conceals the same will to power that gets expressed much more explicitly in openly clientelistic relationships. The bureaucrats have their own interests—they think like a state and seek to advance its interests and the interests of those who defend it and aim to expand its scope and powers—but they keep those interests hidden from view, feigning independence from politics.

Right-libertarian ideologues like Russell Vought, Trump’s pick for director of the Office of Management and Budget, believe the Constitution “doesn’t understand” such claims to independence. Trump, meanwhile, doesn’t think any such independence is possible. Everyone’s out for themselves, seeking to press their advantages—and pretending to rise above politics is one of the bureaucracy’s greatest advantages, allowing it to wield power while pretending not to. Trump much prefers transactions out in the open and transparently self-interested: He wants to offer goodies and threaten violence (figurative and real) to allies and rivals. Give him what he wants, and you’ll be rewarded; oppose him and he’ll make you suffer.

From the standpoint of those who devised the bureaucratic style of politics, clientelism is a form of structural, systemic corruption. It warps social relationships, encouraging individuals, officeholders, parties, businesses, whole industries, nations, and regions of the world to gain competitive advantages by seeking and receiving favors from The Boss. The “trusts” that Theodore Roosevelt promised to bust up at the turn of the 20^th century were one important example of this structural corruption in action—conglomerations of businesses in related segments of the economy that acted in concert to seek special carve-outs from the ruinously expensive tariffs of the time. But the U.S. is vastly more militarily and economically powerful than it was then, just as the federal government touches vastly more areas of American life than it did 120 years ago.

Trump Unbound, America Diminished

Trump wants a world where the richest businessmen come to him personally, begging for favors and asking what they might do for the president in return. He wants a world where deep-blue California receives federal help in fighting its destructive and deadly wildfires only if it agrees to pass the president’s preferred voter ID law—while western parts of North Carolina receive federal disaster assistance without even having to ask, because its voters have already demonstrated their support for the president through their voting patterns. He wants a world in which foreign governments obsequiously ask what they can possibly do to help the American president in return for the lowering of economically painful tariffs.

Imposing tariffs is the first step in making the first and the last of those examples a reality. And Musk’s seizure of payment systems at the Treasury Department and the Office of Personnel Management promises to help vastly expand Trump’s capacity to adjust government treatment toward different groups of Americans in a similar way—withholding funds to force obedience, and dispensing them to reward fealty, to the president and his party.

As I noted at the top of this post, we’re barely two weeks into the second Trump administration—and already the damage he appears capable of doing boggles the mind. For the better part of a century, we have worked to make government fairer, more competent, more professional, and less prone to corruption and favoritism—and Donald Trump appears eager to undo it all. And all because the fairer the rules, the more the president is constrained—and constraints are one thing Trump will not abide. Because he sees them, correctly, as standing in the way of him maximally advancing his own interests and power of maneuver.

That won’t be fascism. But it will produce a serious degradation in the quality of American government.

10. One Response to Trump’s Tariffs: Trade That Excludes the U.S.

I guess it is time for me to shift focus from the national security issues I have focused on for the past 45 years and start making economic warfare a priority to try to understand.

How does a nation prevail when it uses economic warfare as its primary national security tool? I am going to have to study that question.

One Response to Trump’s Tariffs: Trade That Excludes the U.S.

A growing number of countries, including American allies, are striking trade deals as the Trump administration erects a higher fence around its global commerce.

https://www.nytimes.com/2025/02/03/business/trump-tariffs-global-trade-blocs.html

From left, Uruguay’s president, Luis Lacalle Pou; the European Commission president, Ursula von der Leyen; and Brazil’s president, Luiz Inácio Lula da Silva at a meeting of the South American Mercosur trade bloc in December.Credit...Eitan Abramovich/Agence France-Presse — Getty Images

By Patricia Cohen

Patricia Cohen covers the global economy and trade from London.

Feb. 3, 2025, 5:01 a.m. ET

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As President Trump this weekend opened what could become a global trade war, a growing number of countries, including America’s closest allies, are forging their own economic partnerships without the United States. If Washington is putting up a higher fence around its trade, other nations are lowering theirs.

In just the last two months, the European Union concluded three new trade deals.

The bloc, completing negotiations that started 25 years ago, reached a major agreement with four South American countries in December to create one of the world’s largest trade zones, linking markets with 850 million people.

Two weeks later, the European Union struck a deal with Switzerland. Then last month, the bloc bolstered trade arrangements with Mexico. It also resumed talks, after a 13-year postponement, on a free-trade agreement with Malaysia.

“With Europe, what you see is what you get,” the European Commission president, Ursula Von der Leyen, boasted to the World Economic Forum in Davos, Switzerland. “We play by the rules. Our deals have no hidden strings attached.”

On Saturday, Mr. Trump ordered 25 percent tariffs on Mexico and Canada — partners in a trade bloc that he himself signed in his first term — and 10 percent tariffs on China. Mexico and Canada immediately vowed to retaliate, and China said it would consider “countermeasures.” Europe, Mr. Trump promised in recent days, was next: “The European Union has treated us so terribly.”

Of course, the United States, with the planet’s largest and strongest economy, cannot be ignored. But it can, at least sometimes, be avoided.

By punishing longtime allies with tariffs, Mr. Trump is encouraging other nations to form trading blocs and networks that exclude the United States.

Image

A freight train in Windsor, Ontario, on Saturday. President Trump has ordered 25 percent tariffs on most Canadian products.Credit...Ian Willms for The New York Times

This month, Indonesia became the 10th nation to join BRICS, a group including Brazil, Russia, India, China and South Africa that was established in 2009. This economic club now includes half the world’s population and more than 40 percent of its total economic output. Another eight countries, including Bolivia, Thailand, Kazakhstan and Uganda, are on the path to becoming full partners.

In May, the 10-country Association of Southeast Asian Nations, known as ASEAN, will meet the six Middle Eastern nations that make up the Gulf Cooperation Council. The summit’s host, Malaysia, has invited China to attend.

China is also poised to update its own free-trade agreement with ASEAN, which includes Cambodia, the Philippines, Indonesia and Vietnam. And trade and investment between ASEAN and India, the world’s most populous nation, is deepening.

Britain, too, recently christened a new partnership. In December, it officially joined the trans-Pacific trade bloc, a group that includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. London is also looking to repair its frazzled economic relationship with the European Union.

And Brazilian and Mexican officials have talked about expanding their trade agreements.

The global economy is increasingly becoming “one that is characterized by ever deepening trade relationships excluding the United States,” said Jacob F. Kirkegaard, a senior fellow in Brussels at the Peterson Institute for International Economics.

The trend is not necessarily anyone’s preference, he said, but the arrangements offer a “second best” option given America’s rejection of a more open economic order. He added that the proliferation of trading blocs, like the one between the European Union and South American nations, also helped countries avoid an overreliance on China.

Mr. Trump’s latest unilateral and protectionist missives have sped up a reel that had already begun to unspool.

Over the past couple of decades, the backlash against a globalized world of open borders and hands-off government simmered. Factories moved to nations with lower labor costs, farmers faced increased competition, and the 2008 financial crisis threatened to wreck the global financial system.

In 2016, Britons, unhappy with dictates agreed upon by the 27 other members of the European Union, voted to exit. President Trump during his first term bridled at any institutions and accords — the World Trade Organization, climate treaties and trade partnerships with countries on the Pacific Rim — that could limit his prerogatives.

At the same time, economic power around the globe was shifting. China had emerged as an economic superpower. Not only does it now account for more than 30 percent of the globe’s manufacturing, but it has also leaped ahead of the rest of the world in cheaply producing sophisticated electric vehicles, batteries and solar panels.

Regional trade routes and networks among allies grew faster after the Covid-19 pandemic exposed supply chain vulnerabilities, Russia invaded Ukraine, and relations between the United States and China worsened.

The biggest changes in trade can be seen in Asia. Nearly 60 percent of Asia’s trade happens within the region, according to a new report from HSBC Global Research. And half of the world’s fastest-growing trade corridors are there. In 2023, China’s exports to ASEAN nations bypassed those from the United States.

Image

Yangshan Port in Shanghai. Half of the world’s fastest-growing trade corridors are in Asia.

China’s trade with Latin America — Brazil, in particular — has also been rising.

India’s status as a world economic power has grown as well. It surged past Britain to become the world’s fifth-largest economy in 2022. “India’s trade expanded across the geopolitical spectrum,” an update on trade released last week by McKinsey Global Institute reported.

And India is on the path to becoming a leading exporter of digital services, which are not subject to tariffs. An increasing number of European, Australian and Japanese multinationals are opening operational hubs — known as global capability centers — there.

New Delhi flexed its economic independence by refusing to go along with Western sanctions against Russia. And now it and China are the biggest buyers of cheaper Russian oil.

Persian Gulf nations like Saudi Arabia and the United Arab Emirates have also shifted their attention to India and China, increasing energy exports to meet the growing demand. Asia receives more than 70 percent of total gulf oil and gas exports, according to one report.

Global trade is still growing, but it is being reconfigured.

“This is not the 1930s,” Mr. Kirkegaard at the Peterson Institute said, referring to the calamitous trade war and deepening depression that the United States helped spur with its passage of the Smoot-Hawley tariffs.

“It’s not the end of the global trading system,” he said. “This is leading to a different global trading system.”

Trade, it turns out, is like water flowing through a stream strewn with rocks. When it can’t go through them, it goes around them.

Patricia Cohen writes about global economics and is based in London. More about Patricia Cohen

11. The Tulsi Gabbard hearing: A rare Washington demonstration of courage by Douglas Ollivant

A shift in focus from economic warfare to intelligence.

This is quite a supporting testimony from Doug.

Excerpts:

Having digested this hearing for a few days now, this is the core point to which I repeatedly return. Ms. Gabbard knew EXACTLY what the Senators sitting on the committee—who had to approve her nomination—wanted to hear when they asked that question (again and again). I am metaphysically confident that there was no question in her mind that she was expected to recant her earlier position, say she had arrived at a more nuanced understanding, and label Snowden as a traitor.

She chose not to.

She is a nominee who will not lie to a congressional committee to please them—even to save her skin.

Isn’t this precisely what we should want in a senior leader of the executive branch? Of a cabinet-level official? Someone who tells what they believe to be the truth—right or wrong—regardless of what we think of it? Shouldn’t the committee walk away with considerable confidence that Tulsi would not hesitate to bring them news that they do not want to hear…but need to? And that she will foster a culture of intellectual honesty in the organization she leads?

Rappahannock Musings

25Pledge your support

The Tulsi Gabbard hearing

A rare Washington demonstration of courage

https://douglasollivant.substack.com/p/the-tulsi-gabbard-hearing?utm

Douglas Ollivant

Feb 02, 2025

I spent Thursday morning at the Dirksen Building, for Tulsi Gabbard’s nomination hearing in front of the Senate Select Committee on Intelligence (SSCI—pronounced like a feminine boy, “sissy”). The tension in the room was….heavy.

As anyone who read or watched the news that evening knows, the hearing was confrontational. Gabbard took tough questions on Russia and the Ukraine War, on section 702 surveillance, on her 2017 Syria trip in which she meet Bashar al Assad, even on her views on China and East Asia. But the real fireworks were all about her position on the Edward Snowden affair.

It has been almost a dozen years now, so a brief refresher may be in order for many. To do the Cliff’s Notes version, Edward Snowden was an NSA contractor in Hawaii. In 2013, in response to what he perceived to be abuses against the privacy of US citizens carried out as the intelligence community greatly expanded its scope and powers in the post 9/11 era, he fled to first Hong Kong and then Russia with over a million classified documents in his possession.1 These documents included descriptions of an out-of-control surveillance system of American citizens, but were by no means limited to these.2 It is indisputable that secrets totally unrelated to US citizens were revealed by Snowden, most famously that the United States was spying on the leadership of its European allies, including (then-)German Chancellor Angela Merkel. Public opinion has been deeply divided then and since over whether Snowden was a traitor for exposing intelligence secrets—sources and methods, in the vernacular—or a folk hero for his (unconventional method of) whistleblowing on systematic violation of the Constitutional rights of US citizens against unwarranted search and seizure of their electronic communications, absent judicial warrants.

Gabbard was asked repeatedly, by numerous Senators, Republicans and Democrats, whether she considered Edward Snowden to be a traitor. Gabbard declined, on multiple occasions, to directly answer the question, instead repeating her mantra that “Edward Snowden broke the law” and assuring the committee that both as a matter of policy and procedure, there would be no similar incidents on her watch, if confirmed. But she obviously considered the violations of the 4th Amendment rights of American citizens to be the critical issue at hand.

The question was particularly relevant for Gabbard as she had co-sponsored a bill in 2020 with Republican representative (and short-lived nominee for Attorney General) Matt Gaetz directing the federal government to drop all charges against Snowden.3 This would have given Snowden a de facto pardon, if not necessarily a formal one.

While Gabbard walked back advocacy of a pardon, on the question of treason, she refused to budge.

My feelings on Snowden are mixed, but I probably come down on the opposite side of the question than does Tulsi Gabbard. While I would acknowledge mitigating circumstances in the abuses Snowden observed, fleeing your country with documents that will do harm to your nation’s national security sure sounds like treason to me.

