Energy #24 – Hydro One’s Phantom Taxes

Hydro One is planning to collect more than $1.5 billion ($2.0 billion in rates) for taxes it will never pay.   The Ontario Energy Board seems poised to let them do that.

This has created a bit of a controversy.

As a former tax lawyer with knowledge of the case, I have been asked numerous times to explain this issue.

All right, already.  Here is my explanation.

Caveat #1:  I have represented the School Energy Coalition, a major customer group, throughout the process described below, and weighed in on the issues.  In this article, I am trying to keep my views out of it, and just describe the various aspects of the problem without taking a position.

Caveat #2:  The specifics of the issue are in fact quite complicated.  This article simplifies as much of it as possible, without changing the fundamental factors at play.  If you are a tax specialist, this article is not going to help you understand the details.

There are three components to address.  First, there is the interaction of the relevant tax rules, and how that plays out.  Second, there is the application of the fundamental rate-making principle, which controls cost recovery by the utility.  Third, there is the somewhat unusual process that has unfolded so far to deal with this issue.

The Phantom Tax

Companies that are owned at least 90% by a province or a municipality are not subject to normal (i.e. federal) income tax.  They are exempt from that tax.   But, Ontario electric utilities in that situation are subject to an identical amount of tax levied by the Ontario government (called PILs, which stands for “payments in lieu of taxes”).

Hydro One was one of those exempt companies, because it was owned by the Province of Ontario.   It paid the same amount of taxes as other companies, but it paid them all to Ontario.

Then they did an IPO, and more than 40% became owned by others, mostly pension funds and mutual funds.

Once they decided to do that (but before they completed it), two things happened.

First, they became subject to federal income tax (plus the related Ontario income tax), just like any other company.

Second, they ceased to be subject to Ontario PILs, but on the way out the door they had to pay a “departure tax” to the province of $1.5 billion.

The way it works is that when you leave one set of tax rules (the PILs rules) to go to another (the feds), you are treated as having sold all of your assets for fair market value for both purposes.

For PILs, this means you pay an extra tax.  Some depreciation deductions you have taken in the past are reversed and taxed, and any gain over the original cost of assets is a capital gain, also taxed.

Let me give you an example.  Assume Hydro One paid $1 million for a substation in 2006.  It has taken $500,000 in deductions for depreciation (called capital cost allowance) in calculating its Ontario PILs since then.  Now the substation is worth $1.3 million, and is treated as sold at that price.  The $500,000 of depreciation deductions taken to date were obviously not necessary (its value didn’t decline), so are recaptured and taxed fully.  Half of the additional gain of $300,000 is taxed, so $150,000 is added to taxable income.  In total, tax is paid on $650,000.

When you do that with all of Hydro One’s assets, you get a total departure tax bill of about $1.5 billion, payable to the Ontario government.

Hydro One wanted to write a cheque for that tax, of course, but didn’t actually have $1.5 billion lying around.  Its shareholder – that very same Ontario government – stepped in and gave them $1.5 billion for some new shares, which allowed Hydro One to give that $1.5 billion back to the government as a tax.  Before these transactions, Hydro One was 100% owned by the province.  After these transactions, Hydro One was still 100% owned by the province.  Both Hydro One had exactly the same amounts of money before and after these transactions.  Nothing had been changed, but the tax had been “paid”.

In fact, government officials expressly justified those transactions to the Legislature (Standing Committee at pages 419-420) on the basis that the money was just going around in a circle, and there was no net impact to Hydro One or the province.

On the other side, the federal income tax applies only on the increased value of the assets after the pretend sale at fair market value.  This means that Hydro One gets to take much larger depreciation deductions going forward than it would have otherwise had available.

The effect of those higher deductions is that, for about the next twenty years, Hydro One will not actually have to pay federal (or related Ontario) income tax.  The total amount of tax it will be able to avoid is – wait for it – about $1.5 billion.

(The two amounts – the departure tax and the future avoided taxes – are not identical for various technical reasons, but they are close, because they are calculated using mostly the same inputs.)

So, the underlying foundation of this problem is that Hydro One paid a $1.5 billion tax, but got it right back from the province, so it wasn’t out of pocket.  At the same time, Hydro One became subject to future federal taxation, but will avoid the first $1.5 billion of those taxes.

All good, right?

The Ratemaking Paradigm

Rates for electricity transmitters and distributors (Hydro One is both) are set on the basis of recovery of the costs incurred to transmit or distribute electricity.

Most costs are calculated the same way for accounting purposes as for rates purposes.  However, the longstanding rule for tax costs is that the accounting amount is not used.  Instead, the utility forecasts the actual taxes it will pay in the year, and that is the amount that it recovers through rates.

This makes a big difference, since usually the accounting provision for taxes is much higher than the actual taxes payable.  (The reasons for that are not important here.)

On the face of it, this would mean that Hydro One would not include any amount in its costs for taxes until it actually becomes taxable again, i.e. in about twenty years.  Rates would be lower by more than $2 billion over that time frame (since taxes have to be grossed up to be recovered in rates…don’t ask me to explain that math).

There is a second rule, and that is that costs incurred for reasons other than transmission or distribution of electricity are not recoverable in rates.  That, of course, stands to reason:  why would customers pay for costs that are not related to the service they are buying?

For example, it is well accepted that the $1.5 billion departure tax cannot be recovered in rates.  The departure tax happened because the shareholder wanted to do an IPO.  It had nothing to do with the service being provided to customers.

The other side of that argument – as Hydro One argued – is that the federal tax savings are also unrelated to providing the service to customers.  They also arise because of something the shareholder did to benefit the shareholder.

Thus, Hydro One argued that it should be able to calculate the taxes it collects in rates as if nothing had happened, i.e. pretend that it had not gone public, and it did not have the twenty year tax shelter.  It would, on their theory, collect taxes each year as if it were going to pay them as usual, but then just keep the money.

The Four Theories of the Case

Not everyone agreed that Hydro One should be able to recover $1.5 billion in taxes that it would not actually pay.

