Signal: A decade of disruption, Trump’s Taiwan, and a “nice juicy steak”

Hi LinkedIn,

If you like what you see, be sure to sign up for Signal to receive it in your inbox first thing every Tuesday, Wednesday, and Friday morning.

-Ian

THE DECADE OF DISRUPTION

Ten years ago tomorrow, Lehman Brothers, the financial services behemoth, collapsed. It was a crucial moment in what became the most severe global financial crisis since the 1930s. US banks teetered. European markets shuddered. Growth slowed in Asia. China’s diminished demand for oil, gas, metals, and minerals hit emerging markets in Latin America, Africa, and the Middle East.

Crises radicalize voters, say the political scientists, and the decade since the fall of Lehman has provided plenty of new evidence. The US financial market meltdown didn’t directly cause all the remarkable political events that followed, but the anger and fear of the future it provoked have effects that reverberate still.

• The US financial crisis triggered a global recession and a European sovereign debt crisis severe enough to call the survival of the Eurozone into question.
• A wave of unrest swept across North Africa and the Middle East. Tunisia’s government fell. Egypt’s Hosni Mubarak went to prison. Libya’s Muammar Qaddafi was executed in the street. Yemen exploded into violence. Syria sank into a civil war that has killed or displaced half the country’s population. 
• Middle East unrest triggered a new crisis in Europe, as more than two million migrants made their way north, transforming European politics. Angry, fearful voters began to reject establishment political parties.
• In 2016, faced with a choice between continued membership in the European Union and a leap into the unknown, Britons chose Brexit.
• In the United States, voters chose a brash celebrity businessman who had never run for office over a rival who epitomized the political establishment. 
• In 2017, the long-dominant political parties of center-right and center-left were swept aside in France in favor of another candidate making his very first run for office. Emmanuel Macron led a party he had created from nothing just one year before.
• German voters re-elected Angela Merkel to a fourth term, but her center-right party and its center-left coalition partner posted their lowest share of the vote in decades. A party of the far-right won seats in the Bundestag for the first time since 1945. It is now the largest opposition party in Germany.
• In 2018, Italian voters pushed aside long-established parties to elevate a movement founded nine years ago by a professional comedian and a rebranded separatist party from the country’s north. 
• In Mexico, voters elected the first leftist president since the 1930s, a man leading a political party he created just four years prior.
• In Pakistan, voters rejected the long-dominant Bhutto and Sharif dynasties in favor of a man who became famous as captain of the country’s 1992 World Cup-winning cricket team.
• In Brazil, voters go to the polls next month to cast ballots in a wide-open election.  

These events represent rejection of the known and a lunge toward the brand new. This has become a world of profound political disruption.

There’s no reason to believe this turbulence is nearing an end.

A TRUMP TURN ON TAIWAN?

As the US and China face off on trade, a growing diplomatic tit-for-tat is brewing in the background. Last month, El Salvador cut ties with Taiwan, leaving it with just 17 diplomatic allies. The Trump administration expressed disappointment.

This week, Washington dialed things up a few notches by recalling its envoys to El Salvador, the Dominican Republic, and Panama to protest their decisions to end relations with Taiwan, despite the fact that the US closed its own embassy there nearly 40 years ago.

What if Trump’s next move it to reopen that embassy? Unthinkable? Might Trump make this threat precisely to increase his leverage in US-China trade negotiations?

How’d we get here? In 1979, the United States entered into one of the most awkward diplomatic arrangements of the past half century. To open relations with China, President Jimmy Carter decided to acknowledge China’s so-called “One China” principle, which states that Taiwan is part of China, but without endorsing it. The US agreed that China considers Taiwan a breakaway province, and China agreed to ignore the fact that the US does not explicitly agree.

Next steps illustrate the contradiction on the US side. Washington withdrew diplomatic recognition of Taiwan and closed its embassy in Taipei, but Congress also passed the “Taiwan Relations Act,” which commits the US to “provide Taiwan with arms of a defensive character” and to defend Taiwan against attack.

By opening political and economic relations between the United States and China, this much-criticized arrangement helped the US win the Cold War, China rise from poverty to prosperity, and Taiwan benefit from China’s boom.

Over the years, China has pressured numerous governments to cut ties with Taiwan. China has repeatedly warned the US and others not to interfere in this diplomatic offensive.

Fast forward to 2016. After he was elected president in November, Trump warned he would revisit foreign policies he felt deserved a second look. In December, he held a 10-minute phone conversation with Taiwan's President Tsai Ing-wen, the first call between US and Taiwanese heads of state since 1979. China responded with fury.

In January 2017, Trump upped the stakes by insisting that "Everything is under negotiation, including One China." Then in February, he backtracked and eased tensions by expressing support for the policy during a call with China’s Xi Jinping.

Today, the Trump administration is waging trade war on China, even as President Trump has made a notable effort to keep warm personal relations with Xi. But as I’ve written in the past, Taiwan has again become a flashpoint in relations between the US and China.

What’s to stop Trump from reopening—or threatening to reopen—relations with Taiwan?

Xi has made China’s reintegration of Taiwan a long-term strategic and personal priority. His credibility is on the line with China’s people and with the leaders of its armed forces, the People’s Liberation Army. But would Xi Jinping really launch a military strike in response to Trump’s decision to reopen an embassy?