But—and this is to me the important point—Tulsi Gabbard demonstrated that on deeply held opinions, she will not back down for political reasons. Not even to protect her own confirmation.

We have words for this. “Integrity” and “character” are two commonly used (though “stubborn” is occasionally deployed when we disapprove of it).

Having digested this hearing for a few days now, this is the core point to which I repeatedly return. Ms. Gabbard knew EXACTLY what the Senators sitting on the committee—who had to approve her nomination—wanted to hear when they asked that question (again and again). I am metaphysically confident that there was no question in her mind that she was expected to recant her earlier position, say she had arrived at a more nuanced understanding, and label Snowden as a traitor.

She chose not to.

She is a nominee who will not lie to a congressional committee to please them—even to save her skin.

Isn’t this precisely what we should want in a senior leader of the executive branch? Of a cabinet-level official? Someone who tells what they believe to be the truth—right or wrong—regardless of what we think of it? Shouldn’t the committee walk away with considerable confidence that Tulsi would not hesitate to bring them news that they do not want to hear…but need to? And that she will foster a culture of intellectual honesty in the organization she leads?

This will be the core question facing the Senate as they consider her nomination. Questions of competence can easily be pushed aside. I can’t imagine anyone claiming that any other nominee with eight years on the House Armed Services and Foreign Relations committees doesn’t have sufficient national security and international experience, let alone the military service on top of that. Further, for two decades, she has maintained various degrees of clearance, including Top Secret, even after leaving the Congress.

The more I think about it, the more I think that Tulsi Gabbard—though I disagree with her on the merits of the Snowden question—demonstrated that she is a leader of character and integrity. She has demonstrated it in a clear and public manner, at personal risk.

This is exactly what we need and so desperately want. Confirm her.

Whether Russia was Snowden’s intended final destination, or whether he planned to merely transit to South America and was trapped there by the cancellation of his passport is a matter of dispute.

The passage of the USA Freedom Act in 2015 is widely seen as a corrective to these exposed abuses.

Then-Representative Gabbard was elected as a member of the Democrat party to Congress, so it was a bipartisan bill.

12. Manufacturing Towns Hit by the ‘China Shock’ Bounced Back. The Workers Didn’t.

Excerpts:

Among their findings:

Manufacturing as a sector didn’t really come back

The economists found that, starting in the 2010s, most of the affected economies came roaring back, including the counties surrounding Hickory, N.C., and Dalton, Ga. But the recoveries didn’t come about as the result of a manufacturing revival. Instead, they were driven by expansions in industries such as healthcare, education, retail and restaurants.

Manufacturing employees hung onto their jobs—but they weren’t as good

What’s more, the manufacturing workers who had been hit by the China shock—largely U.S.-born white and Black men without any college education—didn’t participate in these recoveries.

The new data show that while some of these workers lost their jobs and struggled to ever find work again, the bulk of them remained employed until retirement. But as they aged out of the manufacturing workforce, they weren’t replaced.

And even though they hung onto their jobs, their earnings growth stagnated.

“The kind of the people you would think, as they get seniority in their jobs, they’re going to get promoted, we see opportunities really vanish for them,” said Setzler.

Laid-off workers didn’t just follow the jobs

Not many manufacturing workers moved into nonmanufacturing jobs. And, surprisingly, manufacturing workers were even less likely to relocate following the China shock than they had been before. That cut against a general expectation among economists that at least some people would be more likely to pick up and go where they could find work.

...

New workers took the new jobs

Meanwhile, all the new service-sector jobs in these communities went mostly to workers unlike those who had filled the old manufacturing jobs. Many were young adults and legal immigrants taking their first jobs. Many of the immigrants were from Asia, while many of the other people filling service jobs were U.S.-born Hispanics. More of the new workers were women, and were college-educated.

Manufacturing Towns Hit by the ‘China Shock’ Bounced Back. The Workers Didn’t.

Retail and restaurants have helped communities hit by tidal wave of cheap Chinese goods. That doesn’t do much for former factory workers.

https://www.wsj.com/economy/us-manufacturing-jobs-china-shock-78e06c83?mod=latest_headlines

By Justin Lahart

Feb. 3, 2025 5:30 am ET

A former furniture plant in the Hickory, N.C., area, which was hit hard by the China Shock. Photo: Mike Belleme for WSJ

Key Points

What's This?

Manufacturing towns hit by the 'China Shock' bounced back economically, but the workers who were displaced did not.
Manufacturing jobs weren’t replaced, and the workers who remained in manufacturing saw their earnings growth stagnate.
New jobs in service sectors were filled by younger workers, legal immigrants and women, rather than the displaced manufacturing workers.

The flood of Chinese imports that started hitting America a quarter-century ago radically altered the U.S. economy. It upended manufacturing communities, hurt workers and their families, and sowed a discontent with globalization that changed the nation’s politics and helped usher President Trump into his first term.

New research offers an unprecedented look at exactly how the “China Shock” rippled through the U.S., hitting manufacturing communities in the Southeast and parts of the Midwest particularly hard. It shows a remarkable change that occurred in the years leading up to the pandemic: Many of the places that were hit came back. The people who got hit did not.

“We were very, very startled by what we found. It was so different from what we expected,” said David Autor, an economics professor at the Massachusetts Institute of Technology. The research by Autor and four other economists posted Monday as a National Bureau of Economic Research working paper.

China’s effect on U.S. workers continues to be a key issue in American politics. Worries about a flood of Chinese-made electric vehicles and renewable-energy gear—China Shock 2.0—led the Biden administration to erect new trade barriers.

On Saturday, the White House announced a wave of new tariffs against China, Canada and Mexico, drawing rebukes from all three countries and threatening to throw international trade into chaos. Trump waved away any concerns that the tariffs could increase inflation or snarl global supply chains.

“I think there could be some temporary, short-term disruption, and people will understand that,” Trump said.

A spokesperson for China’s Commerce Ministry said that China strongly opposes the new U.S. tariffs and will take countermeasures.

The roots of the tension go back to 2001, when China joined the World Trade Organization, dropping many barriers to its exports around the world. Policymakers in the U.S. hoped China’s accession to the WTO would benefit U.S. consumers by giving them access to inexpensive goods and open the country’s markets to U.S. business while also nudging China toward democracy.

The idea was that, sure, some manufacturing workers might be hurt. But past experience, such as Japan’s rise as a global powerhouse in the 1970s and 1980s, suggested the pain would be manageable and the workers would adjust.

It didn’t work out that way. China was huge, its labor costs were extremely low, and its surge in exports took place over a matter of just years rather than decades. Many U.S. manufacturing towns couldn’t compete. Autor, along with the University of Zurich’s David Dorn and Harvard’s Gordon Hanson, released their first paper on the topic in 2011.

They showed, there and in subsequent research, how hard these towns were hurt. Those communities experienced higher unemployment, lower wages, higher use of food stamps, higher disability payments, higher rates of single parenthood and child poverty, and elevated mortality.

The idea was controversial in economic circles. Globalization was thought of as a benefit with few downsides. But Trump, running for president in 2016, successively tapped into the anger and hopelessness that riddled the hollowed-out communities.

The previously available data lacked the granularity the economists needed to answer key questions, such as how workers had responded. Beyond that, with the passage of time, there arose questions about how the places had changed.

For the new paper, Autor, Dorn and Hanson joined forces with Maggie Jones, a Census Bureau economist, and Brad Setzler, a Penn State University professor.

The working paper examined individual-level employment and earnings records for nearly all American workers over the two decades spanning from 2000 to 2019.

Among their findings:

Manufacturing as a sector didn’t really come back

The economists found that, starting in the 2010s, most of the affected economies came roaring back, including the counties surrounding Hickory, N.C., and Dalton, Ga. But the recoveries didn’t come about as the result of a manufacturing revival. Instead, they were driven by expansions in industries such as healthcare, education, retail and restaurants.

Workers at a factory in China, where labor costs are low. Photo: Zuma Press

Manufacturing employees hung onto their jobs—but they weren’t as good

What’s more, the manufacturing workers who had been hit by the China shock—largely U.S.-born white and Black men without any college education—didn’t participate in these recoveries.

The new data show that while some of these workers lost their jobs and struggled to ever find work again, the bulk of them remained employed until retirement. But as they aged out of the manufacturing workforce, they weren’t replaced.

And even though they hung onto their jobs, their earnings growth stagnated.

“The kind of the people you would think, as they get seniority in their jobs, they’re going to get promoted, we see opportunities really vanish for them,” said Setzler.

Laid-off workers didn’t just follow the jobs

Not many manufacturing workers moved into nonmanufacturing jobs. And, surprisingly, manufacturing workers were even less likely to relocate following the China shock than they had been before. That cut against a general expectation among economists that at least some people would be more likely to pick up and go where they could find work.

A shipping port in China, a nation that had a surge of exports after it joined the World Trade Organization. Photo: Qilai Shen/Bloomberg News

New workers took the new jobs

Meanwhile, all the new service-sector jobs in these communities went mostly to workers unlike those who had filled the old manufacturing jobs. Many were young adults and legal immigrants taking their first jobs. Many of the immigrants were from Asia, while many of the other people filling service jobs were U.S.-born Hispanics. More of the new workers were women, and were college-educated.

The new research also raises policy questions about what could have been done to lessen the sting. The fact that workers didn’t move supports directing aid toward distressed communities. But the fact that so many new people flowed into these places suggests that this type of support could have been poorly targeted, benefiting agile new workers rather than those who had been hit.

Many of the people who were hurt are still living in those shock-hit places, Autor points out. They are older, often retired from jobs that have now disappeared. The new jobs that came along are unlike the ones they held, and the people working those jobs are unlike those older workers, too.

“The world has changed very dramatically around them,” Autor said.

Write to Justin Lahart at Justin.Lahart@wsj.com

13. ‘We’ve got to get faster’: Army’s top enlisted leader sees how new war strategy fares in German crucible

‘We’ve got to get faster’: Army’s top enlisted leader sees how new war strategy fares in German crucible

Stars and Stripes · by Lydia Gordon · January 31, 2025

Sgt. Maj. of the Army Michael Weimer meets with Col. Joshua Glonek, commander of 3rd Brigade, 10th Mountain Division, during a visit to the Joint Multinational Readiness Center in Hohenfels, Germany, on Jan. 30, 2025. Weimer watched soldiers from the brigade experiment with a range of new combat technology during an exercise. (Lydia Gordon/Stars and Stripes)

HOHENFELS, Germany — U.S. soldiers launched small drones in search of enemy positions on the Army’s sprawling Bavarian training grounds this week, testing an array of new technology that is expected to transform how American ground forces go to war.

Troops engaged in a monthlong exercise are subjecting new aerial systems, communications equipment and unmanned vehicles to the rugged forest terrain of the Joint Multinational Readiness Center.

“There’s not another army that I know of that intentionally takes a brigade, throws it in this crucible, and torches it like we are doing right now on purpose,” Sgt. Maj. of the Army Michael Weimer said Thursday. “That’s how serious we are about the profession.”

The service’s top enlisted leader, Weimer was on hand to watch exercise Combined Resolve, running through Feb. 16. The exercise is testing a revised Army fighting strategy called transforming in contact, which seeks to glean lessons from the Russia-Ukraine war and quickly incorporate them into Army formations.

A key part of the plan is empowering junior soldiers to experiment with technology and tactics in ways Army units haven’t in the past.

As part of this effort, Weimer met with the 3rd Brigade, 10th Mountain Division, one of three major brigades involved in the initiative. It’s spent the past six months fielding and testing new technology while spread across Europe.

Sgt. Maj. of the Army Michael Weimer talks to 10th Mountain Division soldiers about their experiences with new network and signal equipment Jan. 30, 2025, at the Joint Multinational Readiness Center in Hohenfels, Germany. The soldiers were gaining familiarity with the wide range of innovations as part of the new Army fighting strategy known as transforming in contact. (Lydia Gordon/Stars and Stripes)

Sgt. Maj. of the Army Michael Weimer visits the Joint Multinational Readiness Center in Hohenfels, Germany, on Jan. 30, 2025, to talk with soldiers participating in exercise Combined Resolve. (Lydia Gordon/Stars and Stripes)

U.S. soldiers are lifted via a tether by an Army Black Hawk helicopter Jan. 30, 2025, at the Joint Multinational Readiness Center in Hohenfels, Germany, during a medical hoist operation. The training is part of exercise Combined Resolve, which gives the soldiers practice in the Army's new fighting strategy, transforming in contact. (Lydia Gordon/Stars and Stripes)

U.S. soldiers drive in a convoy at the Joint Multinational Readiness Center in Hohenfels, Germany, during exercise Combined Resolve on Jan. 30, 2025. Troops in the monthlong exercise received a visit that day from Sgt. Maj. of the Army Michael Weimer, who was watching the application of the service's new fighting strategy, called transforming in contact. (Lydia Gordon/Stars and Stripes)

The brigade commander, Col. Joshua Glonek, said the soldiers have begun receiving the advanced communication systems and drones such as the Ghost-X.