There were basically four ways of looking at the problem:

  1. Prepayment.  The payment of the $1.5 billion departure tax was a prepayment of federal taxes that would otherwise have been payable over the next twenty years.  Collecting phantom taxes each year in rates effectively collects the departure tax from customers over time.  This approach can be used to argue against collecting the taxes in rates (the departure tax is not normally recoverable from customers) or to argue in favour of collecting phantom taxes (Hydro One is being kept whole, and the customers are losing nothing).
  1. Standalone.  The departure tax was unrelated to the service to customers, but so are the future federal tax deductions.  Neither should impact rates.  This was Hydro One’s basic argument.  It supports ignoring the extra deductions, and thus collecting the phantom taxes in rates.
  1. Windfall.  The departure tax was not actually paid, since it was immediately returned to Hydro One and there was no change in anyone’s economic position.  Therefore, the normal rule should apply, which is that actual tax payable should be collected from customers in rates.  In effect, there is a windfall, and as between the customers and the shareholders it should go to the customers.  The last time there was a similar situation, when the electricity distributors first became subject to Ontario PILs tax in 1999, this is the basic rule that was followed.  Any windfall tax benefit went to the customers.
  1. Split the Benefit. There is a $1.5 billion tax benefit available from this set of transactions.  It should be split in some rational and fair manner between the customers of Hydro One, and its shareholders.

The Process That Has Unfolded to Date

This tax question arose initially in the Hydro One Transmission rate case for 2017, the first after the IPO.  The arguments described above were all made, at considerable length.  The general consensus emerged that no-one understood it completely.

Really?!

In a long and carefully reasoned decision, the OEB took the fourth approach, splitting the tax benefit between customers and shareholders.

That portion of the Hydro One Transmission decision was written by Peter Thompson, a Board member and a former lawyer for customer groups over almost fifty years.   Although all three Board members agreed with his analysis, and the decision is actually rendered on behalf of all three, Mr. Thompson’s writing style is distinctive.  Thus, notwithstanding the protocol that no-one discusses who wrote what part of any decision, Mr. Thompson’s tens of thousands of pages of submissions and arguments over the years make his authorship obvious.

In the Board’s analysis, the $1.5 billion of tax benefits should be divided into two parts.

The part that relates to the depreciation previously deducted, but not ultimately needed, represents deductions that have already been taken by Hydro One to arrive at past rates.  Those deductions are now available again under the federal act, but the customers have already had the benefit of those deductions once before.  To give them the benefit again would be double counting, and unfair, so that part of the tax benefit goes to the shareholders.

The part that relates to assets being more than their original cost – the pure capital gain – is nothing more than a windfall.  That part of the tax benefit goes to the customers, under the normal rules for tax windfalls.

(There was a second and more complicated breakdown, based on ownership of Hydro One shares as between the province and third parties, but in the end only the first breakdown was included in the calculation of the split.)

An apoplectic Hydro One appealed everywhere they could:  both the internal appeal process at the OEB (called a Motion for Review), and the external appeal to Ontario Divisional Court.  For that much money – about $900 million lost in the split of benefits – it stood to reason that they would appeal.  They have no real downside, so why not give it a try.

Under the Motion to Review process, the OEB establishes a new panel of Board members to review the previous decision.  The test is whether there is a material error in the original decision that, if corrected, would result in a different outcome.   For example, did the Board in making the original decision misunderstand the facts, or misapply the law or the OEB’s policies?

The practice has developed that the OEB first determines whether the motion is really serious, called the “threshold test”, and ask parties to make submissions on that question.  In an unusual step, the review panel on the motion determined that it would not ask for input on that issue, and made a preliminary determination that the threshold test had been met.  This appeared to some to be a statement that the review panel thought Hydro One had a good case to succeed on their appeal.

(There are some who allege that “the fix was in” with respect to the review panel, i.e. that somehow the government wanted the original decision to be changed.  I might as well deal with that directly.  The possibility that OEB cases are predetermined based on backroom activities is remote at the best of times.  In this case, it is even more unlikely.  When Hydro One filed its appeal, there was a Liberal government in place.  Between then and the issuance of the review decision, a new PC government was installed.  For the “fix” to “be in”, those two governments would both have had to be influencing the OEB, sequentially, and in the same direction.  This is not credible.)

After seeing extensive written submissions, and then hearing oral argument by the parties, the review panel concluded that the original decision was wrong.  While the analysis in the review decision was not very comprehensive, it appears that the review panel accepted the arguments of Hydro One, i.e. that the departure tax was actually paid, and that the future tax deductions arose out of the same transaction.  As a result, they represented a real transaction (rather than a windfall), not related to the provision of services to customers, and the customers should not get the benefit of the tax savings.

However, instead of simply deciding the issue on that basis, the review panel decided to send the case back to the original panel, to change its decision to be consistent with the findings of the review panel.

That’s where the matter stood this morning, awaiting decision by the original panel.

The Procedural Twist

This turn of events created an interesting procedural anomaly.  Two of the three members of the original panel – the Chair Ken Quesnelle, and the person who wrote the tax section of the decision, Peter Thompson – had come to the end of their terms as Board members.  Under the rules, they could no longer be appointed to new Board panels, but they could continue to deal with matters with which they were already seized at the time their appointments ended.

What this meant is that the full original panel – Quesnelle, Thompson, and continuing Board member Emad Elsayed – could complete the case by rendering a revised decision.

In a surprising move, the Board instead determined that a new panel would be formed, dropping Thompson and adding Cathy Spoel, one of the members of the review panel, but retaining Quesnelle and Elsayed.

This has created two problems.

First, the Chair of the OEB can generally determine who is on any panel for any matter.  However, Mr. Quesnelle cannot be appointed to a new panel, because he is no longer a Board member.  Thus, the new panel appears to be improperly constituted.

Second, the decision of the review panel was to send the matter back to the original panel, which had already heard the evidence, and thus was in the strongest position to render the final decision.  A new panel would not be able to take the original panel’s place, because it would not have heard the evidence.  This would not be implementing the review panel’s decision.

Since the “new” original panel was decided on, no further action appears to have been taken (until today – see below).  It is not known whether this problem will affect the final resolution of this matter, or whether the legal issues with the panel’s composition will give rise to legal challenges from customer groups or others.

Today a Procedural Order was issued by the new original panel telling parties what they wanted.  It did three interesting things.

  • The proceeding has a new “matter” number. This is not consistent with the original panel making the decision, but it is probably not a big deal.
  • The new original panel stated that the threshold question was not answered by the review panel. Only part of it was answered, and the question of whether the errors were enough to change the decision was not yet decided.
  • The new original panel decided that further evidence is not required, but submissions are required on the issues of whether, assuming the review decision is correct, the tax decision should be changed.

Hydro One is expected to make submissions on this issue on November 20th.  Customer groups and other stakeholders will make their submissions on December 4th, and Hydro One will have an opportunity to reply on December 18th.

Conclusion

Whatever happens with the last-minute procedural twist, the likely result is pretty clear, despite the ambiguity suggested by the new original panel.  As it originally requested, Hydro One may well be allowed to collect $1.5 billion in taxes – about $2 billion in additional rates – from customers for taxes it will not actually pay.

Now you know why that is, and how it happened.

Don’t you feel better?

