Originally sent to VIXCONTANGO subscribers on September 29th, 2022
Trade is Continental
Globalization is not only a bad geopolitical ideology, it is also a bad model to describe global trade as well as simply bad economics. In the Foreign Affairs article “Myth of the Global”, the author states that the average trip of the average globally produced product should be 5,300 miles if the world economy and its supply chains were truly global. In reality, it is only 3,000 miles. That tells you directly that the global economy in practice is not truly global. Instead, it is “regional”. Foreign Affairs prefers the term “regionalization” (as in “regionalization” vs “globalization”). I prefer to use the term “cartelization” or “continentalization” because regional commerce is predominantly a continental phenomenon, not a cross ocean phenomenon. Countries in Asia trade with each other the most. Countries in Europe trade with each other the most. Geography matters for trade. Distance matters. The presence of land borders matters. Similarities in cultures and languages matter. All of these factors accrue to commerce happening in large continental clumps. That is why the TPP (Trans Pacific Partnership) was a very bad idea and doomed from the start. The Pacific is a large ocean and trade over it is simply the worst possible way to conduct trade.
Majority of trade instead happens on the landmass of Asia, Europe and American continents. 67% of international trade in the European Union is among the countries in the European Union. 60% of international trade in Asia happens among Asian countries according to the Asian Development Bank. The biggest laggard in continental trade strength is the Americas with only 40% of international trade happening between American countries. This speaks to a tremendous deficiency of understanding of international trade inside the American government. These international trade realities mean that America is a secondary consideration on the continents of Asia and Europe. If a country in Europe and Asia had to choose between trade with its continental partners and America, it always has more to lose by choosing America. This data shows that America needs to put more effort into increasing trade and prosperity inside its own continent. Instead of catching the bird in hand, Americans always seem obsessed with chasing the 2 birds in the wild. America needs to increase its continental trade to the 60% level from the current 40% level.
Clearly globalization is a bad model to describe international trade. The USA is alone on the map with major continental trading partners Europe and Asia residing across large oceans. Perhaps that is the reason why America is the champion of globalism and why they have doggedly pursued this bad model for international trade over the past 30 years despite all factual evidence to the contrary. But Europe, Russia and China are in different parts of the global map and they fully well understand that trade is continental, not global. No matter how hard America tries to disrupt continental commerce it won’t be able to succeed because transportation needs energy and the longer the distances a good needs to be transported, the more energy it costs. The more it costs to get a finished good to its final consumers, the less profit there is for the corporations. And nobody is doing trade for free. Everybody is doing international trade to make money. That is the only reason why anybody does trade: to make money.
To put it simply: there is far more money to be made in continental commerce than there is in global commerce. And that right there is death knell of globalism. Not only is globalism a bad model for international trade, it is also a bad way to conduct trade because it assumes the highest transportation costs possible. International trade agents who trade for profit want to minimize their transportation costs and want to minimize the energy used for transportation.
The vast majority of the world’s energy reserves is not in Western hands. America is the biggest energy producer in the world but still it makes up only 10% of the world’s energy market. Globalism is inherently dependent on the collective goodwill of the biggest energy producers – United States, Russia, Saudi Arabia, Canada, Iran, Iraq, China, UAE, Brazil. If a good chunk of these countries (Russia, China and Middle East) want to put an end to American globalism, they can. And they are. Western energy powers like America, Canada and Norway alone can’t power global trade. Maybe they can power trans-Atlantic trade but that’s about it.
The establishment of a multi-polar world and regionalization/continentalization of both commerce and geopolitical power is thus inevitable. It is the most sustainable and profitable model for the global economy. The more America steps out of line with China, Russia and Middle Eastern powers, the faster its globalist dream dies due to the rising cost of transportation and the sooner we arrive at the multi-polar regionalized world order. Every time you see news on your Bloomberg terminal of rising energy costs or rising transportation costs like “Suez Canal raised its tariffs” or “Turkey raised its Bosphorous tariffs” that is yet another mortal blow to American globalism.
Debt and Sovereignty
The article “How the system was rigged” is a book review of the book “The Meddlers” by Jamie Martin which describes the history and rise of the current international global economic order. I haven’t read the book yet but I find this review particularly illuminating. Before the current international world order, you had European powers waging wars all the time and plundering each other’s treasuries to pay debts and so forth. Obviously, building militaries and destroying cities was not particularly enlightened behavior so at some point all the European powers and America decided to settle things in a more civilized way by putting rules around various national behaviors. That led to the creation of institutions such as the United Nations, World Bank and International Monetary Fund after some failed attempts after World War 1 with the League of Nations. The essence of these institutions was to replace wars with debt negotiations and those debt negotiations had the specific purpose of limiting national sovereignty and national power via austerity policies.