Given the stakes, and Trump’s penchant for unpredictability, these are questions we should consider.

GZERO MEDIA PRESENTS: MONEY IN 60 SECONDS

Ellevest CEO and Co-Founder Sallie Krawcheck explains where we're 10 years after the collapse of Lehman Brothers and the start of the financial crisis, and how banks could fail again. It's Money in 60 Seconds.

PUNISHING HUNGARY

This week, more than two-thirds of members of the European Parliament approved unprecedented disciplinary action against Hungary in response to alleged violations of EU core values. The motion accuses the government of Prime Minister Viktor Orban of refusing to accept migrants according to EU quotas agreed to by a majority vote of EU members. It rebukes the Hungarian government for its attacks on the media, minorities, and the rule of law.

Orban called the charges blackmail and an insult to Hungary’s people. His foreign minister denounced them as the "petty revenge" of "pro-immigration" bureaucrats.

Each side claims it is defending “European values.” Most members of the European Parliament define those values as freedom of speech, respect for human rights, judicial independence, and separation of powers within a democracy. Orban and likeminded allies in other countries define them as local values and protection of traditional ethnic and religious identity against mandates from politicians in other countries. Europeans say Orban is bullying Hungarians who don’t support him. Orban says European institutions are bullying Hungary.

What power does the EU have to discipline Hungary? That question now rests in the hands of the EU Council—the heads of government of the 28 EU member states. Stripping Hungary of voting rights would require a unanimous vote. Poland, which may soon face similar disciplinary pressure from the EU, would cast a veto.

The European Commission has proposed measures that would tie some of the money that member states receive as part of the EU budget to respect for the rule of law. That means countries like Hungary and Poland might one day face substantial cuts in EU subsidies.

That’s a big deal for smaller countries that receive more from the EU budget than they contribute. Hungary contributed €924 million to the EU budget in 2016, it received €4.5 billion in EU funding in the same year.

But those changes are not imminent, and this action against Hungary is the first of its kind. There are still more questions than answers.

In the meantime, Brussels must hope that Hungary will take steps to avoid pariah status, but this latest action may serve mainly to further elevate Orban’s stature as champion of those who say the EU lacks respect for the values of its member states.  

WHAT WE’RE WATCHING

The Tunisian Gravedigger – Chamseddine Marzoug walks the beaches of Zarzis, Tunisia looking for the bodies of those who drowned while trying to reach Europe by boat. When he finds a corpse, he lays it in a body bag and takes it to a nearby hospital for examination. Once a report is filed, he washes the body and takes it to a graveyard dedicated to the unknown dead. He then buries the bodies in graves he has dug himself. In the process, he treats these unfortunate men, women, and children with a care and dignity they may never have known in life.

Cortlandt Street Station – After 17 years, New York’s Cortlandt Street subway station, nearly destroyed by the collapse of the World Trade Center towers on September 11, 2001, has officially reopened. It’s disorienting to see a shiny, clean station anywhere in New York City, but those who work on Wall Street are glad to finally have it back.

WHAT WE’RE IGNORING 

Russian alibis – Alexander Petrov and Ruslan Boshirov, accused by British authorities of the poisoning attack on former Russian spy Sergei Skripal and his daughter in Salisbury in March, told the Russian state-run RT channel they were in the UK as tourists when the Skripals were poisoned with a rare nerve agent sprayed on Skripal’s front door. The two men say they are sports nutrition salesmen who visited Salisbury only to see the famously tall spire atop its cathedral. British officials say the two men work for Russian military intelligence and that police have surveillance footage of the two men near Skripal’s home.

Russian threats – Viktor Zolotov is fighting mad. This former bodyguard to Vladimir Putin posted a challenge on YouTube in response to what he says are false corruption charges levelled against him by Kremlin gadfly and anti-corruption activist Alexei Navalny. “Nobody has ever given you the spanking you deserve, so hard that you felt it in your liver,” warned Zolotov. “I simply challenge you to a duel… I promise in several minutes to make a nice juicy steak out of you.” Colorful threats, but the Petrov/Boshirov interviews were more entertaining. 

HARD NUMBERS – THE US EDITION

10.9 million: This summer, the United States became the world’s largest crude oil producer for the first time since 1973, according to the Energy Information Agency. EIA estimates that US crude oil production averaged 10.9 million barrels per day in August.

22,000: The United States is on track to take in 22,000 refugees in 2018, a quarter the number admitted in 2016, the last year of Barack Obama’s presidency. That’s the lowest total in four decades.

37: The Democrats need a net gain of 23 seats in November’s midterm elections to take majority control of the House of Representatives. Gallup wrote this week that, in its polling history, “presidents with job approval ratings below 50% have seen their party lose 37 House seats, on average, in midterm elections… Donald Trump [now] has a 40% job approval rating.”

13.7: The share of foreign-born people living in the US has reached its highest point since 1910. The foreign-born population stood at 13.7 percent in 2017. That’s 44.5 million people.

 WORDS OF WISDOM

 “The candidate likes to spend his free time reading Tolstoy, and not watching Toy Story, as originally reported.”

— A recent correction from Brazilian news magazine Veja

This edition of Signal was written by Willis Sparks and prepared with editorial support from Gabe Lipton (@Gflipton). Spiritual counsel from Alex Kliment (@saosasha) and Kevin Allison (@KevinAllison).