If you want to follow the arguments and the decision on this issue, you can see them when filed here.

  • Jay Shepherd, November 6, 2018
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Hardball

My short story “Hardball” has now been published in Unlikely Stories.  If you’re interested, you can find it at Unlikely Stories.com.  It has also been longlisted for the Aftermath Short Story contest.

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The China Clause

This article attempts to sort out the increasing amount of misinformation on the “China Clause” in the USMCA.

(Yes, I know.  They couldn’t find a better acronym?)

I haven’t read the whole 1809 pages of the United States-Mexico-Canada Agreement.  I may be crazy, true enough, but I’m not that crazy.  I’ll leave that to the international trade lawyers, who everyone knows are certifiably nuts.

I have, however, read Section 32.10, the China Clause, and a number of related sections.  It may be useful to unpack what the section does.  And, what it doesn’t do (i.e. tie anyone’s hands).

When Does It Apply?

The section applies only if a one of the parties to the agreement wants to negotiate a “free trade agreement” with a country that any of the parties has determined is a “non-market economy”.

“Free trade agreement” is not defined in the USMCA, perhaps surprisingly.  However, that may not matter.  In trade law, any agreement that seeks to reduce tariff barriers to promote the freer flow of goods and/or services between countries is considered a free trade agreement.

So, trade doesn’t have to be free, in the normal use of the word, for the agreement to be a free trade agreement.  The old NAFTA still allowed a lot of tariffs, but it was a free trade agreement.  The same thing is true for TPP (Trans-Pacific Partnership) and CETA (Canada-Europe Trade Agreement).

On the other hand, the Paris Climate Accord is generally accepted as NOT a free trade agreement, even though of course its provisions affect trade, directly and indirectly.  Tax conventions, which control cross-border taxation, are generally not considered to be free trade agreements either.  And so on.

So, if Canada wants to negotiate any agreement with China (just to pick a random example) that reduces tariffs, that would be a free trade agreement.

The section does not apply to every potential free trade agreement, however.  If any of Canada, the U.S. or Mexico already has a free trade agreement with a country, the parties to the agreement are free to negotiate with them at any time.  The USMCA doesn’t apply.

For example, Canada has the TPP and CETA.  There are in fact dozens of existing free trade agreements to which one of the three USMCA parties is also a party.  The countries that are party to those agreements are exempt.

China is not in that category.

And then, what is a “non-market economy”?   Ignoring the large body of law surrounding that term, the simple definition is that it is an economy in which the government intervenes to control or restrict domestic prices for goods, either across the board or on a sectoral basis.

Just on the face of it, virtually any economy in the world could be considered to be a non-market economy.  Canada certainly is, with respect to dairy.  All European countries have price controls of one form or another.  Even the U.S. intervenes in the market to control certain prices.

Thankfully, there is also a history to this (and a lot of legal precedent), and that’s where it gets interesting.

When China entered the World Trade Organization in 2001, it was on condition that China be designated, from the outset, as a non-market economy.  The reason for that was that, under WTO rules (GATT 1994, for the cognoscenti), goods imported from a non-market economy could be subjected to anti-dumping duties (special tariffs that bump the price of goods up to market value) that allowed the receiving country a broad discretion.  If the U.S. imports goods from Great Britain, there are restrictions on what anti-dumping duties can be imposed, generally based on domestic British prices for those same goods.  If the U.S. imports goods from China, there are almost no restrictions.

China was, thus, a non-market economy, but that designation expired in 2016, after fifteen years.  It was as if China was on probation at the WTO for that period.

Immediately upon the expiry of that provision, China filed an application with the WTO to be declared a market economy.  That application has been winding through the slow WTO process for almost two years, and remains unresolved.

What the USMCA says is that, if any of the parties to the agreement have, on the date of signing the agreement, determined for their trade law purposes that a country is a non-market country, that country is deemed to be a non-market country for the purpose of the USMCA.

In November 2017 the U.S. declared China to continue to be a non-market economy, despite the expiry of the WTO provision, and filed a brief so arguing before the WTO.

Hence the name “the China Clause”.

China isn’t the only country on the U.S. list.  Vietnam is too, but Vietnam is safe, because it is a party to the TPP, to which Canada is also a party.  Section 32.10 doesn’t apply to Vietnam.

A number of other countries, like Ukraine and Russia, have been taken off the U.S. list in recent years.  They are also safe.  Other countries remain on the U.S. list, but Canada has almost no trade with them.

Interestingly, Canada also has anti-dumping rules relating to non-market economies, and just this year proposed new regulations to strengthen those rules.  Yes, China is one of them.

The result of all this is that yes, if Canada wants to do a trade deal with China, the USMCA will kick in, but that is not the case with most other countries.

One other issue is perhaps relevant.  The WTO may determine that China is in fact a market economy.  That is the order China is seeking.  The U.S. is a signatory to the WTO, and would be subject to that determination.  While they may well defy the WTO (which the U.S. President hates) and go on their own, but it is at least arguable that, if China wins at the WTO, the USMCA should no longer apply to free trade negotiations between China and Canada.

What Happens If It Applies?

Let’s say, though, that if Canada wants to enter into a free trade agreement with China, for example, it has to comply with USMCA 32.10.  There are three requirements.

First, Canada must advise the U.S. and Mexico at least three months in advance of starting negotiations.

Second, Canada must advise the U.S. and Mexico, at any time that they ask, what Canada’s objectives are in the negotiations.  However, this requirement is phrased as “as much information as possible”, which could be interpreted as requiring only limited, high level information that would be relevant to the other parties to the USMCA.  Canada does not, it seems clear, have an obligation to disclose its entire negotiating strategy to the U.S. and Mexico.

Third, Canada must provide to the U.S. and Mexico, at least thirty days prior to signing the agreement, the full text of the agreement.

Once more, a little unpacking is in order.

The Prime Minister has stated publicly, numerous times, that Canada is seeking to negotiate new trade arrangements, and a closer trading partnership, with China.  The most recent public statement was immediately after the USMCA was announced.

It would therefore surprise the hell out of me if, the day after the USMCA is formally signed, Canada does not provide a formal notice to the U.S. and Mexico that it will be negotiating new trade terms with China.  Of course they will.

Stand back and contemplate this for a moment.  If Section 32.10 were not in the USMCA, would Canada go ahead with negotiations with China without first telling the U.S. and Mexico what they are doing?

Are we crazy?  (Well, I am. We already established that.  However, the Canadian government is not.)

Thus, the requirement to tell the USMCA parties that we plan to negotiate with China is nothing, because we would have done that anyway.  It is not, after all, a secret.

So then, what about the second requirement, disclosure of our “objectives” in the negotiations?