Obviously, international trade is a good thing and the world’s resources are located in different places. Global wealth and prosperity is thus dependent on international trade which means reducing the amount of wars being waged and increasing access to all commodities. It is an illusion that a country can be truly self-sufficient. It can’t. A country always has a dependence on other countries simply because that is where the commodities and other resources are. Thus from the get go, various countries have different levels of power inside these institutions which are related to their resource, economic and military strength. The less debt a country has, the more power it has inside the international institution. The countries that won World War 2 like US, France and England always had disproportionate power inside these institutions. 2nd and 3rd world countries were always significantly smaller players because they were indebted. Thus there is a direct linkage between national debt and national sovereignty. The less debt a country has, the more national sovereignty it has. And vice versa. Thus a country’s main geopolitical strategy then is to reduce its international debt, to become a lender if possible and then to accumulate power inside the international organizations whose only purpose in the world is to limit and constrain national sovereignty.
You can have a very simple test with which to determine the behavior of a government: do its actions reduce the international debt of the country and do they strengthen its position in international organizations? If a government increases the debt of a country, then it acts AGAINST the national interest of the country because it reduces its sovereignty and power inside international institutions. This is very clear cut determination. For example, this year’s Kiril Petkov government in Bulgaria (that was voted out with no-confidence vote earlier in the year) severed long-term contracts with Bulgaria’s Gazprom holding company and instead purchased gas for 30% markup from Romania’s Gazprom. The Petkov government increased the energy cost of every Bulgarian by 30% in pursuit of “European values” by… buying the same exact Russian gas…. from a neighboring country! The Petkov government paid 30% more for the same natural resource in order to virtue signal. It’s totally insane. How did the Bulgarian government pay for this 30% more in energy costs? By taking out debt. So you can clearly see here how Petkov acted directly against the Bulgarian national interest: he increased the national debt, removed direct access to a critical energy commodity and reduced the country’s sovereignty and power inside international instructions. It is one thing to pursue a strategy of commodity diversification, it is another to pay higher prices and remove access to commodities for ideological reasons.
Trump made a similar bad geopolitical move with his trade war in 2018. It increased dramatically the international debt of America making America more dependent on international institutions. Further, Trump removed America from some international institutions, directly surrendering power inside the WHO and other organizations. In essence, almost every action Trump took made America weaker inside international institutions and increased the debt of the country which in turn reduces the amount of its sovereignty. Between balance sheet expansion and federal debt increase Trump took on $10 trillion in debt during his 4 years, an unprecedented weakening of America’s financial and international position. Trump waged “trade war” with China using undiplomatic “art of the deal” tactics and insulted a Great Power which was then forced to deploy in retaliation a bio-economic weapon – COVID – against the American economy for which America had to go $10 trillion in debt. Numerically, Trump is the worst natural disaster to hit the American nation in history.
Right now the Liz Truss government in the UK is taking actions that directly increase Britain’s international debt and weaken its participation in international institutions. Britain will take out international loans to pay for higher energy prices. Instead of negotiating with Russia and putting to bed the Ukraine conflict and keeping energy prices low, Britain and is doubling and tripling down on bad energy policy that will directly damage Britain’s national sovereignty. It is cutting off access to a critical natural resource and is taking out debt to pay for higher prices of this natural resource which aren’t recuperable. Britain is not taking out debt to acquire assets or property, it takes on debt to simply survive another day. That makes Britain less sovereign. Brits have a right to be concerned with the drastic actions taken by the Truss government to weaken Britain’s national standing and sovereignty. It is not surprise that the British pound is in a tailspin. Just like Trump was a national disaster that hit America, so is Liz Truss. After Truss, there will be no Britain left – at least not as a nation that has a significant say in anything internationally.
A country’s participation in international institutions is inevitable due to the global distribution of world’s commodities and human resources. “Go it alone” strategy is not feasible. Isolationism is not feasible. Thus a country’s interest is best served by increasing its economic and military power, reducing international debt and increasing its sovereignty and power inside international institutions. A country has to play the cards that it has been handed well. It needs to diversify access to resources. It needs to cheapen its access to resources. It needs to allocate its resources judiciously. If it doesn’t, it goes into debt and loses sovereignty. Debt and sovereignty are directly related. The more indebted a country is, the less sovereignty and power inside international institutions it has.
