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Daily Memo: Taking Stock of the Trade War, Preventing Chinese Protests, Wargaming in Israel

All the news worth knowing today.

GPF Staff |August 1, 2018

The United States continues to escalate the trade war with China despite the damage it does at home. In the second week of July, the U.S. announced plans to add 10 percent tariffs on $200 billion worth of goods. Now the government plans to bump these tariffs to 25 percent, the details of which will be included in the public hearing and comment phases later this month. The tariffs already in place are starting to hurt China, as Beijing sees weakening investment in factories, low household consumption and rising corporate defaults. (This is also a product of China’s credit squeeze, of course.) Some companies are reportedly thinking of leaving the country. Meanwhile, U.S. farmers are reporting losses despite $12 billion worth of compensation funding. The mayor of Los Angeles has said that the trade war has stunted growth, depressed local port cargo and cost the city some 200,000 jobs. The U.S. Chamber of Commerce also warned that if the government were to extend financial aid packages to other affected sectors – steel, iron, fisheries, etc. – it would cost producers an additional $27 billion. One is reminded of the Sun Tzu quote about how no country ever benefited from a protracted war.

The Chinese government pre-emptively pacified potential protests on Aug. 1, its veterans’ day, by promising to increase benefits paid to veterans by 50-100 yuan ($7-$15) per month, depending on their service. The new Ministry of Veterans’ Affairs also used its first press conference to discourage veterans from protesting. The move follows several veterans’ protests, including one in which thousands in Zhenjiang demonstrated for five days in June. Beijing probably wouldn’t pay the veterans if it were confident that it already had them under control, so the new measures in that sense are costlier than a few extra yuan. But it’s a price Beijing believes it needs to pay. Disgruntled veterans could eventually chip away at the military’s faith in the government to repay services rendered, obstruct future recruitment or, worse, join up with other disgruntled social groups. The government can afford to pay veterans. It can’t afford to alienate the military.

Israel is still preparing for a possible war on its northern border. Over the past few weeks, officials from the Israel Defense Forces have presented several war scenarios to the security Cabinet, including predictions on how much damage Hezbollah might inflict. All countries practice preparedness, of course, but in this context Israel is not just any country. Since the beginning of the year, the IDF has been saying it needs to prepare for war on five fronts. In the past few weeks, it has successfully used its new air defense system, known as David’s Sling. The Syrian army, which is supported by Hezbollah, has reportedly taken full control of the Yarmouk Basin along Israel’s border with Jordan, though, notably, Russia has persuaded Iran to move some of its units in Syria farther away from the Israeli border. It’s unlikely that a conflict will break out – even Israeli intelligence seems to think so – but this is Syria we’re talking about, where things can change at a moment’s notice.

Honorable Mentions

  • British Prime Minister Theresa May will visit French President Emmanuel Macron on Wednesday in an attempt to soften France’s hard Brexit stance. Paris’ investment and financial services sectors stand to benefit from a hard exit.
  • Russia’s Levada Center reports that President Vladimir Putin’s approval rating has fallen to a five-year low of 67 percent. The number of Russians willing to protest rose to 28 percent, the highest in two decades, also according to Levada.
  • China will send warships to participate in the KAKADU Exercises off the coast of Darwin, Australia, according to Australia’s ABC. U.S. and Australian forces will participate in the exercises too.
  • The foreign ministers of Japan and Russia have agreed to coordinate efforts to denuclearize North Korea.
  • The Saudi government will form a higher committee for hydrocarbons. Crown Prince Mohammed bin Salman will head the committee, which will also include the ministers of energy, trade, finance and economy.