Going into a negotiation – whether on trade or on anything else – a party’s objectives are usually pretty obvious to everyone.  To the extent that they aren’t at the outset, they will have to be pretty quickly, because these are negotiations between governments.  Like all politicians, those on Canadian side will have to explain what they are doing, both in public and in the House of Commons.  Everyone will know their objectives.

Nothing new there.

The third requirement is a copy of the agreement, thirty days before it is signed.  You mean, like the full text of the USMCA was released publicly thirty days before it is to be signed?

Oh.

The bottom line is that the Canadian obligations under USMCA (or the obligations of the Americans or the Mexicans, if they are the ones negotiating with China) are to disclose things that will be known to the other parties anyway, and will for the most part be public knowledge.

What does that mean?  It means that in a very limited class of cases – basically negotiating with China – you have to tell your closest trading partners the things you would have told them anyway, or they could read in the newspaper.

Oh, my.

What Are the Remedies?

The best part of this analysis is the remedies section.

Do the U.S. and Mexico have any right to participate in our negotiations with China?  No.

Do the U.S. and Mexico have any say in the terms of our agreement with China?  No.

The sole remedy of the U.S. or Mexico (s. 32.10(4)) is that, after we sign the agreement with China, they can give us six months notice of termination of Canada’s participation in USMCA.  The USMCA continues as an agreement just between the U.S. and Mexico after that.

On the surface, that may sound like it gives our two trading partners substantial leverage.  If we do a deal with China that makes them unhappy, we’re out.  The world will come to an end.

Just one little thing.

Section 34.6 provides that any party to the USMCA can, at any time – and for no reason at all – terminate the agreement on six months notice.  If and when they do, the agreement continues as between the other two parties.  If the U.S. doesn’t like our deal with China, it can at any time use section 34.6 to terminate USMCA.  Canada and Mexico will not continue the deal without the U.S., so it is over.  Unless, of course, Mexico wants to continue with the U.S. and not us, in which case we are back to exactly the result in section 32.10(4).

If Canada or Mexico does a trade deal that the U.S. doesn’t like, the section 32.10 remedy doesn’t matter, because the U.S. holds the hammer anyway.

Interestingly, if the U.S. does a trade deal that Canada or Mexico doesn’t like, the section 34.6 termination provision doesn’t give us a hammer.  We aren’t powerful enough.  Section 32.10, on the other hand, allows us to kick the U.S. out of the deal unilaterally.  We won’t, probably.  But we can.

The U.S. may not have thought this through.

Conclusion

The end result of the China Clause is that nothing much has changed.

Mostly, this clause will not apply at all.

In the limited cases where it does, everyone will behave exactly as they would have behaved otherwise.  If negotiations with China produce tensions, the U.S. has the same remedies they had already.

One of the most important skills in negotiating is the ability to identify something that the other party wants and values, but that you can give to them without giving up anything yourself.

Canada appears to have done exactly that.

–  Jay Shepherd, October 6, 2018

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Oh, Brett, How Could You?

As the #MeToo Movement has gathered steam over the last year or two, I’ve made a point of keeping my mouth shut.

It’s not because I have no opinions.  (What, really?)

No, it’s because the treatment of women by men in our society is a subject that has all too often been hijacked by male voices.  Recently, this has been changing.  In the last couple of years, it has been female voices that have come to the fore, each one empowering others to speak up.  That’s a good thing, so best for me, and other men, to shut up and let it unfold.

Into this scenario we now see injected the more topical, but still important, question of the stacking of the United States Supreme Court by conservative judges.  The latest, and perhaps the most dangerous, is Brett Kavanaugh, scheduled to be the subject of a committee vote this week.

Kavanaugh’s confirmation is being put in jeopardy by an accusation that, thirty-six years ago, when he was 17, he attempted to rape a 15 year old girl at a drunken private school party.  That young girl, now Dr. Christine Blasey Ford, a Professor of Psychology at Palo Alto University, has reluctantly come forward to tell her story.   At first trying to keep her anonymity, she drew the matter to the attention of two elected officials in a private letter.  When the details came out, and it became a hot story, she gave up her secrecy and penned an op-ed in the New York Times.  She has also said she will appear before Congress if asked.

While there has been some puffing by various people about the timing of this, two things give one some pause.

The more obvious is that Dr. Ford submitted to a formal polygraph test, and passed.  Lie detectors may be less than 100% accurate, true enough, but the successful polygraph certainly increases the probability that she’s telling the truth (even if, depending on your own politics, her personal credibility wasn’t enough for you).

The less obvious confirmation of Dr. Ford’s account comes from Mark Judge, Kavanaugh’s high school friend, and the other boy in the room when the incident occurred.  While Mark Judge says he does not remember anything like the incident in question happening, he did write a 1997 book that describes in some detail the alcohol-fueled, hookup-focused culture of his – and Kavanaugh’s – high school years in a toney Georgetown private school.

As the heat on this story has ratcheted up, we also now have dueling supporter lists, letters from dozens of female character witnesses who knew Brett Kavanaugh when he was in high school, and either back his likely innocence, or back the likely truth of Dr. Ford’s story.

As with everything in Washington, this has devolved into the fine art of politics.  The intrigue is perhaps heightened by the fact that the story involves an important Bethesda Roman Catholic prep school, Georgetown Prep.   (Neil Gorsuch was a student there a couple of years before Kavanaugh.  Remember him?)  It also involves a Supreme Court candidate who spent his career wading through the Washington swamp, working for Ken Starr to impeach Bill Clinton, then working on the election campaign and in the White House of George W. Bush.

So let’s unpack this.

Any philosophy major (or scientist) will tell you that if you have a difficult question, on which you can’t tell if a hypothesis is correct, one way to work through it is to assume the hypothesis is true.  Then, assess the implications.

In this case, it is not a leap to assume Dr. Ford’s account is true.  Not only does the actual story appear to have pretty solid support, and a credible person recounting it.  In addition, the story dovetails with what we all know goes on regularly when teenagers and alcohol join forces.  Add to that the environment of an elite private boys school in the Eighties, and the instinctive reaction to Dr. Ford’s story is “of course”.

But assuming it’s true, what does that mean for Brett Kavanaugh?  Leave aside your political leanings for a second, and even your intuitive sense that he is a man who made his career sucking up to people in power.

If seventeen-year-old Brett Kavanaugh did in fact try to have sex with a fifteen-year-old girl at a private party in 1982, but instead screwed it up and just embarrassed himself and scared the shit out of the girl, does that disqualify him from being a judge of the U.S. Supreme Court today?