Thus the national conservative objectives of a country are the following:
- Maximize the amount of international alliances it participates in order to increase and diversify access to commodities and other resources (such as military)
- Reduce its international debt to increase the power it has inside these international alliances
- Utilize its available resources prudently – ie have strong economy
- Ensure strong anti-access/area denial (A2AD) military capability which is critical to defending its territory effectively
Turkey and India are prime examples of countries executing well on a national conservative agenda. Indian Prime Minister Modi is everywhere. He is in the Shanghai Cooperation Organization (Asia’s EU), he is in European Union every other week, and he has military exercises with both America and Russia. India is in economic or military alliances with China, Russia, Europe and America. India gets access to all the world’s resources, has access to all the world’s weapons, it participates in the highest number of international organizations, uses its resources well and increases its power inside international organizations. Everybody is begging to talk to India these days. India is doing textbook national conservative strategy. Same with Erdogan and Turkey. Turkey banks are using the Russian Mir system and Western SWIFT system. Turkey has weapon contracts with both Russia and America. Turkish military has institutional knowledge of all the world’s weapons. Turkey gets gas from Russia and from Israel. It has national strategy to diversify access to critical commodities allowing it to lower its costs and ensure supply chain resilience.
Democracy as Channel of Exploitation and Needed Reform of Executive Powers
Now that you can understand better the essence of national objectives in an international context, we can better evaluate the disaster that is the American form of democracy to its national sovereignty. Democracy is simply a channel for exploitation and for plunging countries in international debt and thus reducing their national sovereignty in international institutions. The “color revolutions” that America organizes have one purpose only – to put weak national government that act directly against the national interest of the countries targeted. A prime example of that is the Kiril Petkov government in Bulgaria. Under no prior administration would Bulgaria have taken the disastrous actions undertaken by Petkov. But through a mini color revolution in Bulgaria, the Bulgarian population was fooled into electing a government comprised of saboteurs. This was an organized activity by somebody (Davos, obviously) and its result was direct reduction of Bulgarian sovereignty and plunging the country in debt. In a similar fashion, Trump’s bad policies led to the election of the Biden government which is also a saboteur of the American national interest. Biden continues to tack on debt and has pursued a policy which surrenders American access to natural resources available only on the Asian continent. Every single action Biden has taken has been bad for American national sovereignty. Biden is no better than Trump. International participation is inevitable. “Go it alone” strategy is not feasible, even for a big and powerful nation like America. In a multi-polar world, America is just like small countries like Bulgaria – it has to have a national strategy that seeks to maximize access to limited resources and secure low prices. If it doesn’t, it simply impoverishes its population through inflation and loses national sovereignty. There is a saying in China – “the emperor is far away” which in American context means if America doesn’t care about its own interest, nobody else will. And certainly not Russia, China, Europe or Davos.
The mistake of the Petkov government in Bulgaria has now been corrected through its removal, but Bulgaria remains vulnerable to the same type of exploitation in the future due to its democratic form of government. The presence of elections is a critical vulnerability. The voters can be fooled again. It is actually important to discuss the state of democracy in the world today. We no longer have “democracy”. In other words, the people don’t debate issues and elect a government that represents their choice on how to handle the issue. Instead we have governments that decide the course of action and then manipulate the electorate to vote in that course of action. That manipulation happens through direct manipulation of the vote, through voter replacement like in America and through government propaganda. The media in America doesn’t hold the government responsible for anything. Instead the media’s only task is to cover up the mistakes of the government and to direct the population about which way they should vote. Any criticism of Hunter Biden or other Biden government failures is conscientiously and religiously scrubbed from the permanent record by the media, the FBI and the CIA. The American government is engaged in 24/7 media war against its own constituents because those constituents have the power to decide who is in government. Everything in the Western democratic world is upside down. If America’s founders like George Washington woke up today, they would be horrified. The government doesn’t serve the people, it directs the people. The economy is not driven by the private sector but by the government. People who don’t follow the totalitarian ideology of the government are censored out of existence and denied employment and reduced to nothing. Criminal laws and protection of property laws aren’t applied to ideologically opposed groups. Their financial transactions are denied. In the West today, we have a form of totalitarian government never before seen in the history of the world. Even in the USSR such control was never achieved. And that is not a compliment.
