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A Delicate Dance: China, Taiwan, America and the Sunflower Movement

The Buzz

Editor's Note: The following is a "Letter to the Editor" from Thalia Lin, an Executive Officer in the Taipei Economic and Cultural Representative Office (TECRO) in the U.S.

In his July 22 essay, titled “How to Deal with America’s China Problem: Target Beijing’s Vulnerabilities,” Robert Sutter correctly considers the relationship between mainland China and Taiwan to be an essential part of the United States’ calculus vis-à-vis U.S.-mainland China relations. Unfortunately, Professor Sutter’s analysis lacks the nuance one needs to properly address the delicate relationship between Taiwan, the U.S., and mainland China.

To start, however, it is necessary to give credit where it’s due. As Professor Sutter indicates, the United States should authorize the sales of advanced weaponry that have long been requested by Taiwan’s government, as they are essential to maintain Taiwan’s self-defense capability. This is all in accordance with the Taiwan Relations Act, which celebrates its 35th anniversary this year and directs the U.S. “to provide Taiwan with arms of a defensive character.”

Where Professor Sutter misses the mark is his assessment that the United States should shift to “a more active U.S. posture in support of Taiwanese free expression and identity represented by the so-called Sunflower Movement on the island.” As Taiwan is a free country, its free expression and identity is represented in its robust democracy. It is Taiwan’s very system of government, so opposite of that of mainland China’s in every way, that allows and even embraces demonstrations such as the Sunflower Movement as an exercise of the spirit of the country.

The Sunflower Movement ended in peace, and the government has pledged to establish a supervisory mechanism to monitor cross-Strait agreements. However, students’ weeks-long occupation of the Legislative Yuan paralyzed the lawmaking process, preventing it from achieving anything concrete. This is why Assistant Secretary of State Daniel Russel, when answering a question about the protests during a hearing of the Senate Foreign Relations Committee in early April, stated that “the United States very much hopes that the students and demonstrators will use that freedom responsibly, that they will behave in a civil and in a peaceful manner and certainly to avoid violence.”

In any event, the Sunflower Movement is acting in opposition to the Cross-Strait Trade in Services Agreement, which is essential for securing Taiwan’s economic future. It is not about integrating with mainland China, as some would suggest, but rather liberalizing Taiwan’s economy in order to be a part of the region’s ongoing economic integration. Besides economic agreements with mainland China, Taiwan has also signed trade liberalization agreements with Singapore and New Zealand, both of which are taking part in Trans Pacific Partnership negotiations. Additionally, as South Korea is expected to sign a free-trade agreement with mainland China by the end of this year, Taiwan is facing increasing economic competition in the region. The trade in services agreement with mainland China is only a logical step toward making Taiwan a significantly more attractive prospect for the TPP and other critical regional and international trade agreements.

Professor Sutter writes that “China would face costly and difficult reevaluation of its reasonably successful policy toward Taiwan.” However, we must point out that President Ma’s policy toward mainland China has been reasonably successful and widely praised by U.S. government officials. In the same testimony mentioned above, Assistant Secretary of State Russel noted that “[the United States] very much welcome and applaud the extraordinary progress that has occurred in cross-Strait relations under the Ma administration.” 

Image: Flickr. 

TopicsSecurity RegionsTaiwan

Why Hoarding Isn’t Always a Bad Thing for GDP

The Buzz

Hoarders beware; the latest GDP print will put you to shame. According the Bureau of Economic Analysis, in the second quarter the US increased inventories at an annual rate of nearly $93 billion dollars. For some perspective, the US economy grew at a 4 percent annualized rate, but the inventory build-up in—called “change in private inventories” or “CIPI”—alone contributed 1.66 percent. More than 40 percent of the growth in the economy was attributable to CIPI.  And that is not great news. Inventories build when the economy produces stuff it does not sell. Granted, there were some bright spots in the report—exports rose and the consumer began to spend again—but not nearly the magnitude that implied by the headline GDP growth rate. Granted, isolating the second quarter as an outlier may well be unfair. After all, the first quarter of this year witnessed inventory destocking drag it down 1.16 percent of its 2.1 percent decline. But the 4 percent growth rate was indisputably deceiving on the surface.

Distortions happen somewhat frequently. In the aftermath of the Great Recession, economic growth in the fourth quarter of 2009 was entirely due to inventory growth. CIPI contributed 4.4 percent and GDP increased only 3.9 percent. Other than increasing inventories, the economy shrank. It works in reverse as well. In the fourth quarter of 2012, the economy only grew 0.1 percent, but CIPI stripped 1.80 percent from the headline. The fundamentals of the economy was performing fine—growing nearly 2 percent, but inventories distorted away the growth.