There are those who say that there can’t be any forgiveness, because if we just keep letting these things go, they will never stop.  Actions have consequences, as they say.  If it took a long time for his predatory actions to catch up to him, better late than never.  Now make him pay for what he did.

There are others who say that the stupidity of a drunken, horny seventeen-year-old boy is not news.  Indeed, if he had never done anything this idiotic in his life, you might wonder whether he was a real person.  If you look back at the people you know who came of age in that period, how many of them were truly innocent?

Further, Kavanaugh has had thirty-six years since then to demonstrate that he is not a sexual predator.  All evidence suggests that he has no such leanings.

It is at least arguable that, on the assumption that Dr. Ford’s account is 100% accurate, Kavanaugh’s confirmation should not be affected.  Old news.  Whatever he did as a stupid teenager, it is his life as an adult that should guide any assessment of his appointment.

But here’s the thing.  It isn’t really necessary to come to a conclusion on whether his drunken behaviour should affect his confirmation.  What is more important – and clearly relevant to his fitness for office – is his actions today, and his character today.

Today, what we know is that, with a straight face, he told senators that the incident described by Dr. Ford did not occur.  He didn’t say he couldn’t remember, or it happened differently.  He didn’t tell it from his perspective.  He didn’t explain.  He just said it was not true.

Kavanaugh’s response to questions about this incident was almost certainly a lie.

Congress, and the public, may not care very much whether judges were once stupid teenagers.  They should care a lot, though, about whether judges are honest.  They should care a lot about whether, faced with uncomfortable truths, judges try to avoid those truths by lies.  They should care a lot about whether a judge is able to be honest when being honest is difficult.

The focus of the discussion here should not be on #MeToo.  Sure, that is important, and the consequences of past improprieties have a lot of subtle issues that have to be addressed.  It is also important to society that we manage the evolution from a “female victimization” norm to a “female empowerment” norm in a way that achieves the better future, without simply choosing some new victims.

But the Kavanaugh case is not fundamentally about an attempted drunken rape in high school, many years ago.  It is about whether a proposed appointee to the U.S. Supreme Court has the fundamental honesty, integrity, and strength of character to tell the truth.

Even when it’s hard.

People who are afraid to tell the truth don’t make good judges.

  –  Jay Shepherd, September 17, 2018

Posted in International Affairs, Politics, Social Change | Tagged , , , , , | 5 Comments

The Puppet Masters

Just when you think discussions about Donald Trump have reached the apex of breathlessness, a week like this happens.  Between the “gutless coward” who wrote the New York Times op-ed, and that icon of investigative journalism, Bob Woodward, teasing about his tell-all book, we are suddenly standing, wide-eyed, inside a dysfunctional White House.

Shock explodes around the world.  The orange monster flaps about, frothing at the mouth in anger.

Former President Obama, in a brilliant speech that put the somnolent current President to sleep (too many big words?), says that the way the White House is functioning is “not how our democracy is supposed to work.”

Of course, Obama is absolutely right.

But, hidden underneath all of this is the real truth:  none of this should be a surprise.

Since the day he took office – maybe even before that, before he was even elected – Trump’s role has been to be the brainless hand-puppet for Republicans and other conservatives that want to control implementation of a conservative agenda.  Whether you are talking about the cadre of enablers in the administration, or the supposedly fearful congressmen and senators on Capital Hill, all of them are simply using Trump as a tool.

Start with those inside the White House, and in the higher reaches of the administration throughout the government.

Much of the news analysis of the op-ed, for example, focuses on stories of officials thwarting the actions of the President.  They are portrayed as a resistance, fighting the good fight to save the country.

Whoa, there.  The real story in the op-ed is that the officials are supporting and enabling the 80-90% of conservative actions of the President that they agree with.  In many cases, these aren’t even Trump’s ideas.  (He doesn’t really have many ideas himself, after all.)  Those around him set him to chasing their preferred rabbit, then support his tweeting and fulminating while guiding the achievement of the result they want.

It’s not like this is the first time a President has been managed by his handlers, of course.  It was widely suspected that Dick Cheney was the final arbiter in the George W. White House, and rumours routinely alleged that Ronald Reagan allowed himself to be heavily influenced by the big brains around him.

Trump is different, though, in two ways.

First, he is noticeably less intelligent than virtually all previous Presidents (combined? – surely not).

Second, he thinks he’s actually in charge.  Unlike Bush and Reagan, who preferred to be part of a larger group making decisions, Trump is a puppet that doesn’t actually know that’s what he is.  He believes, like Pinocchio, that he’s a real boy (but with no happy ending).

The reason this should be no surprise is that Congress has been doing the very same thing since Trump was elected.

We see this, for example, in the fact that the only legislation getting passed, and the only approvals taking place, are the things that the Republicans already wanted.  Trump’s blatherings about this and that have not had any influence on what is actually being done, either in the House or the Senate.

Tax cuts for their wealthy donors?  Check.

Stack the Supreme Court and federal judgeships for decades to come?  Check.

Clamp down on immigration, in a nation of immigrants?  Check.

Build the wall?  Wait a minute.

This translates to the current election period as well.  Why, oh why, are seemingly principled candidates (OK, I said “seemingly”) loathe to distance themselves from the most outrageous of Trump’s rhetoric?  The prevailing view appears to be that they fear he will use his electoral base against them.  They are, on this theory, sucking up to the schoolyard bully, too afraid to fight back.

That’s not what’s happening at all.  Their willingness to support Trump while on the campaign trail is because they like having him around.  Yes, he’s an idiot.  But, he’s their idiot.

But then, you say, what about the “strange” silence of Republicans when it comes to the Mueller investigation.  Why don’t they simply shut it down?

The answer is simple.  The Sword of Damocles which is the Mueller investigation keeps Trump vulnerable and distracted, and thus helps conservatives control his actions.  Without the threat of being found out by the investigators, Trump might actually try to assert his constitutional authority.  He may not be smart enough to get very far, but he could certainly make it more difficult for those controlling him to achieve their own agenda.

This puppet master reality is also the reason why Jeff Sessions keeps his mouth shut when Trump treats him like garbage.  Sure, he probably doesn’t like being excoriated publicly, but he still has a “boss” that he can manipulate freely.  In the end, Sessions gets whatever he wants from the President, so he’s willing to put up with some tantrums. (Sounds like a Dilbert comic strip, if you think about it.)

The funny thing about this is that, when Trump rages about the “deep state”, he’s not wrong.  There is a deep state at work here, and they are trying to limit what he is able to do as President.

The twist is that it is his own guys doing it.  It’s not the Democrats.  They’re not the ones whose goals are being pursued.  The deep state in this case is a conservative cabal.  The meetings of conspirators in the fancy restaurants of Georgetown are not New York liberals.  They are Midwest and southern conservatives.  You thought Mitch McConnell is spineless?  No, he’s evil.