“It doesn’t take long to get soldiers proficient on these new systems,” Glonek said Thursday.

The biggest aspect of the battlefield adaptations is advancing troops’ ability to communicate, according to Glonek.

The soldiers are using new networks that incorporate low-orbiting satellites and LTE towers, which in turn enable soldiers to communicate over chat, voice and video.

The signals can travel father and connect to the drones, while the new systems the soldiers were trying are said to be more reliable than current ones.

In addition, Glonek said, soldiers are fielding more drones than have ever been used at the Combat Training Center in Hohenfels. They have them at the company, battalion and brigade levels.

Better battlefield mobility is yet another element of transforming in contact. Lighter squad vehicles enable faster repositioning of forces, and unmanned transport vehicles allow supplies to be transported by remote control, Glonek said.

Exercise Combined Resolve marks the first time soldiers have used these systems as a combined brigade in Europe, according to Glonek.

While the brigade adapts to the new technology, there have been challenges along the way.

“There’s a lot of learning curves that come with all this new equipment,” said Sgt. Sage Lockwood, a signal operations support specialist for the brigade. “Stuff isn’t working all the time, but there’s some ingenuity. There’s fixes.”

Transforming in contact is set to continue into 2026, integrating commercial assets into various exercises throughout Europe and the U.S.

Traditionally, the Army followed a four-year acquisition process for new equipment. That timeline has been dramatically shortened under the new framework, Lt. Gen. Charles Costanza, commanding general of V Corps, said in a recent Army statement.

Later this year, the Army plans to scale up the effort by adding units up to the division level and introducing more advanced technologies, according to the statement. Those plans include the Vilseck-based 2nd Cavalry Regiment.

The goal of transforming in contact is to ensure that soldiers have the equipment and know-how to adjust to combat conditions in time.

“The character of war is changing at a speed we’ve never seen before,” Weimer said Thursday. “The lessons we observed from the Ukraine war … really identified that we’ve got to get faster at staying competitive with the technology that’s changing.”

During his visit to the Joint Multinational Readiness Center, Weimer emphasized the importance of testing this technology in Europe, where terrain and operational conditions differ significantly from those in the U.S.

“If you’re going to change, you’ve got to experiment,” he said. “You’re going to experiment. You’re going to fail and you’re going to learn.”

Stars and Stripes · by Lydia Gordon · January 31, 2025

14. “America First” vs. Primacy by Reid Smith; Mitch McConnell

“America First” vs. Primacy

Foreign Affairs · by Reid Smith; Mitch McConnell · February 3, 2025

Response

Debating the Future of Republican Foreign Policy

February 3, 2025

Members of the U.S. Marines ceremonial guard rehearse for a “sunset parade” in July, as haze and smoke caused by wildfires in Canada shroud the Lincoln Memorial Reflecting Pool on the National Mall in Washington, U.S., June 8, 2023. Joey Roulette / Reuters

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The Limits of Hard Power

Reid Smith

In his recent essay, “The Price of American Retreat” (January/February 2025), Senator Mitch McConnell lamented the failures of the Biden administration’s foreign policy and warned that “the response to four years of weakness must not be four years of isolation.” McConnell fears that an American “retreat” would embolden adversaries to advance while forcing allies to cower. His remedy: restore industrial capacity to sustain U.S. military predominance indefinitely. But after two decades of fruitless wars that drained American resources and destabilized vital regions, political leadership requires prioritizing core national interests, not endlessly underwriting the security of dependents. A better strategy would shift burdens to capable allies and prioritize Washington’s fiscal solvency.

McConnell views hard power as the cornerstone of American leadership and favors increasing defense budgets to deter China and Russia. But unsustainable spending and spiraling debt weaken the foundations of economic power that underpin U.S. strength. And although McConnell decries isolationism, he never acknowledges that overextension invites decline. McConnell insists that revisionist powers can be contained only through American military supremacy. Fortunately, President Donald Trump recognizes that pairing a big stick with an occasional carrot can shape adversaries’ behavior more effectively than continual confrontation.

In the end, McConnell’s disquisition falls short in making the case for primacy. Instead, it exposes that strategy’s basic flaws.

REID SMITH is Vice President of Foreign Policy at Stand Together.

McConnell Replies

Spiraling debt does threaten the foundations of American strength. But annual defense spending doesn’t even exceed the annual interest payment on that debt. Cutting defense spending in a hunt for budget savings would strangle military readiness—and treating national defense as low-hanging fruit is as dishonest as it is dangerous.

The United States should encourage its allies and partners to do more. Trump has rightly encouraged NATO allies to spend five percent of GDP on defense. But Washington must not lead from behind. In the face of unprecedented coordination among American adversaries, it is hardly too much to ask that the United States commit the same proportion of its budget to securing its global interests as President Jimmy Carter did at the nadir of Cold War defense spending.

Is the free flow of commerce through the Red Sea, for example, not a “core national interest”? It is, and an ad hoc exchange of million-dollar interceptors for thousand-dollar drones is not a sustainable alternative to credible deterrence. Is Europe not a “vital region” for U.S. security and economic interests? It is, and the United States can advance those interests by countering the Russian aggression that has destabilized that region. Those willing to cast aside primacy owe it to the American people to identify the risks they are willing to take and the global influence they are willing to cede.

Foreign Affairs · by Reid Smith; Mitch McConnell · February 3, 2025

15. The Path to a Transformed Middle East

Excerpts:

THE ART OF THE DEAL

Still, Israeli officials who favor striking Iran’s program admit that an attack should not be done by Israel alone. Instead, they want U.S. material and diplomatic support, if not direct participation. This Israeli desire can certainly be raised by Trump in discussions with Netanyahu about how to handle the future of the cease-fire agreement, as well as a Saudi normalization deal.

It is possible that Trump, with his peacemaking aspirations, might be hesitant to tell the Israelis he will support them in a war. But given his advocacy for maximum pressure against Iran, he is likely to see the value of combining increased economic pressure with a credible Israeli military threat as the best way to secure a negotiated outcome. Netanyahu, for his part, would agree to hold off on military action while Washington figures out if Tehran is, indeed, ready to give up its nuclear weapons option. To keep the Israeli threat credible and preserve its leverage in any talks with Iran, the United States would provide Israel with the capabilities necessary to take out the Fordow fuel enrichment plant—the one site that Israel cannot destroy with its current weapons. Washington would need a firm prior commitment that Israel would not strike so long as Trump’s efforts at diplomacy still have a chance of succeeding. But if diplomacy failed and Israel does attack, U.S. forces would need to play a supportive role, with the United States once again helping to defend Israel against Iranian missile attacks, even as it refrains from any offensive combat missions inside Iran.

The lapse of the snapback mechanism—a provision of the 2015 nuclear deal that enables the United States to restore UN Security Council sanctions on Iran—in October 2025 could provide a deadline for U.S.-Iranian negotiations. Such a deadline would give Washington further leverage and prevent Iran from simply stalling while it stockpiles more uranium and diverts some to secret sites.

Trump now is well positioned to help end the war in Gaza, return the hostages, and blunt Iran’s nuclear ambitions. He could even normalize relations between Israel and Saudi Arabia and create a pathway to Palestinian statehood, provided Palestinians meet a number of tangible benchmarks. He may be able to do it all without firing any shots. If he is serious about his peacemaking posture, he should propose this approach to Netanyahu. His efforts could ultimately fail, but the odds of success today are better than they have been in the past. It is rare that interests converge so neatly in foreign policy, and so Trump has an opportunity to do something his predecessors could only dream of.

The Path to a Transformed Middle East

Foreign Affairs · by More by Dennis Ross · February 3, 2025

How to Keep the Peace in Gaza While Countering Iran

Dennis Ross and David Makovsky

February 3, 2025

Hamas militants overseeing a hostages-prisoners swap deal with Israel in Gaza, January 2025 Hatem Khaled / Reuters

DENNIS ROSS is Counselor at the Washington Institute for Near East Policy and a Professor at Georgetown University. A former U.S. Envoy to the Middle East, he served in senior national security positions in the Reagan, George H. W. Bush, Clinton, and Obama administrations.

DAVID MAKOVSKY is the Director of the Program on Arab-Israel Relations at the Washington Institute of Near East Policy. He is an Adjunct Professor of Middle East Studies at Johns Hopkins University’s Paul Nitze School of Advanced International Studies. He served as a senior adviser to the special envoy of Israeli-Palestinian negotiations in the Office of the Secretary of State during the Obama administration.

More by David Makovsky

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Donald Trump begins his presidency with ambitions of being a peacemaker. He laid out this vision in his inaugural address, declaring that his administration “will measure our success not only by the battles we win but also by the wars we end, and perhaps most importantly, by the wars we never get into.” Later that day, he basked in the success of the hostage cease-fire deal in Gaza, including by bringing the families of Israeli hostages to the inaugural parade. “We’re getting a lot of people out in a short period of time,” he proclaimed.

There is no doubt that Trump helped secure the cease-fire deal. But to be a peacemaker who transforms the Middle East, he has more work to do. The main issues he confronts are Gaza and Iran. In Gaza, Israel and Hamas have different views of what is required to achieve the second phase of the deal, which would save the remaining hostages and produce a permanent cease-fire. Iran, meanwhile, is accelerating its nuclear program—with its “foot on the gas pedal” according to Rafael Grossi, the head of the International Atomic Energy Agency. Tehran thus continues to existentially threaten Israel. Both issues are likely to dominate upcoming talks between Trump and Israeli Prime Minister Benjamin Netanyahu at the White House.

Trump can—and may have to—address each problem separately. Both are serious in their own right, and Iran’s nuclear program is one of the biggest threats to global security. Should Iran go nuclear, Saudi Arabia will likely pursue a bomb, as well, adding even more danger to what is already one of the world’s most volatile regions. But the easiest way to handle Gaza and Iran might just be to address them together. Netanyahu is hesitant to move toward a permanent cease-fire, in part because he fears it will cause his government to collapse and trigger early elections. But for the prime minister, there is no issue more important than stopping Iran from going nuclear. It has been the central purpose of his long political career. In Knesset remarks years ago, for example, Netanyahu declared that halting the Iranian nuclear program was the reason he gets up in the morning. The more Trump can show he is prepared to work with Israel on Iran, the easier it will be for Netanyahu to make difficult decisions on Gaza.

That hardly means Trump has to rush into using military force. He has indicated that he is willing to make a deal with Tehran, and he repeatedly promised on the campaign trail that he would pursue a maximum-pressure campaign to halt the Iranian nuclear program. He will likely try to use economic leverage to achieve an agreement. But it does mean that he should make it clear to Netanyahu and Tehran that he will support Israeli attacks on Iran’s nuclear infrastructure should diplomacy fail. By agreeing to support Israeli strikes, Trump will increase the odds that U.S. diplomacy with Iran will work, as Iranian leaders will understand the harsh consequence of failure. For Netanyahu, meanwhile, having a jointly agreed-upon U.S. approach for dealing with what he sees as Israel’s most important—even existential—threat will mean it is far easier for him to make the hard political decision to fully implement the hostage deal and push forward with the cease-fire. If successful, then, this approach will allow the Trump administration to bring a lasting end to the war, open up new opportunities for Israel’s relations with Arab countries, and, most important, address the threat posed by Iran, the United States’ and Israel’s most dangerous Middle Eastern foe.

WHO BLINKS FIRST?

The framework of the Hamas-Israeli cease-fire deal changed little from the version negotiated by the Biden administration in May 2024. But Trump’s insistence that the agreement be done before he was inaugurated is what secured it. Netanyahu did not want to say no to Steve Witkoff, Trump’s newly appointed Middle East envoy, believing that doing so would damage his relationship with Trump. Egypt and Qatar, meanwhile, saw delivering the agreement as an early opportunity to curry favor with the administration. They likely told Hamas that it was in the group’s interest to get the deal done, as they would never get a better deal under Trump, who posted on Truth Social on December 2 that there would be “hell to pay” if hostages were not released by the time he took office.

But concluding a deal is one thing; implementing it is another. The agreement has three phases, and the first, even though it is proceeding, has already been plagued by disputes. Hamas seems to be testing the limits of the deal. It delayed providing names of the hostages it planned to release and did not initially free Arbel Yehud, one of the hostages on its list. Israel responded by preventing the return of Palestinians to the north of Gaza. Though those issues were overcome and the agreement has continued to hold, Hamas may balk at Israel’s refusal to release some of the most prominent prisoners on its list, including Marwan Barghouti and Ahmad Saadat. The biggest question that remains is whether phase two of the agreement can be negotiated. If Hamas decides that the Israelis are not serious and vice versa, they may be unable to do so. With phase 2 negotiation scheduled to begin on February 3, their differences could yet complicate the completion of the first phase.

Netanyahu has told his coalition partners that he has not committed to ending the war in part because of threats by Finance Minister Bezalel Smotrich to bring down the government if phase two proceeds. Netanyahu has also touted commitments from Trump and former U.S. President Joe Biden that Israel would be allowed to resume the war if Hamas did not negotiate seriously or violated the deal. Mike Waltz, Trump’s national security adviser, confirmed this promise, guaranteeing U.S. backing.

