Between a rock and a hard place
Ever the pragmatist, Biden fights inflation and Putin, even if that means playing nice to MBS and Xi Jinping
Thu, Jun 16, 2022
DURING World War II, British Prime Minister Winston Churchill, a long-time anti-Communist politician, ended up allying his country with the Soviet Union, led then by the dictator and mass murderer Joseph Stalin, as part of a strategy to defeat Nazi Germany.
So after Germany attacked the Soviet Union in June 1941, and Churchill raised many eyebrows when he expressed strong support for the Soviets and praised Stalin in an address in parliament, the British PM declared that “if (Nazi German leader Adolph) Hitler invaded hell I would make at least a favourable reference to the devil in the House of Commons”.
No one, of course, would compare the threat of surging inflation in the United States to that posed by Nazi Germany in the 1940s, and probably even their most ardent critics would not liken Saudi Crown Prince Mohammed bin Salman Al Saud (MBS) and Chinese President Xi Jinping to the devil.
But at a rate of 8.58 per cent, the high inflation, coupled with wars in key commodity countries, slowing economic growth, fears of tightening monetary policy, and turbulence in the financial markets, are forcing US President Joe Biden to reassess ideological dogmas and earlier policy positions.
There is general agreement that the power of American presidents to influence monetary policy is limited and that the job of fighting inflation falls on the shoulders of Federal Reserve chairman Jerome Powell who, indeed, on Wednesday (June 15) announced an interest rate hike of 0.75 percentage points, the biggest since 1994.
White House occupants can, however, accelerate inflationary pressures by embracing expansive fiscal measures or adopting policies at home and abroad that would make things worse.
Ever the pragmatist, President Biden gets that. Which is why you won’t see him in the next two years promoting Build-Back-Better-like spending programmes worth trillions of US dollars. Instead, he’ll be calling on American companies to pump more oil, even though that approach is bound to antagonise the powerful progressive wing of his political party as well as the environmentalist activists who had counted on him to launch a green revolution.
Sorry guys, but all of this would have to wait for a while until we get inflation under control, and especially if the Republicans take control of Congress after the next midterm election. This is the way a politician who has survived close to 50 years in Washington reacts to the unexpected: Reversing direction and moving on.
Case in point: President Biden entered office pledging to punish MBS for murdering a Saudi columnist for The Washington Post and bashing Saudi Arabia as a “pariah state”, and even refusing to nominate a new US ambassador to Riyadh.
The policy ran contrary to US policy, going back to the late 1940s, of treating the kingdom, a major oil producing country, as a close American ally helping to keep global oil prices down and supporting American policies in the Middle East.
But with the US becoming the world’s largest energy producing nation and less dependent economically and strategically on the Arab oil-producing states, President Biden could allow himself to antagonise MBS and please the American human rights lobby and his progressive allies. It also seemed to fit into the president’s foreign policy narrative, under which the US is leading a coalition of democracies against autocracies like Saudi Arabia.
Then inflation happened, however, and gas prices at the pump started rising and hurting American consumers who President Biden hoped to impress before the coming midterm elections, with the economic recovery taking place under his leadership.
And then Russia invaded Ukraine, followed by a Western strategy of economic sanctions against Russia, a leading energy producing country. That policy started to raise oil and gas prices into the stratosphere, hurting in particular European economies that are dependent on Russian gas supplies and making the lives of American consumers even more miserable.
So President Biden decided to pick up the phone and call MBS and the head of the United Arab Emirates (UAE) , another Arab Gulf oil-producing state, Mohamed bin Zayed Al Nahyan (MBZ), to ask them to start pumping more oil and flood the global energy markets. Such a move would immediately put downward pressure on global energy prices and help the US and its allies confront the Russian aggression.
But both MBS and MBZ refused to return the American president’s phone calls, explaining that their relationship with Washington is a two-way street. If President Biden wants them to take action that isn’t necessarily in their economic interests since it would lower the prices of their oil exports, he should respond to their concerns.
Hence for months the Saudi military sought new American supplies of US Patriot missiles to help repel drone and missile attacks by Iran-backed Houthi rebels fighting in the civil war in Yemen. But the left-leaning Democrats in Congress pressed the White House to reject those Saudi requests.
But then in March, following the “sorry, Mr President, but the Crown Prince is too busy to answer the phone” …oops… the Biden administration started transferring a significant number of Patriot anti-missile interceptors to the Saudis. And more are in the pipeline.
The move seemed to open the road to a diplomatic détente between Riyadh and Washington and leading to this week’s announcement that President Biden would visit Saudi Arabia, following a trip to Israel, and hold talks with MBS and other Arab leaders, all of whom, according to the White House’s narrative, are authoritarian. For instance, none of the Arab governments was invited to the Summit for Democracy that Biden held in Washington last December.
And then there is President Xi, buddy of President Vladimir Putin, who is leading the axis of authoritarians, trying to retard American geo-economic superiority and ravage its technological base, not to mention China’s stance on Taiwan and its many alleged human rights violations.
Which explains why President Biden’s policies towards Beijing have proved to be not much different, and even tougher, than his predecessor’s, including by keeping in place US$360 billion in annual tariffs on China to punish it for so-called unfair trade practices.
But with inflation at a 40-year high, economists, including Treasury Secretary Janet Yellen, told the president that easing tariffs on China, that were in a way taxes paid by businesses and consumers, would put downward pressure on inflation. And in any case, Washington needs to set its priorities right: It cannot mount a costly economic war against Russia while continuing to pursue one against China.
According to media reports, President Biden is close to making a decision to consider removing those tariffs next month, a move that is opposed by some members of his administration including national security advisor Jake Sullivan and US Trade Representative Katherine Tai, who insist that Washington needs to keep up the economic pressure on China.
Most politically troubling to President Biden is the opposition to lifting the tariffs coming from the major American labour unions that want to continue pursuing the trade wars against China.
So the pragmatist occupying the White House would soon have to decide whether or not to antagonise this powerful political constituency or to place emphasis on what he has now described as the central item in his policy agenda: Fighting inflation.