It is obvious CIPI poses a problem to understanding what is going on in the underlying economy.—even the BEA admits it is incredibly volatile. This makes CIPI difficult to predict, and can contribute to false signals on the economy, like those mentioned above. A similar situation to the Consumer Price index (CPI), where economists look at the “core” which excludes the unstable changes in food and energy, to understand its underlying movements. To get a better look at the underlying economy, the BEA does the natural thing: drop CIPI from GDP.

The “Real Final Sales of Domestic Product”, or Final Sales, figure strips out the effect of CIPI on GDP. In many ways, this resembles more of a “core” GDP than the headline number. The number moves around in much the same way as GDP, but tends to be less wild in its movements. For example, Final Sales is estimated to be -1 percent in the first quarter and 2.3 percent for the second quarter. While not necessarily a more accurate gauge of economic activity, Final Sales provides more clarity into what the economy is actually doing.

The ease with which most economic data can be misunderstood is astounding. But it is not be too difficult to more clearly understand the health of the economy. A less volatile measure of the growth of the economy is desperately needed, and US data watchers and policymakers should place more weight on a “Core” GDP.

Image: Flickr. 

TopicsEconomics

Making Sanctions Against Russia Work

Paul Pillar

Deputy National Security Adviser Tony Blinken was admirably clear and focused in speaking to reporters about the intentions behind the newest round of sanctions against Russia. The purpose, said Blinken, “is not to punish Russia but to make clear that it must cease its support for the separatists and stop destabilizing Ukraine.” We should hope that everything communicated about the sanctions, including what is discussed with Russian officials in private, exhibits comparable clarity and focus.

We can't be sure about that. President Obama's announcement of the new sanctions began with a discussion of the downing of the Malaysian airliner. He referred to buildups of troops on the Russian side of the Russian-Ukrainian side of the border. He talked about how sanctions already imposed have “made a weak Russian economy even weaker.” The reporters present did not help to restore focus. The only two questions the president took were about whether there is a new Cold War and whether he is considering lethal aid for Ukraine.

General discourse about sanctions, whether against Russia or against Iran or some other country, too often treats them as if they really were about punishment. The weakening of someone else's economy gets discussed as if such weakening were itself a plus for U.S. interests, which it is not. The weakening is only a means to some other end, involving a change in the target country's behavior.

Sometimes one might inflict punishment for a past deed in the hope of deterring similar deeds in the future, by either the same perpetrator or someone else. If that is being done, however, the punishment is a one-off action with a definite ending that does not depend on any changes in the other country's behavior. That is not the case with these latest sanctions. Moreover, the downing of the airliner is a poor focus for that kind of punishment because of the accidental nature of the incident. The tragedy of the airliner helps to demonstrate the danger of giving lethal toys to rebels, and politically it clearly had a significant role in moving the Europeans to take stronger action against Russia, but logically and strategically the sanctions should not be thought of as a response to that incident.

Sanctions are a means of affecting the target state's cost-benefit calculus, to increase the chance that state will stop doing something we don't want it to do or to start doing something we want it to do. The first step in a successful application of sanctions is to decide what that something is. This step is more complicated than it might seem, especially with an adversary with whom we have an assortment of grievances. The change in behavior has to be important enough to us to be worth the expenditure of political capital and other costs involved in applying sanctions, but also to be a reasonable enough demand that there is a decent chance the target state will comply. The broader are our demands, the better compliance would be for our interests but the less likely compliance—any compliance—will be achieved.

Blinken's formula that Russia must “cease its support for the separatists and stop destabilizing Ukraine” is a worthwhile and reasonable demand to attach to these sanctions. The stability of Ukraine is certainly important, and Russia's dealings with the separatists appear to have a great deal to do with its current instability. As a matter of international law as well as policy importance, the demand is on sound ground. By the same token, it muddies the water and reduces the chance of compliance to talk about Russia's military deployments on its own side of the border. Those deployments might make us or the Ukrainians nervous, but they are not destabilizing Ukraine. They are taking place on Russia's sovereign territory, there is no demilitarized zone that they violate, and Vladimir Putin would be on sound legal ground to disregard any Western demands about them.

Another step is to communicate clearly to the target country exactly what is the offensive behavior that needs to be changed. Specific, observable and measurable pieces of behavior need to be identified. It is necessary to be more specific with the Russians in private than we have been in public as to exactly what “stop destabilizing Ukraine” means.