Concluding a cease-fire deal is one thing; implementing it is another.

In other words, Hamas, by violating the deal, would allow Netanyahu to avoid the difficult choice of putting his government and his political career at risk to save the remaining hostages and permanently end the war. And it may just do that. After all, the Hamas lead negotiator, Khalil al-Hayya, made a militant speech the day the cease-fire was announced in which he extolled October 7 and its mass killings as a “source of pride,” implying it needed to be repeated.

But although no one should count on Hamas’s rational calculations to overwhelm its ideological instincts, it is possible that Hamas will see it has an interest in a permanent cease-fire—if only to give it a lengthier respite from fighting and thus a chance to recoup. No Israeli government (or the international community) can or should be willing to accept Hamas’ continued rule in postwar Gaza. Indeed, to ensure this never happens, and to make sure no vacuum is left behind, the Trump administration will need to work with Egypt, the United Arab Emirates, and other Arab countries to create an interim alternative administration. The gradual return of a reforming Palestinian Authority to Gaza could support this temporary government. Yet Hamas may well agree to step aside—at least for now. The group may give low priority to the needs of Gazans, but recent events show that they are at least somewhat attuned to their public perception. After Palestinians grew palpably angry about not being able to return to the north, the group began to honor its side of the cease-fire agreement. Hamas also knows that, should it insist on staying in power at this time, clashes with Israel are guaranteed, and that Trump will likely back the Israelis. Hamas leaders might even welcome the chance for a regional and international administration for Gaza—with the real promise of relief and reconstruction. (In any case, Hamas may believe it can find ways to reconstitute in postwar Gaza.)

Netanyahu, for his part, should recognize that if Israel violates the agreement and Hamas doesn’t, there could be a price to pay, not only with the Israeli public, which broadly favors the deal because it would see the release of the remaining hostages, but also with Trump. The president has already claimed victory and will not want the deal’s failure to tarnish his image as a peacemaker. Resuming the war in Gaza would also make it nearly impossible for Trump to broker Saudi-Israeli normalization, as the Saudis have refused to move toward a peace agreement with Israel so long as it remains in Gaza.

PRESSURE POINTS

Netanyahu, of course, cares more about staying prime minister than he does about pleasing Trump. But there is one issue on which Netanyahu may be willing to risk his government and face an election: Iran and its nuclear program. Even more than normalization with Saudi Arabia, which has been a recent focus of his, preventing Iran from existentially threatening Israel has defined Netanyahu. His concerns about the country’s nuclear pursuit go back to his first term in the late 1990s, and he has called it his “Winston Churchill” issue.

An agreement with Trump that would see the United States aim to decisively set back the Iranian nuclear program would be worth a great deal to Netanyahu. Netanyahu may not risk his government over ending the war in Gaza. But he may be swayed if he feels that he has a strategic understanding with Trump that, one way or another, the United States will help ensure that Iran will not develop nuclear weapons.

In practical terms, Trump is likely to apply much greater economic pressure while also using the threat of Israeli force, backed by Washington, to convey a clear message to the Iranians: there can be a diplomatic solution, but Iran must seize it to avoid military strikes that would destroy the nuclear infrastructure that it has built up over the last 30 years. Such a message will certainly not reduce the Iranian incentive to talk. Indeed, Iranian President Masoud Pezeshkian and Vice President Mohammad Javad Zarif have indicated that Iran is prepared to speak with the Trump administration after refusing to deal directly with Biden, suggesting that Tehran is feeling the heat.

They have good reason to be nervous: the Islamic Republic has been dramatically weakened in the past year. Hezbollah, the crown jewel of its so-called axis of resistance, has been decapitated by Israel. With the fall of the Assad regime, Iran’s land bridge through Syria to Lebanon is largely gone—along with its major investments there. Iran’s strikes against Israel in April and October 2024 were largely blunted, and Israel’s retaliation in October destroyed Iran’s strategic and air missile defenses, along with 90 percent of its ballistic missile producing capability. The country has never been so vulnerable, from without and from within. The country is suffering from significant electricity shortages, and its currency is extremely weak. Morteza Afqah, an Iranian economist, has said that “without the lifting of sanctions, the country appears incapable of managing the economy sustainably.”

Iran still may not be prepared to agree to roll back its nuclear program and reduce its ballistic missile stockpile to the degree that Trump or Netanyahu require. After all, Trump walked away from the original Iran nuclear deal in 2018 because it only deferred the Iranian weapons option. But Iran needs to know that the threat of force is not an Israeli bluff. In our recent conversations with members of the Israeli security establishment who had previously not favored attacking Iranian nuclear sites, we were struck by how their views had changed. They had changed in part because of the trauma of October 7 but also because of Israel’s military successes in Lebanon and Iran. There is even an emerging belief that Iran’s regime is fragile and that the loss of its expensive nuclear infrastructure could trigger regime change.

THE ART OF THE DEAL

Still, Israeli officials who favor striking Iran’s program admit that an attack should not be done by Israel alone. Instead, they want U.S. material and diplomatic support, if not direct participation. This Israeli desire can certainly be raised by Trump in discussions with Netanyahu about how to handle the future of the cease-fire agreement, as well as a Saudi normalization deal.

It is possible that Trump, with his peacemaking aspirations, might be hesitant to tell the Israelis he will support them in a war. But given his advocacy for maximum pressure against Iran, he is likely to see the value of combining increased economic pressure with a credible Israeli military threat as the best way to secure a negotiated outcome. Netanyahu, for his part, would agree to hold off on military action while Washington figures out if Tehran is, indeed, ready to give up its nuclear weapons option. To keep the Israeli threat credible and preserve its leverage in any talks with Iran, the United States would provide Israel with the capabilities necessary to take out the Fordow fuel enrichment plant—the one site that Israel cannot destroy with its current weapons. Washington would need a firm prior commitment that Israel would not strike so long as Trump’s efforts at diplomacy still have a chance of succeeding. But if diplomacy failed and Israel does attack, U.S. forces would need to play a supportive role, with the United States once again helping to defend Israel against Iranian missile attacks, even as it refrains from any offensive combat missions inside Iran.

The lapse of the snapback mechanism—a provision of the 2015 nuclear deal that enables the United States to restore UN Security Council sanctions on Iran—in October 2025 could provide a deadline for U.S.-Iranian negotiations. Such a deadline would give Washington further leverage and prevent Iran from simply stalling while it stockpiles more uranium and diverts some to secret sites.

Trump now is well positioned to help end the war in Gaza, return the hostages, and blunt Iran’s nuclear ambitions. He could even normalize relations between Israel and Saudi Arabia and create a pathway to Palestinian statehood, provided Palestinians meet a number of tangible benchmarks. He may be able to do it all without firing any shots. If he is serious about his peacemaking posture, he should propose this approach to Netanyahu. His efforts could ultimately fail, but the odds of success today are better than they have been in the past. It is rare that interests converge so neatly in foreign policy, and so Trump has an opportunity to do something his predecessors could only dream of.

MATT KAPLAN is an Analyst at Shield Capital.

MICHAEL BROWN is a Partner at Shield Capital, a Senior Distinguished Fellow at the Institute for Security and Technology, and former Director of the Defense Innovation Unit at the U.S. Department of Defense.

Foreign Affairs · by More by Dennis Ross · February 3, 2025

16. Russian Malign Influence Campaigns Expand Onto Bluesky

Russian Malign Influence Campaigns Expand Onto Bluesky

Max Lesser

Senior Analyst on Emerging Threats

Saman Nazari

fdd.org · by hhanes · January 31, 2025

The Russian influence operation known as Doppelganger has expanded onto the social media platform Bluesky to spread anti-Ukraine and antisemitic messages, according to a report released by Alliance4Europe on January 27.

This activity, alongside a slate of other Russian malign influence campaigns emerging on Bluesky over the past few months, indicates that Moscow, which has historically used alternative platforms to reach right-wing audiences, has begun using a similar tactic to target the other side of the aisle. Bluesky is known for hosting an exodus of liberal users from X.

What is Doppelganger?

Doppelganger started in 2022 and has targeted audiences across the United States, Europe, and Israel, seeking to undermine support for Ukraine, promote Kremlin-aligned interests, and influence elections. Doppelganger launched its first social media campaigns on Facebook and X. In September 2024, the U.S. government took down many of its websites and sanctioned its operators.

Alliance4Europe’s report provides the first documented instance of Doppelganger on Bluesky. While the operation posted on Bluesky in English and multiple other languages, the report focused on its German activity in advance of the upcoming German elections. Doppelganger’s German-language content implied Germany only supported Israel and Ukraine because their presidents are Jewish, shared degrading messages about Ukranian women, and criticized German Federal Chancellor Olaf Scholz.

A Wave of Russian Malign Influence Strikes Bluesky

Doppelganger’s Bluesky debut comes amid a broader wave of Russian influence operations on the platform, including operations known as Matryoshka and Portal Kombat. Matryoshka’s expansion to Bluesky, first reported in December 2024, has used artificial intelligence to imitate the voices of professors associated with leading institutions to lend false authority to the operation’s anti-Ukrainian messages. A lead researcher from VIGINUM, the French government agency specializing in identifying foreign malign influence campaigns, also identified Bluesky accounts associated with Portal Kombat. Portal Kombat spans websites that aggregate content from various overt and covert Russian propaganda outlets.

FDD, together with Alliance4Europe, looked further into Russian propaganda’s penetration of Bluesky and found accounts associated with the Russian state media outlet RT. FDD and Alliance4Europe also found Bluesky accounts associated with pro-Kremlin shows such as Going Underground, which describes itself as independent but broadcasts on RT, and ¡Ahí les va!, a Spanish-language program that may at first appear unaffiliated with RT but bears RT’s logo on its primary website. All these accounts first appeared on Bluesky between September 2024 and January 2025.

Smaller Social Media Platforms Are Target-Rich, Defense-Poor

Smaller social media platforms like Bluesky provide America’s adversaries an opportunity to target more specific demographics than on larger platforms such as Facebook and X. At the same time, smaller platforms likely lack the internal resources large platforms possess to counter malign influence campaigns. This combination of factors renders smaller platforms particularly vulnerable to exploitation by nation-states in their malign influence campaigns.

Bluesky should adopt official policies against Russian state media as Meta did in September 2024 in response to what it described as Russian state media’s “foreign interference activities.” However, Bluesky, which stated in November 2024 that it only had 20 full-time employees, will likely need help identifying threats on its platform. Independent researchers and the non-profit sector should continue to investigate campaigns and publicize findings about malign influence on Bluesky and other alternative platforms.

At the same time, the U.S. government can help by sharing threat intelligence on foreign malign influence with social media companies in a manner that respects constitutionally protected political speech. A 2024 report from the Department of Justice (DOJ) Office of the Inspector General found that the DOJ and FBI did share threat intelligence with social media companies in a way that respected constitutional protections. However, the report added that DOJ lacked a “comprehensive strategy guiding its approach to engagement with social media.” Forming this comprehensive strategy, and making sure to include smaller, alternative platforms like Bluesky in it, would help counter foreign malign influence on these platforms that targets Americans and America’s allies.

Max Lesser is the senior analyst on emerging threats at the Center on Cyber and Technology Innovation (CCTI) at the Foundation for Defense of Democracies (FDD). Saman Nazari is the lead researcher at Alliance4Europe, where he focuses on Chinese and Russian influence operations, developing the DISARM Framework, and coordinating the Counter Disinformation Network. For more analysis from the authors, CCTI, and FDD, please subscribe HERE. Follow FDD and CCTI on X @FDD and @FDD_CCTI. FDD is a Washington, DC-based, nonpartisan research institute focusing on foreign policy and national security.

fdd.org · by hhanes · January 31, 2025

17. Will DeepSeek deep-six the US economy?

Excerpts:

Could a tech crash turn into a funding crisis for the United States if expectations sour on the revenue prospects of artificial intelligence? The January 27 crash in AI-related stocks in response to cheaper and better Chinese competition raises troubling questions. These questions have the undivided attention of every equity investor in the world.

...

But the world’s appetite for American tech stocks has been bottomless for the past ten years, whetted during the past year by the advent of Large Language Models (LLMs). Are elevated valuations for AI-related stocks justified? That depends on two factors: Which sectors are likely to generate revenues from AI and how fast they will generate them.China’s DeepSeek R1 model appears to have achieved a breakthrough in model efficiency: novel architecture and related optimizations reduce the required computation by one or two orders of magnitude.DeepSeek, moreover, offers its model at a small fraction of the cost that its US competitors now charge. That isn’t necessarily bad for the US tech industry as a whole. If China has a better technology, US companies can adopt it rapidly, and lower costs for AI modeling will benefit the users of AI models.

...

To entice price-sensitive buyers into the Treasury market, the US government—still running a record peacetime non-recession deficit of 6% to 7% of GDP—probably will have to offer higher yields. That’s a problem for the economy and also a problem for the Treasury, which is already paying $1 trillion a year in interest, nearly quadruple the service cost of America’s national debt in 2020.

It also puts a headwind in front of the US economy for interest-sensitive activity, particularly housing. Longer-term, the US risks an Italian sort of spiral, where the rising cost of debt service eats away at the budget and limits what the federal government can do to support the economy.