Ah, but then there’s the other twist.

The conservatives are not the only puppet masters.  Remember Putin?  He is also still trying to manipulate Trump, but with different goals in mind.

Now, from a purely practical point of view, the Washington conservatives are apparently winning this battle of the puppet masters, at least in the short term.  That tussle is not over, though.  Putin is biding his time.

After the mid-terms, there will likely be disarray in Washington, as the Democrats either control Congress, or deadlock it.  Congressional attacks on the President will ramp up, and he will be under more dangerous fire from the progressive side.  The conservative agenda will be (mostly) stymied, Congress and the Supreme Court will be politically opposite (but with narrow majorities), and the United States will be in a relatively weak position on many fronts, both domestic and foreign.

How will Putin take advantage of that situation?  He has many options, but his foundation has been set already.  Trump is his guy whenever Putin decides to activate him.  The Russian President has his hand ready to slip inside his custom-designed Trump hand-puppet, and his goal won’t be to Make America Great Again.

  –  Jay Shepherd, September 8, 2018

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Enemy of the People

The role of the press – or, as some put it, whether they are the “enemy of the people” – is a live issue in today’s society.

No, no, you say.  This is not an issue for society at large.  It’s just an issue for a certain American president and his ilk.

Ah, but that’s not really true.  Perhaps for Mr. Trump and crew CNN is the enemy of the people, but for others it is Sean Hannity, or – perish the thought – Alex Jones.

The fact is that, as we all have increasingly easy access to great quantities of information, the identities, biases and agendas of those who deliver and analyse that information become a bigger issue.  The American president prefers to speak to the people directly, without the filter of the press.  In years past, that wasn’t possible, but today it is.  Does that mean the role of the news “middlemen” is a thing of the past?

It seems intuitive to ask the question:  “Who are these self-appointed talking heads that think their opinions on current events have value?  Why should be listen to them, when we can get our information directly, untainted by their views?”

The answer lies in curation.

Most of the things we learn that are of value are part of a larger process in which extensive amounts of information are reviewed by intermediaries, usually experts in a field, then packaged and explained for the rest of us.

Go to an art gallery.  Is this just a random collection of paintings?  Certainly not.  A person (or maybe many) with a specific expertise in art has selected the paintings that hang on the wall.  First, he or she has amassed a collection, which is already a tenth of one percent, or less, of the best available art.  Second, the curator has consigned 95% of that collection to the basement storage areas, while showing only the most interesting 5% on the walls of that gallery that you love so much.

Without a talented, inspired curator, we would not go to that art gallery.  Most of the art work on the walls would be lower quality, because it did not have the benefit of an expert’s eye in the curation process.   Even what was shown would not be as attractive, because the curator’s expertise in presentation would be missing.

There is a lot of art out there.  We get to see the good stuff because of the work of curators.

Museums, ditto.  How many dinosaur bones do you think there are?  Several gazillion, and more being found every day?  At least.  When we show up at the museum, a tiny fraction of the available dinosaur bones is on display, curated and presented by an expert paleontologist.

Now, we usually think of curation as being unique to museums, art galleries, and the like, but the actual concept of curation is about the organization, prioritization, presentation and analysis of information in a manner that people can understand.

Take a more mundane example.  The periodic census generates a lot of raw data, but it is almost completely useless in that format (even to experts).  It could be very useful, in many aspects of society, business, politics, etc., but not as raw data.  We collect it to use it.  We have to make it usable.

Enter the curators.  Depending on the area of expertise, curators take that data and select parts that are relevant to their goals.  An expert in marketing will select categories of data that are known to influence peoples’ purchasing preferences.  That expert will package that information into charts, graphs and tables, and will highlight relationships between the data categories.  Retailers, mall operators, advertisers, and others will use that curated information to make product development and marketing decisions.  They use it because the curators – the experts – have made the information usable.

That same data set is available to policy-makers, but they can’t use it without curation either.  Economists, for example, will select, collate, correlate, and present components of the data to allow policy-makers to understand problems in society, and test how they can be solved.  Without the curation by economists (and other experts in aspects of this field), the policy-makers would be frozen in their tracks by the quantity and inaccessibility of the data.

That’s what curation is all about:  making information accessible.  Just as a teacher in a classroom provides a limited subset of information to the students – curating that information – so in most other areas of our society the information we use in our daily lives is curated by experts.

How about an even more mundane example:  corporations.  The Board of Directors of a company is charged with the responsibility to direct the business and affairs of the company, but the quantity of information available to inform that task is far beyond what they could actually handle.  They rely on management to provide briefing notes, memos, and other summaries and subsets of that broader quantity of information.  Management curates the information available to the board.

It goes further.  Management doesn’t have all of the information either.  They rely on people that report to them, and sometimes on executive information systems (computer programs) to curate the information that they have.  They can’t look at everything either, so someone has to provide them with a manageable, and accessible, set of information.

Professionals are the ultimate curators:  lawyers, doctors, architects, engineers, etc.  Certainly professionals do things with the information they have, of course, but a big part of their role is to synthesize the mass of information they have in their field of expertise into the things that matter, and then to understand and explain how they matter.

I’m a lawyer.  How many thousands of cases have I read?  (OMG, it is impossible to fathom.)  When my client (or a judge or other adjudicator, for that matter) asks for an explanation on what those cases say, I can’t tell them to go read the cases.  I have to curate that data, and provide it to them in a summarized and accessible form.  And, I have to add my analysis of the meaning of that data.  That’s what curators do.

(Just in case you wonder, yes the “law” available to me is also curated before I even see it.  There are millions of legal cases relevant to me, but only thousands are reported, and only hundreds are summarized and commented on by other experts.  After all that, I then have to add my analysis.  I can’t read all the law, just like you can’t read all the sports statistics, as much as you might try.)

So that brings us back to the press.  Remember the press?  This article is about the press.  (That was Arlo Guthrie you were channelling right there:  “Remember Alice?  This song is about Alice.”)

You don’t complain when a lawyer explains the law to you.  The lawyer is an expert.  That’s their job.  Similarly, you don’t complain when an art gallery only shows 5% of their collection, and 0.01% of the available art.  That is their job, and they are experts in the field.  What would the world be like if we didn’t have people to select, collate, correlate, and analyse information?

So why would you complain if the press does the same thing?  There are millions of events happening all the time.  Someone has to figure out which events are noteworthy, find a way to communicate them, and provide analysis on why they matter.  That is a special expertise.  Someone has to do that.  Why can’t it be Anderson Cooper of CNN, or David Brooks of the New York Times, or even Alex Jones of InfoWars?