Ultimately, America and the West don’t practice democracy, they practice totalitarian plutocracy. And plutocracy of the worst kind – one that doesn’t care about the national populations at all. National populations have been declared completely expendable. We went from gay marriage (which is a reasonable policy because there are gay people and normal marriage laws should apply to them at least for practical matters such as property transfer) to a Malthusian policy of mutilation of children within two years of the Biden admin. Transgender ideology and mutilation of children is the worst form of social extremism ever seen in history. Even during Mao’s social revolution there wasn’t stuff like that. Being worse than Mao is quite the accomplishment and the so called “Democratic Party” in America did it. The other sinister idea of the Biden government is the idea that whites should take a step back to blacks and people of color is reminiscent of the Soviet policy of the elimination of the Russian identity. In the Soviet Union during the Stalin era, they emphasized all national identities (Ukrainian, Belorussian, Kazak, etc) except the Russian identity. Russians were told to take a step back, take one for the team and recognize their privilege and allow other nationalities to shine. Soviet leaders were never Russian. Sound familiar? This Soviet policy, more than anything broke up the USSR in 1990. Russia itself didn’t care for the Soviet structure of government. Russia wanted the USSR gone. Much of Putin’s current policy of Russian revanchism today is a direct consequence of Soviet policies seeking to reduce Russian nationalism over the previous 80 years. Russia today feels like it needs to make up for lost time. If Russia is any bellwether, America will also have a return of a massive Anglo-Saxon nationalism in the near future.
Misuse of executive powers is abundant in the Western form of governance. There is always only one person signing off on decisions, whether that is the Prime Minister or President. The US President may be democratically elected but he is a king for 4 years. A king is still a king – a single point of failure. And king’s policies don’t necessarily align with his voters. Increasingly, the Western kings implement policies that help only their partisan interests – the people who gave the money to elect them. Instead a Co-CEO governance structure needs to be pursued to ensure national interest is not compromised. In Goldman, every account had to be signed by at least 2 people. That means every major decision is discussed with somebody else and people can’t do crazy things on their own. There is always a check on individual decisions. This is a good model to follow. Even in my personal life, I never own property by myself. There always is a second owner – my wife or kids. Single ownership and single decision making must always be avoided. Yes, you have to explain yourself but that is necessary – explaining to another person makes sure that the decision makes sense, even to yourself. A lot of thoughts that pop in someone’s brain are unorganized and illogical. Sometimes they are simply emotional reactions out of fear or love with no basis in reality. Sometimes they are actions of misperception. Only through explaining your decisions to other people can thoughts and actions be clarified.
Executive Power in the West needs to be reformed to where at least 2 people elected in separate elections should be responsible for every major executive decision related to the national interest. For example in Parliamentary Republics, for issues that directly affect the national interest such as taking on new international debt, loss of access to natural resources, participation in international institutions needs to be signed both by the Premier Minister and the President (they are usually elected in separate elections). Consultation of Prime Minister with President shouldn’t be custom as it is right now. This required collective decision making should be directly written in the Constitution. At the very minimum, a President should have a veto of what a Prime Minister does. Explicit approval is different than veto in that veto allows the Prime Minister to operate on most issues with only partial participation of President. The workload on the President is lower. But either way, major actions that can hurt the national interest should be able to be stopped. As we see recently, these norms of consultative behavior are directly exploited to weaken national sovereignty. There isn’t a norm that Trump didn’t breach while in office. Norms aren’t laws and aren’t constitutional rules. Everything needs to be explicitly listed out. It is critical for the West to move to Co-CEO model of governance. In Bulgaria, if the Bulgarian President Radev had the power to approve/veto taking on new debt or the Gazprom negotiation, the failures of the Petkov government wouldn’t have happened. If in the United States, Trump had to get sign off from the Senate on trade negotiations with China and how to perform them, the COVID disaster and the $10 trillion in debt could have been avoided. The single CEO model is dead. It clearly doesn’t work. The Co-CEO model must be established. On issues of national sovereignty, we can’t allow partisan interests that are there for only a limited amount of time to take actions that permanently reduce national sovereignty. The reign of individual politician irresponsibility in the West must end.
In addition to Executive Power reform, the West needs Electoral Reform. Elections are clearly being used to weaken national sovereignty. Thus either the electorate who is eligible to vote needs to be reduced dramatically or elections need to be scrapped altogether in favor of other methods of leadership selection and decision making on issues. Clearly the crowd is capable of madness and that madness can be exploited by shrewd international actors whenever it happens. It only takes a few failures of democracy for a country to lose its national sovereignty completely. It is not clear that the national sovereign is best served with democratic elections. Power always comes from the people, but power is usually not exercised well by the people. At the end of the day people care about doing the right thing and it is not clear democracy helps countries do the right thing. It is the exact opposite – democracies have a clear cut track record of reducing national sovereignty. As such the current election systems are NOT a viable method of leadership selection and issue resolution in the long run. And it is very likely that they will be completely reformed or scrapped as they are in East.