Will DeepSeek deep-six the US economy? - Asia Times

Tech crash could turn into a funding crisis if expectations of AI revenue prospects sour due to lower-cost Chinese start-up

by Steve Hsu and David P Goldman

February 3, 2025

asiatimes.com · by Steve Hsu, David P Goldman · February 3, 2025

America has financed a current account deficit that bloated to US$1.2 trillion in 2024 by selling tech stocks to foreigners. Tech stocks, meanwhile, are trading at valuations not seen since 2000, when the NASDAQ Composite began a descent that wiped out 75% of its market capitalization by 2002.

Could a tech crash turn into a funding crisis for the United States if expectations sour on the revenue prospects of artificial intelligence? The January 27 crash in AI-related stocks in response to cheaper and better Chinese competition raises troubling questions. These questions have the undivided attention of every equity investor in the world.

Graphic: Asia Times

Foreigners stopped buying US debt of all kinds – Treasury, mortgage, and corporate – after the post-Covid inflation of 2021 and the Federal Reserve’s consequent rise in interest rates. That denoted the end of a 40-year bull market in US bonds. From a 1981 peak of 15%, the US 30-year bond yield fell in a nearly straight line to an August 2020 low of just 1.41%.

The inflationary surge of 2021-2022 put an end to this bull run. In March 2022, moreover, the US and its allies seized half of Russia’s $600 billion in foreign exchange reserves, prompting other central banks to shift away from US Treasury securities to gold and other assets.

But the world’s appetite for American tech stocks has been bottomless for the past ten years, whetted during the past year by the advent of Large Language Models (LLMs). Are elevated valuations for AI-related stocks justified? That depends on two factors: Which sectors are likely to generate revenues from AI and how fast they will generate them.

China’s DeepSeek R1 model appears to have achieved a breakthrough in model efficiency: novel architecture and related optimizations reduce the required computation by one or two orders of magnitude.

DeepSeek, moreover, offers its model at a small fraction of the cost that its US competitors now charge. That isn’t necessarily bad for the US tech industry as a whole. If China has a better technology, US companies can adopt it rapidly, and lower costs for AI modeling will benefit the users of AI models.

There are seven major categories of AI applications in which the US and China compete. China is ahead in most of them and its AI prowess is likely to increase its lead. They are

Manufacturing: China has poured enormous resources into factory automation. One gauge is the number of factories outfitted with dedicated 5G networks, which support AI applications. China claims 10,000 such installations, while the US has only a few dozen, concentrated in the auto industry. The advantage is strongly in China’s favor, and advances in AI are likely to enhance it. But US manufacturing has had small impact on equity valuations.
Internet of Things: China is ahead in automating transportation and warehousing, with fully robotic warehouses now in operation.
Robotics: China installs more industrial robots each year than the rest of the world combined and is now a major producer of industrial robots.
China is the leader in the so-called low altitude economy, cited by government planners for the first time in a December 2024 working paper. Drone taxis, drone deliveries and other applications are now a $100 billion business in China and are expected to double by 2026.
Autonomous vehicles: We’ll call this a toss-up between the US and China, although China already has autonomous taxi services operating on a small scale.
Large Language Models: again, a toss-up. The gains to be harvested by LLMs include the Philippines’ $40 billion a year call center business, in which human operators can be replaced by AI systems to a considerable extent. But the possibilities for LLM applications are so varied and extensive that predictions are guesswork at this stage.
Biotech: The US has a distinct advantage with a strong pharmaceutical development infrastructure. China has a lead in medical data, but America’s complex of large pharmaceutical companies, startups and venture capitalists give it an edge.

The big question mark over LLM monetization is timing. The payoff could be big but will probably take longer than expected to materialize.

Enterprise deployment of LLMs still has a minimal impact on corporate earnings and human adaptation (management buy-in, workflow modifications, etc.) seems to be years away. Cost savings for certain categories of expenses, such as call centers or routine coding tasks, might be realized quickly But the adaptation of AI for higher-skill work is still at a very early stage.

What does this mean for chipmakers like Nvidia? One could argue a bullish Nvidia case based on all of the AI sectors listed above, on the assumption that Nvidia GPUs will power a great deal of this activity. However, this hypothesis requires closer scrutiny of Nvidia’s competitive advantages.

Nvidia’s advantage is strongest in computation for training language and vision models, but less so for inference (running the resulting models to produce useful results). Notably, the new DeepSeek models already run quite well on Huawei’s Ascend AI chips, with similar or even better cost performance than on Nvidia H800s (the weakened Nvidia chip cleared for export to China).

If we add up all these considerations, the case for the top US tech companies (the so-called Magnificent Seven) to dominate equity returns going forward is a lot weaker than the market presently perceives it. If we are right, and tech market valuations shrink to some significant extent, what are the macroeconomic implications? More than in any period of US history, key capital flows depend upon a very small number of very big companies.

Let us suppose that foreigners were to reduce their purchases of tech stocks as valuations dissipate. To finance its current account deficit and federal budget deficit, the United States would have to sell more bonds to domestic and foreign buyers. The chart below shows the amount of new Treasury debt bought by US banks, US households, foreign official institutions, and foreign private investors, respectively.

Banks stepped in and absorbed the flood of Treasury debt that financed the $4 trillion in Covid subsidies during 2020-2021, but exhausted their store of savings deposits by 2023. The biggest increase in new investment in Treasury securities came from households, attracted by the higher interest rate on Treasuries. Foreign private buyers also increased their holdings of Treasuries by a smaller amount.

A full-blown financial crisis is most unlikely. The cash-burning dotcoms of 2000 have been replaced by cash-rich monopolies like Microsoft, Google, Apple, Amazon and Meta. The United States can adjust to an air-pocket in foreign demand for its tech stocks, for example by offering higher bond yields to domestic and international investors.

But the DeepSeek shock exposes flaws in the core strategies of Big Tech as well as the stratospheric valuation of its best-performing stocks. The outcome is likely to be persistently higher interest rates, lower growth, a reduction in wealth and stiff economic headwinds.

Graphic: Asia Times

The S&P’s technology sector, correspondingly, trades at a P/E of 37, compared to an overall P/E for the S&P 500 of 26. That accounts for most of the gap between the lofty valuation of American stocks versus equities in Europe, Japan and China.

Graphic: Asia Times

A brass-tacks gauge of equity valuation is the free cash flow (FCF) yield, namely the ratio of cash income to market price. The lower the FCF, the greater the expectations about future growth (investors accept less current income because they expect more income in the future). For the S&P 500 as a whole, FCF is below 3, a level not seen since the eve of the tech stock crash of 2000.

Graphic: Asia Times

For a monopoly like Microsoft, the free cash flow yield has fallen to just 2, the lowest on record.

Graphic: Asia Times

Big Tech doubled in capital expenditure between 2020 and 2024, and continues to make enormous commitments to data centers supporting AI. The DeepSeek shock calls into question the economic viability of these plans: If Chinese developers can build state-of-the-art models with less powerful chips, exploiting model architecture innovations, the raw computing power now under construction may be vastly overvalued.

Graphic: Asia Times

To entice price-sensitive buyers into the Treasury market, the US government—still running a record peacetime non-recession deficit of 6% to 7% of GDP—probably will have to offer higher yields. That’s a problem for the economy and also a problem for the Treasury, which is already paying $1 trillion a year in interest, nearly quadruple the service cost of America’s national debt in 2020.

It also puts a headwind in front of the US economy for interest-sensitive activity, particularly housing. Longer-term, the US risks an Italian sort of spiral, where the rising cost of debt service eats away at the budget and limits what the federal government can do to support the economy.

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Steve Hsu is professor of theoretical physics and of computational mathematics, science, and engineering at Michigan State University, and the founder of several AI startups. Follow him on X at @hsu_steve. David P Goldman is deputy editor of Asia Times. Follow him on X at @davidpgoldman

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asiatimes.com · by Steve Hsu, David P Goldman · February 3, 2025

18. Questioning China's ability to actually fight

The subtitle of the 32 page report is a good description of its thesis. It can be downloaded at this link: https://www.rand.org/pubs/perspectives/PEA830-1.html

The People’s Liberation Army Remains Focused on Upholding Chinese Communist Party Rule, Not Preparing for War

Questioning China's ability to actually fight - Asia Times

New Rand report doubts China’s combat readiness while Ukraine war shows a similar Taiwan invasion could end in disaster

by Gabriel Honrada

February 3, 2025

asiatimes.com · by Gabriel Honrada · February 3, 2025

China’s military may be modernizing rapidly, but deep-rooted structural flaws, political control and a lack of combat experience could limit its battlefield effectiveness in a potential war with the US and its allies.

Last month, the RAND Corporation think tank released a report questioning the combat readiness of China’s People’s Liberation Army (PLA) despite its breakneck modernization.

RAND argues that while the PLA boasts advanced weaponry and the world’s largest navy, it prioritizes upholding Chinese Communist Party (CCP) rule over actually preparing for war.

The report highlights systemic issues, including promotions based on loyalty over merit, ideological training over combat realism and centralized decision-making that hinders battlefield adaptability.

RAND compares the PLA’s modernization to historical cases where military strength failed to ensure battlefield success, citing the ongoing Russo-Ukrainian War and the 1979 Sino-Vietnamese War. The report suggests China’s military reforms remain slow and incomplete, emphasizing deterrence and political control over operational effectiveness.

A separate RAND report examines the PLA’s dual challenge of demographic decline and modernization. It notes that while China’s shrinking population poses long-term concerns, the PLA still has a significantly larger youth pool than the US. However, poor recruitment incentives, unattractive service conditions and competition from the private sector hinder efforts to attract elite talent.

Cultural barriers, such as military service’s low social status and a conscription-based model, further complicate China’s military modernization. Despite major investments, the PLA struggles to meet Chinese President Xi Jinping’s vision for a world-class military. If recruitment challenges persist, RAND suggests China may need to rethink its military doctrine and force structure.

While RAND critiques the PLA’s centralized command structure, Chinese military doctrine stresses political oversight and ideological cohesion to prevent military insubordination—a feature the CCP views as a strength rather than a liability.

In a November 2023 article for The Strategist, Payton Rawson explains that China’s dual command system in the PLA integrates military and political leadership to ensure CCP control.

Rawson states that the structure comprises a party committee, political commissar and political organs to uphold party leadership, prevent corruption and ensure alignment.

He notes that the benefits include increased political loyalty, a lower risk of military coups and a unified command that aligns military actions with party goals. However, he notes that this system may hinder decision-making speed and innovation.

However, emphasizing the PLA’s dual command system’s perceived shortcomings, lack of combat experience and recruitment problems risks underestimating China’s military modernization.

Despite those advancements, substituting technology for combat experience could only take the PLA so far, as simulations can never fully replicate a combat zone. AI is no substitute for human judgment as it lacks self-awareness and accountability. Should the PLA gain combat experience, it needs the institutions and processes to translate that into operational and strategic advantages.

Those challenges may stymie the development of a professional non-commissioned officer (NCO) corps, which provides experienced, independent lower-level leadership in Western militaries.

In response, China is developing a “made-to-order” NCO corps focusing on technical skills essential for the PLA. It recruits young people with the appropriate qualifications into the program and promises a stable career path. China’s military may train NCOs with technical expertise, but whether they can lead under fire is another question.

China has also hired outside talent, notably former NATO fighter pilots, to train its air force. While these former NATO servicemen may not have flown the latest Western combat aircraft, they can still impart sensitive tactics, techniques and procedures (TTP) to their Chinese counterparts.

They still think like their active-duty counterparts and may help refine Chinese pilots’ on-the-fly decision-making skills and mission planning.

In addition to using technology, focusing on technical skills and hiring outside talent, China uses cognitive and information warfare to gain “victory without gun smoke.”

In a January 2023 article for the China Aerospace Studies Institute (CASI), Josh Baughman describes how China’s cognitive warfare strategy focuses on controlling perception and decision-making to weaken adversaries without direct military conflict.

Baughman notes that China’s cognitive warfare strategy operates in peacetime and wartime, leveraging psychological vulnerabilities like fear and misinformation to undermine opponents’ resolve. He says it integrates military, political, economic, and technological tools, using AI and social media to shape narratives and public perception.

He notes that China aims to win conflicts through psychological influence rather than solely military force by controlling information and defining events.

However, China’s cognitive warfare may have a limited effect on a population inoculated against such, as shown by the results of Taiwan’s 2024 Presidential elections, where state and civil society actors worked effectively to “pre-bunk” and discredit such efforts.

Further, Koichiro Takagi mentions in a July 2022 War on the Rocks commentary that the ongoing Russo-Ukrainian War shows that cognitive warfare didn’t confer any strategic advantage to either side and best supports kinetic combat arms such as airpower, infantry, artillery and armor. Takagi also stresses that wars are decided by decisive physical battles, not by cognitive shaping or mere positioning of forces.

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While cognitive warfare shapes adversary perceptions, its limitations in actual conflict underscore the PLA’s reliance on external military observations, such as the Russo-Ukrainian War, for operational insights.

