WAITING OUT TRUMP

Like many US presidents before him, Donald Trump suffered a significant electoral setback in the midterm elections earlier this week. The Democrats won the popular vote by more than 7 percentage points, and their new majority in the House of Representatives will give them real political power for the first time in two years. True, the result wasn’t as bad as what Barack Obama suffered in 2010 (losing both houses of Congress in one night). But the perception that Trump has been wounded politically ahead of his own re-election bid in 2020 will now start to take hold in many foreign capitals.


As a result, allies and adversaries who’ve been on the receiving end of Trump’s aggressive policies are now actively considering a strategy we might call — “Wait Trump Out.” Consider a few examples:

China’s President Xi Jinping: The current US-China conflict is about more than just trade and investment. It’s the beginnings of a bigger contest for global power. The US is worried about China’s growing commercial and technological clout. China, meanwhile, wants to roll back US influence in East and Southeast Asia. Both sides are vying for dominance over new technologies that will determine the economic balance of power in the 21st century.

When Xi and Trump meet on the sidelines of the G20 summit in Argentina later this month, Xi will try to persuade Trump to tone down the trade tensions that are already weighing on China’s economy. He’ll try to open the door to fresh progress at the negotiating table in the coming months. But will he really put all his cards on the table? Doubtful. He knows that in two years he could be dealing with a different US president and may hold off making big concessions to a recently-weakened Mr. Trump.

European leaders: In July, European Commission President Jean-Claude Juncker cut a temporary deal with the Trump administration that postponed US tariffs on European automobiles in exchange for promises to work toward broader elimination of transatlantic tariffs on industrial goods. But this was merely a ceasefire rather than a trade peace trade. And it envisions concessions from Europe that many EU member states are loath to even consider.

But after Tuesday night, EU leaders may calculate that the optimal strategy is simply to extend negotiations with the US for long enough that Trump can’t extract any big concessions from them before he has to face the electorate again.

Iran’s leaders: Earlier this week, the US re-imposed sanctions on Iran’s oil exports. The damage to Iran’s economy will be substantial, and Iran’s leaders aren’t happy about it. But don’t look for them to immediately renounce the nuclear deal that the Trump administration decided to abandon in May. Tehran still cares about preserving good relations with Europe and now hopes to win a reprieve with a new US president in 2020.

Kim Jong-un: North Korea’s leader has lovingly played the waiting game with Trump longer than anyone. Since the Singapore Summit the script has been simple: Smile. Make promises. Avoid provocation. Take no irreversible action. Improve relations with China and South Korea in hopes of extending “denuclearization” talks long enough to reap economic rewards and then take your chances with a new US president.

Japan’s Prime Minister Shinzo Abe: Trump has successfully pressured Abe into opening negotiations on a US-Japan trade deal that Japan doesn’t want and that Abe has promised at home never to sign. If Abe can persuade Trump to delay big tariffs on Japanese cars, perhaps he can allow these negotiations to die a natural death if Trump leaves office in 2020. He may even be able to persuade a successor to Trump to rejoin the Transpacific Pacific Partnership, the massive trade deal that Trump pulled out of in his first week on the job.

The catch: The problem with these strategies is, of course, that Donald Trump might win re-election. Obama and Clinton both recovered from midterm disasters to win four more years in office, and Trump has proven too talented a politician to be underestimated.

Facebook unveiled plans for a new cryptocurrency and payment system on Tuesday. It's called the Libra, and it's not-so-modest goal is to "reinvent money," and "transform the global economy" so that "people everywhere can live better lives." Ambitious much, Zuck?

This is a huge political gamble, but the rewards could be enormous. Here's a quick look at the tradeoffs:

The risks: Facebook is asking its 2.5 billion users — and government regulators — to entrust it with something that's vitally important to people everywhere and a power that governments jealously protect: access to money. And it's doing so at a time when trust in Facebook and other big Silicon Valley companies is at a low ebb.

Whether it's a concern that Big Tech has become too powerful or that it's not doing enough to protect privacy or put a stop to fake news, it's a heck of a time to launch a new techno-utopian project that could give Silicon Valley much more power — including the ability to track not just what people say they like but how they spend their money.