The answer – no surprise – is trust.

You see, when we accept the curation of various categories of information by art gallery owners, or paleontologists, or economists, or even lawyers (all of whom have biases), we rely on a system in place to ensure they give us good quality curation.

When you go to an art gallery, the quality of the paintings on the walls is attested by the reputation of the gallery.  The curators may change from time to time, but the Art Gallery of Ontario will always have high quality art on display.  You know that because the AGO wants to protect its reputation, so it hires only the best, most qualified, and most talented, curators.

Reputation is a market concept, and for many curators the market establishes the value of their work.

A board of directors uses a slightly different approach to ensure management provides well-curated information, but it is still part of the same system.  The board looks critically at the information, and sometimes tests it for accuracy and completeness, but mostly the board considers whether the results of their decisions are what they expected.  If a board’s decisions have negative or other unexpected consequences, they will look at the information on which they made those decisions to determine why that happened.  If the information was poorly curated (incomplete, misleading, low quality, etc.), management will be in deep doo-doo.

Feedback loops – the consequences of relying on information – are another way in which the curation of information is tested and rated.

When professionals provide information to clients and others, a combination of similar tests applies.  To some extent, we know which professionals are the best at what they do through the marketplace.  People have reputations.  As well, when providing information, professionals know that other professionals will be looking at that information, testing whether they agree, whether it is good information.  Some lawyers win more cases than others.  Some architects have buildings that work better than those designed by others.

We trust most of the curated information that is provided to us because there are checks and balances, through the market and through verification procedures, that allow us to identify the best quality information.

Can we trust the press in the same way?

The fact is that individual members of the press start (at least theoretically) with an expertise in understanding current events, and a desire to get to the truth.  Those are the key elements in effective curation of the news.  Just as the lawyer wants to get to the right answer, and has the training to do it, so too does the typical reporter.

On the other hand, members of the press also have their own biases and motivations, not all of which are consistent with complete objectivity and truth-telling.  Further, the companies that deliver the news – the New York Times, the Washington Post, CNN, FoxNews, etc. – are private companies with owners that have their own points of view (and in some cases, their own agendas).

Perhaps more important than either of these things, press vehicles are in business to make a profit, much of which depends on providing their viewers or readers with information that is truthful, sure (maybe), but also entertains.  Which is more important is not always clear.

All of that means the press is not a monolith, with all members of the press being worthy of the same level of trust.  Rather, some can really be trusted, and others, not so much.

There is a risk, of course, that we will simply trust those that say the things we want to hear, and distrust those who don’t.  That’s what the American president (and all those who rely on demagoguery) would like us to do.

We know in our hearts that is stupid, while at the same time understanding our tendency to do just that.  We know that when a lawyer says we have a great case, the fact that we want to hear that should not be a factor in how much we trust that opinion.  We have learned the hard way that believing what we want to hear – instead of insisting on the truth – often has negative consequences.

As with other curators, our first level of protection should be reputation.  Press outlets that speak the truth, over a long period of time, can be trusted more because of their history of doing so.  What you read in the Washington Post or the New York Times is simply more likely to be the truth than what you hear on InfoWars.  Reputation matters.

The second level of protection is consequences.  If you listen to CNN, and form opinions after hearing what their reporters and commentators have to say, what do subsequent events tell you about those opinions and conclusions?  Was the information CNN provided to you consistent with what happened, or were they out to lunch?  Was the opinion you formed a good one, or was it marred by poor input?

Sometimes you have to be patient with the consequences analysis.  Even conspiracy theorists can spin out their story for a while, before reality intervenes.  Sooner or later, though, those that have provided better information, and better analysis, will be right more often than their less able peers.  Much of current events analysis is about predicting the future.  Some people will be right more consistently than others.

Sorry, you wanted a more black and white answer?  It doesn’t exist.  Curation of the news, just like curation of any other body of information, has good practitioners, and bad.  And, there are only mushy, inexact ways to tell the difference between the two.

What is crystal clear is that we can’t live with the alternative.  Someone has to curate our information on current events, just as we need someone to filter and assess every other category of information we see and use.  The alternative is to let the newsmakers themselves, with their own obvious biases, curate (or should I say “spin”) our news.   Believe what Donald Trump says is true, rather than what a body of reporters says is true.

Hey, that’s what happens in totalitarian countries.  Why not here as well?

“Enemy of the people”?

Just saying.

–  Jay Shepherd, August 8, 2018

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Dotard vs. Little Rocket Man

I have been trying not to write about anything Trumpian.  I feel like he has already received more attention than he deserves, and yet everyone keeps piling it on.

But a Nobel Peace Prize?  Seriously?

Let’s recap.

The little rocket man, Kim Jong-Un, and the rich kid from Queens, aka the “dotard”, are not the best of buds.   They should be, I suppose.  They both built their power on the basis of what they got from their daddys.  They are both nuttier than fruitcakes.  They are both narcissistic and not very bright.  In some senses, it could be a friendship made in heaven.

Somehow, though, I doubt their upcoming meeting in Singapore on June 12th is going to be just two soulmates, kicking back and sharing fake news stories.

For Kim, his agenda is to trade his failed (destroyed, apparently) nuclear program for something of actual value, in this case access to goods and markets of countries other than China, particularly South Korea.  He also wants to show everyone that he is important enough to meet with the President of the United States.  In fact, to make POTUS come to him, rather than the other way around.  How good is that?

For Trump, he thinks his agenda is world-wide respect, and thus success at the mid-term elections and in his own re-election bid a couple of years from now.  As per usual, he doesn’t actually care whether he delivers peace on the Korean peninsula.  He just wants any result that makes him look better than Obama, and Bush, and Clinton, and the other Bush, and everyone else that couldn’t achieve Korean peace.  Even everyone’s hero, Ronald Reagan, couldn’t deliver that.

To GOP governors and congressmen, fearful of decimation in the mid-terms, getting the little rocket man to agree to meet at all is reason enough for Trump to get the Nobel Peace Prize.  He has, in their minds, taken a key step in the direction of peace, one step further than anyone else.

Clearly, he has finally shown his inherent brilliance, that light he has so successfully hidden under a bushel for far too long.

On the other hand, we may have slid inadvertently into an alternate universe, and any moment there will be unicorns dancing on the head of a pin singing Kumbaya.

So perhaps it is worthwhile to step back from the breathless abyss, and think about the motives of the only person in this drama that really matters.

Xi Jinping, the President of China.

Forbes recently named Xi the most powerful person in the world, and there is not much doubt they are correct.  As President of China, and General Secretary of the Communist Party (and too many other titles to name), he is effectively the controlling leader in China.  Nothing happens without his approval.