Sick Man America
In light of partisan interests taking opportunistic advantage and self-enriching and profiting by selling aspects of national sovereignty to international agents during their time in power, it is particularly notable that America is clearly the Sick Man of the Multi-Polar Order. Of all the Great Powers, America has the biggest problems with its national strategy. In both Russia and China, the governments and think tanks are ideologically aligned with 80% of the population. Their policies are strictly in the Overton Window of their countries. In America on the other hand, the policies of the American government are strictly OUTSIDE the Overton Window. The reason for that is simple: America doesn’t have centrist think tanks. All of America’s major think tanks exist on the ideological fringes. When Trump came to power, there was no Republican centrist think tank with which to staff a national conservative government. Trump had to source talent from Cato Institute or American Enterprise Institute or the Heritage Foundation – all distinctly libertarian or neoconservative think tanks with fringe ideologies that are unrepresentative of 95% of American population. In other words, Trump couldn’t have implemented national conservative policies even if he wanted to. There is no talent and no think tanks working on those. Similarly, Biden is staffing his government with staff from the Center of American Progress – a neo-communist institution whose Far Left ideology represents less than 20% of Americans. Before him Obama was a representative of the Black Caucus which covers less than 15% of the US population. Other Democratic institutions such as the Clinton era Third Way are also globalist and neo-communist in nature. America simply doesn’t have think tanks that can formulate policies that fall within the American Overton Window. They are either Hard Left or Hard Right. If America feels increasingly partisan, that is because it is. There is no one funding think tanks and policies that are in the national Overton Window. All the rich guys in America are weirdos and they don’t care about the country. They only care about themselves and whatever their bizarro interest is. This is a national disaster in a Multi-polar world. All other Great Powers know what they are doing except America. America is oscillating between random ideologies vast majority of the population does not believe in. That directly reduces America’s power because it can’t rally the domestic manpower behind these fringe initiatives. To the rest of the world, America looks confused, uncoordinated and reacting out of anger smashing everything along the way. There is no coherent national strategy. And that is a problem, particularly for countries in Europe that are aligned with it. The more America continues to meander confusingly the more its alliances will break. Undependability and confusion are not qualities that anybody likes in a partner. America thus not only can’t rally domestic audience for its goals, it increasingly fails to rally an international audience for its goals. America can’t even define what its goals are. America has many problems, lack of direction chief among them. It is not clear how quickly it can solve them. For as long as that is the case, America will continue to fall further down in the rankings of the international world order. America’s primary objective today is to articulate its national goals and convince the world that its domestic governance system can provide stability and coherence in pursuit of those goals over the long run. The current constitution of America does not allow it to continue to be a Great Power in the long run. Dramatic changes are needed.
Summary
International trade is continental, not global, which means the continental Multi-Polar World Order is inevitable especially when most energy resources are in the East. Western globalism is not a sustainable model for organizing the economic relationships and balance-of-power among nations and especially Great Powers. National sovereignty and debt are inversely correlated. The more misuse of economic resources is done by a nation, the lower its national sovereignty in the multi-polar world order. A national conservative strategy is to maximize participation in international alliances in order to achieve a diversified and low cost access to natural resources, utilize economic resources effectively, reduce international debt and thus increase national sovereignty and power inside international alliances and protect national capability and identity. Democracy has been a key channel to achieve reduction of national sovereignty and increase indebtedness of nations. Democratic form of government needs to reform to eliminate and reduce the power of direct elections as well as introduce a co-CEO model of governance where no individual can permanently sabotage the national sovereignty of a nation. America, in particular, does not have a coherent national strategy like China and Russia do and that is paramount weakness in the Multi-Polar world. America needs to develop think tanks and institutions that pursue Overton Window policies that define goals that Americans support in super majoritarian fashion. Absent consolidation of American goals, America’s place in the Multi-Polar World will grow weaker over time. America needs to reform its system of government to ensure that its government can’t be sabotaged by elections as it has been routinely over the past 20 years. America needs to return to a strategy that maximizes its access to world resources, reduces its international debt and increases its power in international institutions. Isolationism is not an option.
References
How the system was rigged by Branko Milanovic
The Myth of the Global by Shannon O’Neil
The Meddlers: Birth of Global Economic Governance by Jamie Martin
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