Mark Zuckerberg understands this — the Facebook founder is setting up Libra as a Swiss-based non-profit that will be governed by an "association" of 28 tech and financial companies and non-profits of which Facebook is just one member. He's also promising that Facebook will not mix personal data with payment information, and to cooperate with regulators.

But this will always be Zuckerberg's baby, and by launching Libra, he's painting a big new political bullseye on his own back.

The payoff: If Libra can survive the inevitable political and regulatory storm (and convince its billions of users that they can trust the underlying technology and financial stability of the new cryptocurrency) the upside could be enormous.

How enormous? The Libra website claims that more than 30 percent of the world's population — about 1.7 billion people — currently lack access to traditional bank accounts. Many more pay steep fees to transfer money using traditional payment services. Libra, by contrast, promises access to anyone in the world with a simple smartphone — and to make payments as inexpensive as sending a text message.

Plug those capabilities into a social network whose user base is roughly double the population of the biggest country in the world, and the results could be revolutionary — not just for billions of people who would gain new access to financial resources, but for Facebook's business model, and for central banks and governments that have traditionally sought to control the flow of money through their economies.

That would be a techno-utopian dream come true, but it's a power that governments won't willingly surrender.

Does the leader of Hong Kong appear weaker withdrawing the extradition bill?

Well as we'd say in Australia, "Is the Pope a Catholic?" Of course. This means that Carrie Lam's authority within the Hong Kong SAR is reduced and her standing in Beijing is reduced as well. But I think the bottom line is that China will resist any efforts to remove her from office, despite local pressure.

Is the US – China trade war coming to an end anytime soon?

Depends Dr. Bremmer on what your definition of "any time soon" happens to be. My prediction is simply this: once they get to the G20 meeting in Osaka Xi Jinping and President Trump will agree to reboot the negotiations process but then it's a question of the substance of the deal. My prediction is A) there will be a deal sometime between now and the end of the year. And secondly, the nature of the deal will be America yielding on the questions of tariffs to the Chinese and China yielding to the Americans on the amount that President Trump expects in the purchasing order of future American goods by the Chinese. That's my bottom line. Both countries need the economic outcome. Both countries therefore have a deep interest in securing a deal. Doesn't mean the end of the economic war however, technology reigns supreme.

If Willis's story on Tuesday about Argentina being plunged into darkness after a nationwide power failure didn't get you packing a flashlight and checking that your car has a full tank of gas, this one should. Over the weekend, the New York Times said anonymous US officials had revealed a US campaign to plant "potentially crippling malware" inside Russia's power grid "at a depth and with an aggressiveness that had never been tried before."

Quick thoughts:

This is a big provocation. It's the cyber equivalent of mining a harbor — an aggressive move that falls short of actual conflict but sends an unmistakable message: mess with us, and we'll mess you up.

The leak was probably intentional. The campaign fits with the new US strategy, launched under the Trump administration, of trying to deter cyber adversaries like Russia, China, and Iran from hacking its critical infrastructure. By disclosing the US campaign, US officials are effectively telling Russia (and by extension China and Iran), that they've got a loaded gun cocked and pointed at their economies.

That's dangerous. People — and governments — may not always behave rationally when a gun is pointed at their heads. Russia might be even more inclined to lash out. And unlike more conventional forms of conflict, cyber isn't a domain where the US can be sure it has an overwhelming advantage if push comes to shove.

It gets worse. The Times said US cyber officials described a "broad hesitation" to go into details of cyber operations against Russia with President Donald Trump because they feared he might cancel it or tell other governments about it. Among other things that are disturbing about this story, a lack of communication between the President and US cyber warriors could send mixed signals that further embolden US adversaries.

It's no secret that cyberattacks are becoming more commonplace. But where do most of them originate and what countries do they target most? The graphic above shows the most significant offenders and victims since 2006. Hackers in China, Russia, Iran, and North Korea account for three-quarters of all major attacks. Nearly a fifth of attacks, meanwhile, have targeted institutions or companies in the United States.

(At least that we know of: this chart highlights known attacks on government agencies, tech companies, and other operations that caused more than $1 million in economic damage. But many cyberattacks are never disclosed, and some countries are more transparent than others, so consider this a cross-section of a much bigger — and more disturbing — picture.)