Now, what Xi wants is to build the Chinese economy and power on the strength of its dominance in the Asian and African economies.  He knows that the ten ASEAN countries, as well as Japan, are afraid of Chinese economic hegemony, but if he is going to continue the growth of the Chinese economy he needs markets and allies (or client states, more precisely).

The only country really standing in his way is America.  Europe cannot get their act together to challenge China, and Russia, for all its bluster, doesn’t really hold a candle to China when it comes to economic power.  India, the only other potential pretender, is thirty years behind China.  Their day may come, but right now they are markets, not competitors.

The biggest threat to China would have been the Trans-Pacific Partnership, or TPP, which as originally conceived would have been a trading bloc, led by the U.S., and including some Asian countries (notably Japan, Malaysia and Vietnam), as well as Canada, Australia, New Zealand and some South American countries.  Thanks to Xi’s buddy Vlad over in Moscow, there is a new sheriff in the White House, and in January 2017 he withdrew the U.S. from the TPP.  While the remaining signatories are trying to move forward, a TPP without the U.S. is much less of a threat.

Xi is now in a position where he can push his trade links with other Asian countries, with scant resistance.  While Japan is still in TPP, Korea is not, nor are the Philippines, Thailand or Indonesia.

If you exclude Japan, Korea is the big prize there.  It is far and away the most developed economy in Asia, outside of Japan.  It has advanced technology, and strong links to the U.S., but is also China’s biggest trading partner.  Between the north and south, there are more than 75 million people, and particularly in the north there is both an available workforce, and huge demand for Chinese products.

It is not accidental that Kim’s willingness to meet with Trump (and with Moon Jae-In, the President of South Korea) sprang seemingly out of nowhere after Kim met with Xi.  North Korea has only two land borders:  with South Korea, and with China (except for a tiny bit with Russia).  The South Korean is currently closed to most trade.  The Chinese connection is the main source of any goods North Korea has right now.  China represents 83% of North Korea’s international trade.

What China wants, North Korea must do.

All of this talk about U.S. sanctions against North Korea entirely misses the point.  North Korea is not going to be trading with the U.S., sanctions or no sanctions.  North Korea has no money, and they don’t produce anything that the U.S. wants to buy.  The same is true of most other countries.  Trade with China, on the other hand, is critical to North Korea’s very survival.

Meanwhile, back in Washington, Trump is picking fights with Xi, imposing high tariffs directed at Chinese goods, and increasingly accusing China of being the enemy of U.S. prosperity.  Fueled by his MAGA rhetoric, Trump’s xenophobic approach to trade has his supporters happy.

For Xi, this is not a bad thing.

Tariffs on Chinese aluminum and steel?  China’s recent sales of aluminum to the U.S. amounted to a rounding error (0.019%) in China’s $2 trillion of exports in 2016China’s steel exports have been dropping overall, because they need more steel domestically as their economy grows.  Trump’s actions are not hurting China.

But Trump’s actions will hurt the U.S., as Xi well knows.  Making inexpensive imported aluminum and steel more expensive will increase overall steel and aluminum prices in the U.S., increasing the cost of American manufactured goods.  This will allow China to move some of its production to higher value-added products, in which it will now have a greater price advantage over U.S. products.

Further, higher domestic prices for goods in the U.S. will slow the American economy, and weaken the U.S. further.  If Xi can goad Trump into further protective trade actions (cancelling NAFTA, for example, or continuing his war on the WTO), the costs to Americans, and the benefits for its trade competitors, will increase.

In short, right now Xi is winning when it comes to dealing with the U.S., and Trump is a big reason for that.

All of which says that Xi likes having Trump around.  Xi knows that he can manipulate Trump, who is not as smart – and certainly not as strategic – as Xi.  Having a puppet president to do his bidding is great for Xi.

What Xi doesn’t want is two things.

First, he doesn’t want a shift in the balance of power in Congress at the mid-term elections.  That might result in Trump being prevented from doing the bone-headed things that Xi wants him to do.

Second, he doesn’t want Trump to be a one-term President.  If he has Trump to deal with for another six years or more, he is confident he can, through Trump, do enough damage to the U.S. economy that Chinese dominance – at least in Asia and Africa – will be sustainable.  If Trump is not strong enough to withstand a re-election challenge in 2020, then from Xi’s perspective there is a good chance he will be dealing with a much smarter White House come January 20, 2021.

All of which brings us to Singapore in June.

What Xi wants is to prop up Trump, and the little rocket man is his instrument to do that.  If Xi can orchestrate some kind of deal between Kim and Trump, in which Kim gives up as little as possible (a nuclear program that has already collapsed), while Trump gives up something meaningful (some of South Korea’s military protection, and all of the North Korean sanctions), but Trump comes out of it looking presidential (wouldn’t that be something), then Xi strengthens Trump.

In the best of all possible worlds, what is looking like a shift in power at the mid-terms ends up being a razor-thin GOP Congress (both House and Senate).  Trump will not be able to anything completely crazy (no all-out wars allowed), but he will be given leeway to make whatever mistakes Xi wants him to make.

It would also enhance Trump’s re-election prospects.  Americans like to re-elect their presidents, unless they are really bad.  A Trump diplomatic victory in Korea may be just enough to make him electable again.

Of course, that is the primary plan:  save Trump, but at low cost.  There is also a backup plan.  If it is not possible to get Kim and Trump to make a deal, then at the very least increasing the destabilization of American politics continues to be a worthwhile goal.  The lack of a deal may have the beneficial effect of hardening the pro- and anti-Trump positions of Americans.  And, if there is further disarray in the U.S., Asian and African countries that would otherwise look to the U.S. as a strong ally may be more amenable to Chinese overtures.

Oh, and one other thing.  What about Korea?  Is it still possible to achieve détente between North and South Korea, even without a deal?

The answer is yes.  China is the biggest purchaser of South Korean goods in the world ($158 billion in 2016, more than twice as much as South Korea sells to the U.S.), and South Korea is the fourth biggest purchaser of Chinese goods in the world ($94 billion in 2016).  If Trump fails to make a deal, Xi has ample leverage on both North and South Korea to make a deal happen.

That step has always been available to China, of course, but there was never a compelling reason for China to make it happen.  A Trump failure in Singapore could be such a reason.

Maybe Trump should get the Nobel Peace Prize after all.  If after 65 years there is finally peace in Korea, and the main reason for it is that Trump is Xi’s perfect puppet, then he is still playing a key role, just as Charlie McCarthy did for Edgar Bergen years ago.

Shouldn’t that count for something?

   –  Jay Shepherd, May 20, 2018

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