Being an observer allows China to learn from the trial-and-error experiences of others without being involved in a conflict. This approach can result in mature, ready-to-absorb TTPs and operational and strategic lessons that could be contextualized according to China’s unique requirements.

In an October 2023 article for The Washington Quarterly, M Taylor Fravel mentions that China’s assessment of the Russo-Ukrainian War offers critical military lessons for a potential Taiwan conflict.

First, Fravel says Russia’s failure to achieve a swift victory underscores the difficulties of large-scale operations, especially in complex joint-force engagements like an amphibious assault on Taiwan.

Second, he notes that Russia’s battlefield failures reveal the dangers of centralized command and rigid leadership structures, pushing China to refine decision-making flexibility.

Third, Fravel says Ukraine’s resilience suggests Taiwan may not capitulate easily, forcing China to prepare for prolonged conflict.

Fourth, Fravel notes that the US’s role in intelligence sharing and coalition-building against Russia raises concerns over a similar response to Chinese aggression, potentially denying China the element of strategic surprise.

Lastly, he says Western sanctions on Russia reveal China’s economic vulnerabilities, incentivizing efforts to insulate its economy.

Despite its high-tech ambitions, China’s military remains unproven in actual combat. If war comes, it won’t be China’s gadgets determining the outcome—but rather the soldiers controlling them.

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asiatimes.com · by Gabriel Honrada · February 3, 2025

19. Trump's path to Ukraine peace becoming more apparent

Excerpts:

This could take the form of forcing Ukraine to withdraw from Donbas, seriously considering a demilitarized “Trans-Dnieper” region controlled by non-Western peacekeepers and promising phased sanctions relief on Russia.

Putin might agree to these terms if they are accompanied by threats of maximally disbursing military aid to Ukraine alongside the imposition of maximum secondary sanctions against Russia’s top energy clients (China and India).

Putin’s continually proven his preference for avoiding escalations, notably reaffirmed last November through Russia’s unprecedented use of the hypersonic Oreshniks for de-escalation purposes vis-a-vis the US, while a sizeable share of Russia’s budgetary revenue is dependent on Asian energy imports.

These factors would work in Trump’s favor if he proposes the ceasefire terms that were discussed together with the threatened consequences if Putin rejects them.

The path to peace will predictably be paved by a ceasefire, which will likely require some territorial concessions on Ukraine’s part in order for Russia to agree to compromise on Putin’s associated demands. Then new elections can be held to legitimize peace talks. This is the most realistic sequence for diplomatically ending the conflict.

Trump's path to Ukraine peace becoming more apparent - Asia Times

asiatimes.com · by Andrew Korybko · February 3, 2025

Trump’s Special Envoy for Ukraine and Russia Keith Kellogg told Reuters that he’d like to see Ukrainian President Volodymyr Zelensky hold parliamentary and presidential elections, though that outlet’s sources in Kyiv claim that Washington has yet to formally make the request.

Ukrainian law stipulates that elections can’t be conducted during times of marital law, ergo the need to first lift it. That won’t happen without a ceasefire, however, but therein lies the problem since Russia’s ceasefire terms are still unacceptable to Ukraine.

Russian President Vladimir Putin said last June that Russia will freeze hostilities only after Ukraine withdraws from all the territory that his country claims as its own and declares that it no longer wants to join NATO.

Negotiations could resume immediately afterward, but he specified at the time that they would have to be held with the parliamentary speaker instead of Zelensky, whose legal term expired at the end of May per Putin’s reading of the Ukrainian Constitution. He then reiterated this position last week but with an added twist.

According to Putin, Zelensky could still hypothetically participate in negotiations, but he’d be powerless to sign anything. This followed Zelensky’s claim that October 2022’s prohibition on talks with Russia applied to everyone but himself.

He then told the Associated Press over the weekend, around the same time as Kellogg’s interview with Reuters, that he is interested in resuming talks with Russia but doesn’t think that it wants a ceasefire. Amidst these statements from Kellogg, Putin and Zelensky were Trump’s.

He claimed that “We’re having very serious discussions (with Russia) about that war, trying to get it ended,” but said that he hadn’t yet talked to Putin about it, thus implying that talks are only taking place at the embassy level. Russian Deputy Foreign Minister Sergey Rybakov confirmed on the same day that “there is no progress” on organizing those leaders’ upcoming call.

Nevertheless, their inevitable conversation will likely concern a ceasefire and particularly the compromise that Trump hopes to broker.

This could see him proposing the following to Putin: 1) Ukraine withdraws from Kursk and Donbas, the latter of which is at the center of the territorial dispute with Russia, but stays where it is everywhere else; 2) neither side rescinds their territorial claims to the other; 3) a carrot-and-stick approach is applied toward Russia and Ukraine for ensuring compliance with the ceasefire; 4) Ukraine then holds its next elections; and 5) the new government enters into peace talks with Russia after assuming office.

Ukraine can be coerced into all this by threatening to withhold military aid while threats of maximally disbursing such to Ukraine alongside the imposition of maximum secondary sanctions against Russia’s top energy clients (China and India) could coerce it into compliance as well.

As an incentive to Russia, which has been steadily advancing for the past two years, the US might agree to demilitarize the “trans-Dnieper” region and place it under the control of non-Western peacekeepers.

That proposal forms one of the two dozen compromises that were analyzed on these pages here and elaborated on in detail here.

Its full implementation or some variation thereof might ultimately prove pivotal in terms of getting Russia to agree to a ceasefire without Ukraine first completely complying with the terms that Putin outlined last June regarding withdrawing from all the territory that Russia claims as its own. Trump’s negotiators would, therefore, do well to seriously consider this proposal.

If they get Ukraine and Russia to agree to a ceasefire, then the previously mentioned threats could remain as sticks for encouraging compliance, while the carrots could include more reconstruction aid to Ukraine and phased sanctions relief for Russia, thus increasing the odds that it holds.

As part of the perks for Russian compliance, the US might even agree to let the EU resume pipeline gas imports from Russia, whether via the remaining undamaged part of Nord Stream and/or across Ukraine if it gets Kyiv to agree.

As for the subsequent election step in this process, the US might prefer for Zelensky not to run for re-election; otherwise, it could back one of his potential opponents as part of a “phased leadership transition” for facilitating a peace deal, which is premised on Putin wanting him out of the way.

Between the hypothetical ceasefire and Ukraine’s next elections, Zelensky might still participate in talks, but Russia wouldn’t allow him to sign anything, so he’d only take part in them for self-serving political reasons.

In any case, the legal changes that Russia’s declared goals of restoring Ukraine’s constitutional neutrality and “denazifying” its society entail can only be advanced after the elections legitimize a new parliament, which could then bring these about under US pressure (the second goal perhaps only partially).

Prior to that, the size of the armed forces could be curtailed in partial compliance with Russia’s demilitarization goal as a trust-building measure, but Russia’s spring 2022 demands might not ever be met in full.

Trump’s plan to broker a ceasefire between Ukraine and Russia mostly depends on the latter’s agreement since the former can be much more easily coerced, thus necessitating pragmatic compromises that satisfy some of Putin’s ceasefire demands from last June.

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This could take the form of forcing Ukraine to withdraw from Donbas, seriously considering a demilitarized “Trans-Dnieper” region controlled by non-Western peacekeepers and promising phased sanctions relief on Russia.

Putin might agree to these terms if they are accompanied by threats of maximally disbursing military aid to Ukraine alongside the imposition of maximum secondary sanctions against Russia’s top energy clients (China and India).

Putin’s continually proven his preference for avoiding escalations, notably reaffirmed last November through Russia’s unprecedented use of the hypersonic Oreshniks for de-escalation purposes vis-a-vis the US, while a sizeable share of Russia’s budgetary revenue is dependent on Asian energy imports.

These factors would work in Trump’s favor if he proposes the ceasefire terms that were discussed together with the threatened consequences if Putin rejects them.

The path to peace will predictably be paved by a ceasefire, which will likely require some territorial concessions on Ukraine’s part in order for Russia to agree to compromise on Putin’s associated demands. Then new elections can be held to legitimize peace talks. This is the most realistic sequence for diplomatically ending the conflict.

This article was first published on Andrew Korybko’s Substack and is republished with kind permission. Become an Andrew Korybko Newsletter subscriber here.

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asiatimes.com · by Andrew Korybko · February 3, 2025

20. Inside the Pentagon’s War Games: Can the U.S. Military Defend Taiwan from China?

That is the wrong question in the title. It should ask: "Can the US military and US friends, partners, and allies help Taiwan DEFEND ITSELF against a Chinese attack?

This is an ongoing American strategic problem: Whatever is the challenge, we think we have to take it on ourselves and lead the charge. If Taiwan is unwilling to make the national commitment (whole of society) to its own defense we can hardly do it for them.

Inside the Pentagon’s War Games: Can the U.S. Military Defend Taiwan from China?

19fortyfive.com · by Kris Osborn · February 1, 2025

Key Points and Summary: The Pentagon is war-gaming scenarios to counter a potential Chinese invasion of Taiwan, focusing on rapid response, intelligence sharing, and multi-domain warfare.

-China’s strategy may involve a “bolt-out-of-the-blue” missile barrage, electronic warfare to blind defenses, and a rapid amphibious assault. The U.S. and its allies, including Japan and South Korea, are expanding military cooperation, forward-deploying forces, and improving intelligence networks.

An F-35B Lightning II with 3rd Marine Aircraft Wing, based at Marine Corps Air Station Miramar, San Diego, California, conducts an aerial demonstration during the 2022 MCAS Air Show at MCAS Miramar, Sept. 24, 2022. The F-35B Lightning II, flown by aviators with Marine Fighter Attack Training Squadron 502, is equipped with short takeoff and vertical landing capability that expands its range by allowing it to operate from naval vessels and in austere, expeditionary environments. The theme for the 2022 MCAS Miramar Air Show, “Marines Fight, Evolve and Win,” reflects the Marine Corps’ ongoing modernization efforts to prepare for future conflicts. (U.S. Marine Corps photo by Lance Cpl. Jose S. GuerreroDeLeon)

-Army Pacific Command stresses deterrence through strength, ensuring China understands the immense cost of aggression. While liberating an occupied Taiwan would be challenging, U.S. and allied forces are preparing to respond quickly, making a successful Chinese takeover far from certain.

Could the U.S. Stop a Surprise Chinese Attack on Taiwan?

A massive “bolt-out-of-the-blue” salvo of attacking ballistic missiles designed to overwhelm Taiwan…..a large-scale amphibious assault to surround and take-over the island…a rapid blockade of the South China Sea …..or perhaps even a surprise 5th-generation air attack on US warships in the Philippine Sea ….all seem to be realistic possibilities should the People’s Republic of China suddenly move to annex Taiwan or claim exclusive ownership of disputed island territories in the South China Sea.

Would a large-scale ballistic missile attack designed to take-out Taiwanese air defenses and cripple its weapons, air fields and defenses be a most likely start to a surprise attack? Any attack is almost certain to be accompanied or even preceded by a commensurate PRC effort to “jam” US and allied GPS and communications signals in the region … to effectively blind US, Taiwanese and allied defenses in position to respond in the region.

Senior members of Army Pacific tell Warrior that Commanding General Charles Flynn says the purpose of Army Pacific and its build-up is to “avoid war.” At the same time, part of the method of “avoiding war,” Flynn emphasizes, is to train, prepare, experiment and refine a “war plan.”

Maybe the PLA might seek to exploit what it thinks is an overmatch or advantage in the realm of hypersonic weapons and simply seek to “deny” US warships from closing in on an area to defend Taiwan? Given the sheer size and growing technological sophistication of the PLA Navy, a massive amphibious attack on Taiwan would be another likely avenue of approach for the PLA should it seek to rapidly “take-over” Taiwan. The likely thinking on the part of the PRC, as explained in the Pentagon’s annual reports on the Chinese military, might be to take over Taiwan so quickly that their dominion becomes a kind of “fait accompli” wherein it simply becomes too costly in terms of lives and too large-scale an endeavor to try to extricate the PLA from Taiwan. Should the US, Japan and South Korea need to mass a liberation force and fully “extricate” an occupying PLA force from Taiwan … could it be done?

Paradox of Deterrence: Peace Through Strength

While the purpose of the war game is to establish and refine an informed warplan in the event one is needed…. Army Pacific Commander Gen Charles Flynn regularly emphasizes the paradox central to deterrence…. Be ready to prevail in war if needed…. For the sole purpose of avoiding war

Army Pacific senior officials say Flynn says the Wargame is intended to train, experiment and build multinational relationships to “prevent” war…..peace through strength. As part of this, senior members of Army Pacific tell Warrior that Gen. Flynn says the purpose of Army Pacific and its overall strategy is to “avoid war.” At the same time, part of the method of “avoiding war,” Flynn emphasizes, is to train, prepare, experiment and refine a “war plan.” Army Pacific’s main concern is indeed related to the risk of a sudden PLA “surprise attack.”

“While many different scenarios concern us, central is the PLA using yearly large scale exercises in the Straits to lull us into thinking the threat of invasion is low, then one year in the near future, that large training force abruptly changes course and heads straight for beaches on Taiwan. The result is a surprise invasion with very little warning,” the senior official with Army Pacific explained.