An equally important step—one far too often overlooked in much discussion of sanctions—is to communicate persuasively to the target country that the demanded change in behavior is a sufficient as well as necessary condition for the sanctions to be lifted. The leadership of the target country needs to be convinced that, after compliance, sanctions will not be continued because of some other grievance or demand. As Andranik Migranyan notes, this is a hazard in the current instance in that Putin might believe that because of Crimea or some other issue (including those military deployments in Russian territory) sanctions will be left in place. If he does believe that, he has no incentive to comply with any demand.

Finally, it is important to remember that the sanctions are only one term in a cost-benefit calculation. They make it harder for the other country to persist in behavior we don't like. Just as important is to try to make it easier for the other side to switch to behavior we do like. One thing this means in the current instance is that Putin should know that if he does comply, he will be allowed to crow unchallenged about how the West backed down from unjustified economic warfare, and that he will not have to admit anything about arming the rebels in Ukraine—but rather just to end the arming quietly.

Another thing it means is that the United States needs to use its influence to address legitimate and reasonable Russian concerns about Ukraine, including that it not join any military alliances and that the rights and local powers of Russian-speakers in Ukraine be respected. Whether sanctions succeed in influencing decisions in Moscow will depend a lot on decisions in Kiev.

Image: White House Flickr.                                              

TopicsRussia Ukraine

The Next Cuban Missile Crisis: The Showdown in Ukraine?

The Buzz

The window of opportunity for multilateral talks to end the violence in the Ukraine is closing fast.  The EU's fears of imposing stronger economic sanctions against Russia has fallen away in response to its outrage over the MH17 tragedy and evidence that Russia continues to supply heavy weapons to Ukrainian separatists.  The US is expected within days to follow with even more crippling sanctions. 

The positions held by all parties to the conflict - Ukraine, the pro-Russian separatists, Russia, EU and the US - are solidifying to a point where opportunities are becoming fewer for starting negotiations to reduce tensions and prevent future miscalculations like the MH17 disaster that could push Russia and Ukraine closer to war.

During the Cold War, the Soviets and the Western Alliance were implacable enemies.  Still, these foes understood the limits of a confrontation in order to avoid miscalculations that could lead to war.  During the 1962 Cuban Missile Crisis, Kennedy and Khrushchev chose flexibility over hardened positions to avoid a military confrontation that could have started World War III, and afterwards installed the hotline between the US White House and the Kremlin to help prevent future crises. 

In 2014, the stakes for the global community on the worsening situation in Ukraine are not as high as they were in the waters off the coast of Cuba in 1962.  But there is little doubt that all parties to the crisis in Ukraine have become vested in the correctness of their national viewpoint and have little room, if any, for compromise.

All sides share some of the blame.  In Russia, President Putin enjoys record high public support for his position on the Ukrainian separatists, annexing Crimea and reclaiming Russia's role as a global power.  Polling data and anecdotal findings shows a majority of Russians across all age groups are sympathetic to this view. 

In the US, a rigorous national policy debate over the crisis in Ukraine and Russia is long overdue.  The Cold War rhetoric and the demonizing of Russia and President Putin in the media and by several members of the U.S. Congress is driving the policy debate toward knee jerk reactions and away from thoughtful deliberations to forge a consistent long-term Russia policy.  Thomas Graham and Jeffrey Mankoff presented compelling arguments in this publication for such a reexamination of policy. 

Europe was brutally awakened by the MH17 tragedy.  Europe's economic dependency on Russia played a role in its disjointed response to the crisis in Ukraine and factored into Russia's cost-benefit analysis on Crimea and Eastern Ukraine.  Europe must act on developing a Russia policy with a long-term view to reduce its economic dependency on Russia, especially for energy.

The outlook from the Ukraine is not promising.  Attempts by the pro-Russian separatists and the Ukrainian government to find common grounds for negotiations have failed.  Calls for multilateral negotiations have floundered due to a lack of trust on both sides.  A dangerous stalemate is emerging. 

Who will blink first?  Russia?  Maybe, but don't count on it.  While capital flight is at record highs, financing and international investors have virtually disappeared in Russia, the price of a barrel of oil remains at over $100.  Russia withstood the deprivations from a revolution, an existential threat from Nazi Germany and the chaos of the post-Soviet era, and is not likely to give in to the consequences of economic sanctions.  The US?  Not if it develops a long-term and consistent Russia strategy and policy framework, as other crises develop in the Middle East and Asia and draw policymaker's attention.  The EU?  Not if it takes steps to reduce its energy dependence on Russia.

In the meantime, it would be helpful for all sides to reflect on the Cuban Missile Crisis.  Kennedy and Khrushchev learned about the importance of being transactional to avoid letting strongly held positions dictate strategic decisions in the heat of a crisis.