A defining challenge when it comes to countering a sudden Chinese attack would likely relate to simple question of time and distance. Can US warships and their supporting 5th-generation air attack capability respond fast enough? Will enough torpedo armed submarines be in position to destroy Chinese warships crossing the Taiwan strait? Could US Navy amphibs armed with 20 F-35Bs each be close enough to quickly establish air superiority and leverage the US Navy’s massive 5th-generation air advantage? China has no sea-launched 5th-generation threat and would therefore be very challenged to succeed with an amphibious take-over of Taiwan if US F-35s could get their fast enough to destroy a PLA Navy amphibious attack from the air

These are all questions likely to be entertained by US Army Pacific commanders in a massive “theater-wide” wargame exploring a full-scale conflict with China in the Pacific. While tactical scenarios, weapons ranges and particular methods of attack are almost certain not to be available for security reasons, Army Pacific officials say this wargame is an enterprise which has not been pursued in living memory.

Army Pacific Wargame “Rehearsal of Concept”

Senior officials with Army Pacific Command tell Warrior there is now a large-scale “Rehearsal of Concept” underway as an initial step in the wargame, where participants and commanders are briefing their roles, solidifying command relationships and anticipating key tasks. Details regarding weapons, scenarios and capabilities are not available for security reasons, yet Army officials say the all-out-war exercise is today’s version of the “War Plan Orange wargaming done by the Navy and Army in the 1930s.”

F-35 Joint Strike Fighter on carrier operations.

The idea of the ROC, senior officials explain … is to prepare for the worst and “develop an executable war plan that prepares USARPAC (US Army Pacific) for the worst eventuality.”

Much attention has been focused on flashpoints in the South China Sea and the pressing Chinese threat to attack Taiwan, yet fewer minds have likely been sharpened in upon the reality of what a full-scale, Pacific-wide war with the PRC might look like. This is a complex and very nuanced question with seemingly far too many variables to consider, yet the current Army Pacific ROC seems up to the task.

Specifics related to threats, ranges, combat scenarios and joint, multi-domain dynamics for the wargame are likely informed by findings from recent wargames and comprehensive Army analyses of the PLA’s reach and capability across the region. In recent months, US Army Pacific has published several research documents and studies offering findings and insights of great relevance to the Chinese threat in the Pacific. One major finding from an Army Pacific 2023 wargame called “Unified Pacific Wargame Series”

Any outcome to an enterprise of this kind clearly results from a complex mixture of different variables, and of course the growing nature of multi-domain, information-driven warfare. Specifically, several Army studies are clear that there remains a “massive” need for more Intelligence, Surveillance and Reconnaissance (ISR) in the Pacific theater. This need, senior Army officials and the Command’s research papers emphasize, need to me matched a commensurate improvement in data processing, or PED .. Processing Exploitation and Dissemination” of critical wardata.

“We need vastly more dense and redundant ISR, yet it is not enough to just have the world’s best airborne sensors…..after collecting massive data, there is a need for “massively capable” PED,” a Senior Army official familiar with the Wargame told Warrior. The idea, the Senior Army expert explained, would be for the force to “Get quickly enough to the point where planes, drones, land troops, and ships are seamlessly passing and sharing both targeting data and BDA.(Battle Damage Assessments).”

The text of US Army Pacific’s Unified Pacific Wargame Series findings aligns closely with the Senior Army officials’ comments, as it emphasizes a need for not only an increase in “collection capability” related to volumes of information but also a “parallel increase in PED capacity to conduct proper analysis and avoid “bottle necks” in the information chain.”

The Army essay makes the related critical point that redundancy in the realm of information collection, analysis and transmission will be essential to ensure “joint” awareness and also mitigate against or overcome any Chinese attempt to “jam,” “derail” or “destroy” US and allied communication systems. More transport layers and secure, redundant levels of information exchange can help ensure operational functionality in the event some systems are destroyed or jammed.

China’s J-20 stealth fighter. Image Credit: Creative Commons.

“Joint Collection requires diversified collection platforms, across all three layers – the aerial, space, and terrestrial layers….Additional sensing in the terrestrial layer provides more consistent, persistent pattern development and recognition,” the text of the UPWS Army paper states. “Federation of collection and PED responsibilities not only eases the burden on the forward-most formations, but provides for common understanding.”

The need for more layers of ISR and PED would indeed make sense and seem critical given the vast-expanse of the Pacific. This is particularly true in the case of a “theater-wide” wargame exploring conflict from the Korean Peninsula all the way down beyond the South China Sea. This is why military experts refer to the Pacific in terms of a “tryanny of distance,” because conflict in the vast pacific would seemingly rise or fall on a successful ability to integrate and connect otherwise disparate operations across the theater. However, it is not enough for volumes of information to simply “get there” or “transmit” … the data must be processed and exploited quickly and efficiently, a point highlighted in the Army Pacific’s UPWS paper.

“Without simultaneous improvements in the capacity and capability of PED systems,parallel improvements in collection will fail to achieve desired results,” the Army Pacific essay writes.

What might it mean in practical or operational terms to make this a reality. Clearly there would be a simple need for more nodes and assets in terms of drones, fixed-wing surveillance planes, ship and ground-based sensors and radar along with a robust air and space ISR capacity. However, of key relevance, not only would these nodes need to exist…but they would need to be engineered with the requisite “interfaces” “gateways” and technical standards to ensure information interoperability. Should time critical sensor data arrive through one transport layer format for example, such as RF or GPS, it will need to be “pooled” and analyzed in relation to data collected through otherwise disconnected sensor systems. This is where gateways come in, as they are systems described almost as translators able to receive data from one RF signal, for example, and combine it with incoming data from a GPS signal, ship-based radar or wireless datalink of some kind. Successful operation of ISR and PED, particularly when it comes to blending the two together with optimal efficiency, would require the interfaces to ensure seamless data flow and analysis across a diversified joint network.

“PRC investments include digital infrastructure abroad, 5G cell networks, undersea cables, and data centers,” the Army Pacific text explained.

Chinese Expansionist Ambition

All of the studies findings and related US Army Pacific research rest upon a growing sense of urgency given the known elements of Chinese ambition. Another Army Pacific research essay published in 2023 alongside the UPWS findings is called “America’s Theater Army for the Indo Pacific.” The text of this document is clear about PLA expansionist aims, explaining that military modernization in the form of “intelligentization” may be positioning the PRC to think it can move to take over Taiwan in the near future.

J-36 Fighter from China. Image Credit: X Screenshot.

“PLA now sets its sights to 2027 with a goal to accelerate the integrated development of mechanization, in-formatization, and intelligentization of the PRC’s armed forces. If realized, this 2027 objective could give the PLA capabilities to be a more credible military tool for the CCP to wield as it pursues Taiwan unification,” the America’s Theater Army for the IndoPacific states.

US Army Pacific’s text, “America’s Theater Army for the Indo-Pacific” details some of the specifics informing the PRC’s expansionist aims and strategies throughout the region. The paper provide summaries of China’s well known Belt-Road-Initiative. The BRI include a mix of transportation and economic alignments along the periphery of mainland China designed to expedite an ability to mass power, deploy and move resources throughout SouthEast Asia. BRI includes railways, port access and logistical support for global naval deployment, the Army Pacific text states.

“Recent agreements with countries such as Cambodia on Ream Port and Sri Lanka on the Port of Hambantota provide strategic positioning and expanded access to the region’s waterways,” the Army Pacific text states.

The BRI has been followed by what the Army Pacific text refers to as “Digital Silk Road” in which avenues for technology-focused investments were emphasized and added to the PRC strategy in the region.

There is also China’s “nine-dash-line” claim, an assertion reportedly rooted in the Chinese Dynastic era hundreds of years ago .. claiming the entirety of the South China Sea as its own territory.

China Occupies Taiwan

What if an US-led allied coalition had to liberate Taiwan from an occupying PLA force? Could it be done? Such questions may seem impossible to answer, however a quick look at GlobalFirewpower.com in relation to improving maritime force deployment platforms seems to indicate the answer may be …”yes,” but at a huge cost.

South Korea and Japan operate 1.1 million and 309,000 forces respectively and the US and Japan could together deploy an unrivaled 5th-generation F-35 force likely capable of quickly achieving air superiority. China’s J-20 exists in sizable numbers but cannot launch from the ocean and may not compete with the F-35 or Guam-based F-22s.. Furthermore, the PLA’s J-31 5th-gen stealth carrier launched aircraft only exists as a few prototypes and the PLA has no sea-launched F-35B vertical take-off-and-landing 5th-generation platform. Alongside these factors, the largest and perhaps less recognized element of any Pacific confrontation would undoubtedly rely upon a massive Army Pacific ground presence supporting a joint, multi-domain campaign. Ultimately, any effort to liberate Taiwan would require forces on the ground, a reason why the US Army Pacific continues to massively expand its presence and “joint” emphasis in terms of connecting with the other services. This is fundamental to the Army Pacific’s need for ISR and PED.

“Land forces, particularly the U.S. Army, would figure centrally in de- fending national borders and preserving the territorial integrity of its Allies. This is because victory in an interstate war typically depends on control of key ground, with its corresponding abundance of resources, food supplies, wealth, and populations,” the text of America’s Theater Army for the Indo-Pacific” states.

Gen Flynn explains that a growing, strong US Army presence in the Pacific theater is an indispensable and defining element contributing to a joint, multi-service effort to deter the PLA.

(Dec. 17, 2021) Arleigh Burke-class guided-missile destroyer USS Stockdale (DDG 106) transits the Indian Ocean during a bilateral training exercise with the Royal Australian Air Force, Dec. 17, 2021. Carl Vinson Carrier Strike Group and elements of the Royal Australian Navy and Air Force are conducting a bilateral training exercise to test and refine warfighting capabilities in support of a free and open Indo-Pacific. (U.S. Navy photo by Mass Communication Specialist 1st Class Tyler R. Fraser)

“The People’s Republic of China holds advantages of mass, munitions depth and interior lines—operating from a central position that enables an army to move faster than opposing forces can counter—that will take the entire joint force to deny its military objectives,” Army Pacific Commander Gen. Charles Flynn writes in an April 2023 edition of AUSA Magazine.

These factors and considerations are likely why the “Ameri

ca’s Theater Army for the Indo-Pacific” points to the growing significance of US-allied connectivity in the Pacific, as a joint US, Japanese, Korean force might well be able to liberate Taiwan from Chinese occupation. The aim would of course be to prevent that from being necessary, yet an established ability to do this figures prominently in the deterrence equation.

“The United States maintains defense treaties with five Allies in the Indo-Pacific: Australia, Japan, Republic of Korea, the Philippines, and Thailand. Treaties are binding agreements between nations and become part of international law, which, if enacted, would likely require all forms of U.S. military power,” America’s Theater Army for the Indo-Pacific states.

About the Author: Kris Osborn

Kris Osborn is President of Warrior Maven – Center for Military Modernization. Osborn previously served at the Pentagon as a Highly Qualified Expert with the Office of the Assistant Secretary of the Army—Acquisition, Logistics & Technology. Osborn has also worked as an anchor and on-air military specialist at national TV networks. He has appeared as a guest military expert on Fox News, MSNBC, The Military Channel, and The History Channel. He also has a Masters Degree in Comparative Literature from Columbia University.

19fortyfive.com · by Kris Osborn · February 1, 2025

21. The Electricity Front of Russia’s War Against Ukraine

The Electricity Front of Russia’s War Against Ukraine - War on the Rocks

warontherocks.com · by Theresa Sabonis-Helf · February 3, 2025

Russia is close to achieving a decisive edge on the energy front of the Russo–Ukrainian war. Repeated attacks on key infrastructure have recently intensified, leaving Ukraine’s damaged electrical grid 70 percent reliant on three complexes of nuclear reactors. These reactors are increasingly threatened by the instability of the grid itself and could become unsafe to operate, forcing a shutdown and grid collapse. Since Ukraine has submitted to heightened oversight by the International Atomic Energy Agency, the decision to shut down its nuclear plants if the perceived risk becomes too high may not be entirely its own.

Protecting the grid’s key substations is now the single most important priority for the survival of the Ukrainian state. By targeting electricity, Russia has made the current phase of the war an urban battle between darkness and light — and there is a clear scenario whereby darkness could triumph.

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Ukrainian Demand and Supply

Temperatures in January and February in Ukraine remain well below freezing on most days. Due to the collapse of much industry, the current demand for electricity is down, though it still exceeds the remaining available supply. Winter demand is 18 gigawatts, but Ukraine is currently able to generate only 12–13 gigawatts domestically. This leads to frequent outages. Ukrainian sources report that household electricity outages in 2024 totaled nearly 2,000 hours: In November, power was down 25 percent of the time, and in December that rose to nearly 40 percent. Ukraine can make up some of the deficit by importing electricity from neighboring E.U. countries. Under existing agreements, however, Ukraine cannot import enough to meet demand. Widespread residential blackouts are frequent across the country, even when power plants and the grid are not under immediate Russian attack.

And supply seems constantly under threat: There have been over 1,000 attacks on Ukraine’s power grid since the start of the war, with Russia escalating its energy-focused attacks in 2024. A new round of bombardments in August undermined the efforts of Ukrainian authorities to restore the power supply over the summer. By September, the grid was reportedly generating only one-third of its pre-February 2022 level. Due to the repeated bombings of thermal and hydropower plants, the majority of Ukraine’s remaining electricity generation now comes from nine nuclear power plants arranged in three complexes: Rivne (four reactors), South Ukraine (three reactors), and Khmelnitsky (two reactors). Russia has been reluctant to attack these facilities directly due to the risk of releasing radioactive contaminants into the surrounding environments.

Russian Targeting of Ukraine’s Nuclear Power Plants

Russia does not need to attack the three remaining nuclear power plant complexes to collapse Ukraine’s electricity supply. The national grid is connected by 103 substations, which used to integrate electricity from several sources (e.g., nuclear, coal, gas, and hydro) but now rely mostly on nuclear power. This lack of source diversity weakens the grid, increasing the chances of cascading failure.

The substations are a vital part of the entire system. Without them, nuclear power plants can neither supply the grid nor retain the backup supply of power that is essential for reactor safety. Therefore, the loss of offsite power to a nuclear power plant is a serious problem.

To make matters worse, many of Ukraine’s substations are exposed and vulnerable, lacking adequate protection against Russian air attacks. On Nov. 28, attacks against four substations forced a temporary shutdown of one of the four reactors at the Rivne complex. The same series of attacks forced nuclear power plants at all three complexes to reduce electricity output as a precautionary measure since the resulting damage had created dangerous instabilities in the grid.

Forcing a shutdown of a nuclear power plant by attacking the surrounding substations is straight out of the Russian playbook: In September 2022, Russia compelled the closure of the Zaporizhzhia Nuclear Power Plant using similar means. By attacking nearby substations and thereby frequently interrupting the steady flow of power across a period of several weeks, Russia drove the facility to decrease output, then to supply power only to itself, and finally to lose connection to offsite power. This loss of offsite power happened repeatedly during the attacks, raising the perceived risk of an accident enough that the International Atomic Energy Agency intervened, encouraging Ukraine to close the facility, which it did in September 2022. Russia declared that it had taken control of the shuttered plant on Oct. 5, 2022. It remains in Russian hands today.

From that experience, Russia learned how the International Atomic Energy Agency might respond to a situation of heightened danger to a nuclear power plant. In fact, the agency has played a leading role in helping Ukraine manage its nuclear power since the start of Russia’s full-scale invasion in February 2022. Thus, the prospect of using the agency as a tool to compel shutdown offers a potentially attractive option to the Kremlin.

The Role of the International Atomic Energy Agency in the Russo–Ukrainian War

In response to the first-ever occurrence of heavy fighting near nuclear power plants, the International Atomic Energy Agency became involved in the war on the second day of the invasion. The Ukrainian government notified the agency on Feb. 25, 2022 that it had lost control of the Chernobyl plant, which had been managed by Ukrainian authorities since its shutdown in 1986. It also invited the agency to take on an enhanced regulatory role during the conflict.

Since that day, the agency has established an important role for itself in the war, reporting on the state of Ukraine’s power supply and working to reduce risks of a nuclear catastrophe. It has supported Ukraine generously, completing 86 deliveries of safety and security equipment worth more than $14 million. In March 2022, the agency established seven “indispensable pillars” for nuclear safety and security amid the conflict, and it has provided regular reports on dangers to these pillars ever since. The presence of “secure off-site power supply from the grid for all nuclear sites” — or pillar four — is among the most often reported. At the invitation of Ukraine, the agency has established monitoring teams at each of Ukraine’s nuclear power plant complexes, including Zaporizhzhia. The agency continues to report on the risks at Zaporizhzhia and regularly emphasizes the fact that closing the plant significantly reduced — but did not eliminate — risk.

The International Atomic Energy Agency’s nuclear safety pillars have subsequently been endorsed by all member states, including Ukraine and Russia. The office of the agency’s director general releases a press statement every time a nuclear-safety-relevant incident occurs. As of Jan. 23, 2025, there had been 271 statements on the situation in Ukraine. The agency has undoubtedly made all of Europe safer by its intervention.

This very intervention, however, suggests a potential lever for the Kremlin. The agency has become the key vehicle for providing European donor assistance to Ukraine’s nuclear power plants. Continuous agency reporting of irregularities and risks can serve to heighten European concern about possible risks to the surrounding areas of an accident or incident. Russia is clearly aware of the concern and seems to be deliberately ratcheting up the fear, including by carrying out a Dec. 10, 2024 drone attack on the vehicle of newly arrived agency observers.

The Acceptable Level of Risk

Ukraine is thus partially dependent both on the agency and on European energy ties. Beginning in 2011, Ukraine joined the European Energy Community, setting itself on a course to be fully compliant with E.U. energy law — and compatible with the massive European grid. This required steadily disengaging from the Russian grid and increasing the transparency of all energy trade with Russia. The European Energy Community, which includes all E.U. members, welcomed Ukraine’s membership, hoping that a new member with surplus nuclear generation capacity could assist with achieving Europe’s ambitious goals to increase electricity generation while continuously decreasing greenhouse gas emissions. Understanding the potential economic windfall involved, Ukraine managed to achieve and implement the difficult but necessary structural energy reforms. From 2011 to 2022, the successive disengagement from Russian energy structures and systems served to further increase tensions with Russia.

By February 2022, Ukraine had only one remaining requirement for gaining membership in the European grid: to demonstrate that it could operate its domestic grid reliably in isolation for a week. This “de-linking” (from Russia, Belarus, and Poland) had been previously scheduled for Feb. 24. Since the full-scale invasion began the same day and Ukraine went ahead with de-linking despite the attack, Ukraine’s grid continued to operate in isolation until it was accepted permanently into the European electricity grid on March 16, 2022. Thereafter, Ukraine became a net exporter, steadily exporting electricity to Europe from March 2022 through August 2022. The revenue and status Ukraine derived from those exports were significant factors in the Russian decision to increase shelling of the substations and power lines associated with the Zaporizhzhia Nuclear Power Plant. Since the closure of that facility on Sep. 12, 2022, Ukraine has become a net importer of electricity, regularly petitioning the European grid system for higher import volumes and more infrastructure. According to Ukraine’s energy ministry, Kyiv regards its energy relationship with Europe as a crucial source of imports at present — but as a critical export market in the longer term. Thus, maintaining a reputation for reliability and safe operation of its power generation is essential.

Ukraine is not the only country focused on a nuclear energy future. In fact, nuclear energy is enshrined in European law as a long-term fuel source for the green transition, and 12 E.U. states joined the United States, the United Kingdom, and Ukraine in pledging to triple nuclear energy capacity by 2050 as part of U.N. climate commitments. However, history suggests a nuclear accident caused by the war could derail a potential nuclear renaissance. The 2011 Fukushima disaster led to a collapse in the global price of uranium and had a measurable impact on the trajectory of nuclear power globally, as it compelled countries to recalculate unanticipated risks. Experts are already reconsidering the military implications of nuclear power and calling for stronger international oversight to precede new construction.

Due to the fear of an accident with local and international implications, the European Union, the United Kingdom, and the United States are likely to join with the International Atomic Energy Agency in insisting on shutting down any of Ukraine’s nuclear power plant complexes if they — or the grid to which they are connected — fail to meet international safety standards. The E.U.–Ukraine Association Agreement states, in Article 342, that Ukraine must cooperate with International Atomic Energy Agency principles and standards for nuclear safety. With the agency monitoring on the ground and releasing regular press statements, there will be little room for Ukraine to negotiate.

Ukraine’s Energy Security Options

International advisors and Ukrainian energy experts agree that the best measure Ukraine can take to avoid grid collapse is to concentrate air defense systems on protecting the key substations: Defending the grid is as critical as defending the remaining megawatts. Even the International Energy Agency, which typically focuses on the infrastructure and market development of its members, has included “bolster the physical and cyber security of Ukraine’s critical energy infrastructure” first among its priority recommendations for getting Ukraine through the rest of the winter.

While air defense in Ukraine has improved dramatically since the first year of the war, they are stretched thin. Ensuring that the systems in operation have sufficient munitions has also been a challenge. It is unclear the extent to which Ukraine has prioritized air defense for the electricity sector — although domestic and international energy sector experts have strongly advocated for it. The Ukrainian defense during the 2024 Christmas attack is illustrative: The reported success rate of destroying 65% of missiles and drones kept Russia from controlling the air, but this leaves considerable room for damage if the attacks are well-targeted.

Meanwhile, the ability to conduct rapid repairs to the grid and substations is an area in which Ukraine has excelled. Ukraine’s ability to restore power to half a million citizens within 24 hours of the Christmas day attacks was remarkable. According to experts at the Ukraine Energy Security Dialogue in December 2024, the ability to repair transformers rapidly has been dramatically improved (although it still takes 17 days). In addition, Ukraine has sought resilience through building up distributed power: Over 1.5 million power generators have been imported, 200 megawatts of energy storage has been purchased to help increase grid resilience, and some decentralized power systems are in place. Absent sufficient air defense for the grid, however, these measures may not be enough.

If Ukraine is able to make it through the winter, the coming year looks more promising. The International Energy Agency released a recent report arguing for a decentralized electricity system for the country to supplement its nuclear power. Such a system would integrate renewables, batteries, and modular gas turbines, which could significantly improve the resilience of the grid. Distributed energy resource systems are typically more difficult to target, while making it possible to generate power closer to demand centers. If sufficient investment can be found, such a system could be put into place relatively rapidly.

While Ukraine improves its own ability to generate power, it can also increase electricity imports from the European grid system. Current import levels are limited by existing contracts and infrastructure, but Ukraine’s imports expanded significantly in the past year from 1.7 to 2.5 megawatts and could be further increased in the spring. The key barriers to imports are security and cost. Russia has regularly targeted cross-border transmission lines, so increased imports must be coupled with improved air defense in additional strategic locations. Finally, like much of the country, Ukraine’s electricity sector is battling insolvency. After a year of near-constant attacks, the grid operator, Ukrenergo, had to suspend payments in November 2024. Although it is said by the Ukrainian government to be “restructuring,” the operator’s inability to pay for electricity imports serves to dampen enthusiasm for expanding exports.

The Worst Case Scenario

If keeping Ukraine’s electrical grid functioning seemingly requires huge investment, consider the cost of a failure to do so. Ukraine’s ability to keep the lights on is closely tied to both regime survival and European stability. Ukraine is 70 percent urban, with five major cities having over 900,000 residents each. Large urban areas such as these rapidly become ungovernable without electricity. The highly centralized systems in Ukraine mean that a loss of electricity puts water, sewage, and heat at risk as well, increasing the likelihood of large-scale population displacement. An estimated 6.8 million refugees have already left Ukraine, with an additional 4.0 million internally displaced. A catastrophic outmigration would create a refugee crisis across Europe, especially in neighboring states. Poland is already hosting over 900,000 Ukrainian refugees and Germany is hosting over 1.5 million. An additional nine European countries are hosting between 100,000 and 900,000 each. Europe has mostly been welcoming, but a second wave of refugees would strain the resources of even the most generous states. A full-blown winter refugee crisis could reduce Europe’s will to continue supporting Ukraine in its fight and in its negotiation of the terms of peace.

A grid collapse, should it occur, would reflect the ongoing role played by energy in this war. From the 2015 severing of Crimea from Ukraine’s electricity grid, to the 2015–2016 massive cyber attacks on Ukraine’s grid, to the destruction of the Nord Stream II pipeline, energy has factored heavily into the grievances and the ends, ways, and means of the Russo–Ukrainian war from its outset. We now find ourselves in a moment in which a slow war of attrition could come to an abrupt end, resolved by the triumph of cold and darkness. Ukraine’s survival now turns not on megatons, but on megawatts.

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Theresa Sabonis-Helf is a professor at Georgetown University, and concentration chair for science, technology, and international affairs in the Masters of Science in Foreign Service program.

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Commentary

warontherocks.com · by Theresa Sabonis-Helf · February 3, 2025

De Oppresso Liber,

David Maxwell

Vice President, Center for Asia Pacific Strategy

Senior Fellow, Global Peace Foundation

Editor, Small Wars Journal

Twitter: @davidmaxwell161

Phone: 202-573-8647

email: david.maxwell161@gmail.com

De Oppresso Liber,

David Maxwell

Vice President, Center for Asia Pacific Strategy

Senior Fellow, Global Peace Foundation

Editor, Small Wars Journal

Twitter: @davidmaxwell161

email: david.maxwell161@gmail.com

If you do not read anything else in the 2017 National Security Strategy read this on page 14:

"A democracy is only as resilient as its people. An informed and engaged citizenry is the fundamental requirement for a free and resilient nation. For generations, our society has protected free press, free speech, and free thought. Today, actors such as Russia are using information tools in an attempt to undermine the legitimacy of democracies. Adversaries target media, political processes, financial networks, and personal data. The American public and private sectors must recognize this and work together to defend our way of life. No external threat can be allowed to shake our shared commitment to our values, undermine our system of government, or divide our Nation."

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