Tom Thomson is the Principal of T. Thomson & Associates, LLC, an international strategy advisory firm, which counsels international companies on business and communications strategies in Russia and Eurasia.  He was based in Moscow for over a decade.  

Image: Public Domain. 

TopicsSecurity RegionsUkraine

Three Reasons Iran Won't Give up Its Nuclear Program

The Buzz

From his 2009 inaugural address to the unprecedented Nowruz greeting, Barack Obama made clear early in his tenure that cutting a deal with Iran over its nuclear program was one of his top foreign policy priorities.  Despite the President’s meticulous attention to details from cyber warfare to sanctions relief, the skeptics are right: Iran is not going to give up its nuclear program. Here are a few reasons as to why:

1.  States that (could) have had nuclear weapons programs and gave them up had close ties to the U.S.

Most states with close military and economic ties to the U.S. forego the pursuit of nuclear weapons in the first place.  Their leaders are savvy enough to realize that a nuclear weapons program would jeopardize their ties with America.  Many of the U.S.’ allies benefit from unhindered access to the global economy.  Furthermore, each of these states hides behind America’s nuclear umbrella.  In exchange for free riding on the U.S.’ extended deterrent guarantees, these states agree to forego nuclear weapons programs.

Pursuing a nuclear weapon is certainly a time intensive affair. It would automatically trigger sanctions, isolating them from the American hegemon upon which they depend for domestic prosperity and international security.  States like Japan, South Korea and Taiwan could have pursued the bomb after China crossed the nuclear rubicon but didn’t because it would have endangered their access to world markets and American protection.

Since 1979, America has not guaranteed Iran’s safety from external aggression, nor has Tehran sought access to the global economy. According to Trita Parsi in, A Single Throw of The Dice, for some mullahs a rapprochement with the U.S. could undermine the legitimacy of the regime.

2.  Once a nuclear program is in motion it tends to stay in motion

States pursue nuclear weapons for a variety of reasons: insecurity, prestige, bureaucratic politics, and easy access to sensitive materials.  However, once a nuclear program has been started, absent regime change, it is hard to unwind.   

Nuclear programs are rich sources of budgetary rents.  These rents are narrowly concentrated among a small number of well-connected lobbies. They will often inflate foreign threats and pick fights for no other reason than to keep open their source of pork.  These groups (such as the Pasdaran) will logroll with other narrowly concentrated interests to maintain the status quo at the public’s expense.  The pro-nuclear cartels tend to win because the general public has an organizational disadvantage.

3.  Both sides have commitment problems:

Because of their historical mistrust, both sides fear being exploited by the other. If a deal is struck with Iran, it is going to be difficult to enforce.  Like any other proliferator, Tehran can renege on the deal unilaterally and secretly.  The Iranians have learned the lessons of Osiraq better than anyone. Their program is so ubiquitously dispersed that even the most intrusive inspections cannot uncover every component of their nuclear program. Unlike territorial disputes, where we can use satellites and third-party monitors to see whether one side violates a ceasefire, we cannot see what Iran is doing in every inch of its own territory, behind (or under) every mountain, or inside of every laboratory.

The U.S. and the rest of the P5+1 fear getting the “sucker’s payoff.”  Many hawks in the U.S. and France in particular have warned that Iran will play for time until it regains access to world markets.  It will then restart its economy and its nuclear program. Any malfeasance on the Iranians’ part will be impossible to punish. Companies that benefit from trading with Iran will hinder efforts to reassemble any multilateral coalition to put the sanctions regime back into place.

However, the P5+1 faces a commitment problem of its own.  For a time a popular saying in Iran was, “Better to be North Korea than Iraq.”  Iraq gave up the bomb but its regime was overthrown and the country was occupied; North Korea kept the bomb and thumbs its nose at America.  The Iranian leadership needs to send costly signals demonstrating that they are moderates.  However, such concessions weaken Iran’s bargaining position vis-à-vis their longstanding rivals in the West and in the Middle East- starting with Israel and Saudi Arabia.  These allowances do not tie the hands of the P5+1, Israel or the Gulf states, preventing them from attacking Iran or making additional demands upon it after it has been denuclearized.

While it is better to jaw-jaw than to war-war, Iran is not going to give up its pursuit of nuclear weapons because it has too much to lose.

Dr. Albert B. Wolf is an Israel Institute Fellow with the Leonard Davis Institute for International Relations at The Hebrew University of Jerusalem.  He is currently writing a book examining the effectiveness of coercive diplomacy in curbing nuclear proliferation.

Image: Office of the President, Iran. 

TopicsNuclear Weapons RegionsIran

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