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US–Saudi Relations
THOMAS MCARDLE was a White House speechwriter for President George W. Bush and writes for IssuesInsights.com. Thomas McArdle
Deflated Diplomacy
Inflation is the least of the repercussions of Biden’s incompetent diplomacy
When President Barack Obama received his Nobel Peace Prize less than 11 months after his inauguration in 2009, the young, new president with close to zero foreign policy experience correctly made a point of defending the practice of dealing with thuggish regimes.
Human rights, Obama said in Oslo, “must be coupled with painstaking diplomacy. I know that engagement with repressive regimes lacks the satisfying purity of indignation. But I also know that sanctions without outreach—condemnation without discussion—can carry forward only a crippling status quo.”
The first example Obama chose to cite: “In light of the Cultural Revolution’s horrors, Nixon’s meeting with Mao [in 1972] appeared inexcusable.”
Not only has President Joe Biden selectively defied his former boss’s exhortation, but his administration’s diplomatic ham-handedness toward a less-than-pristine U.S. ally has helped that same communist China’s aims toward global domination.
Inflation months ago became much worse than the Biden administration, in its wishful thinking, believed possible. One way to lessen inflation might be to get the Organization of the Petroleum Exporting Countries (OPEC) to increase production. But how do you do that when you’ve diplomatically dissed OPEC’s dominant member, Saudi Arabia, the world’s largest, most profitable oil exporter, for the brutal 2018 murder of Saudi journalist Jamal Khashoggi, carried out within the Saudi Embassy in Istanbul and conducted by Saudi agents?
The sight of 36-year-old Saudi Crown Prince Mohammed bin Salman in his shorts at his palace by the sea was a signal to keep things mellow. Yet, at this inaugural meeting with the de facto Saudi ruler last September, Biden national security adviser Jake Sullivan, boy-faced at 45, proceeded to practice the ill-advised “satisfying purity of indignation” and bring up Khashoggi. Not surprisingly, he got shouted at by the youthful crown prince—who also told him that the United States’ wishes that OPEC boost its oil production wouldn’t be happening.
During the presidential campaign, Biden promised he was “not going to, in fact, sell more weapons” or provide “subsidies” and “material” to Saudi Arabia, and that he would “make them pay the price and make them, in fact, the pariah that they are.” Not content with that, Biden accused the Saudi royal family of “murdering children.”
We can be sure that no Beijing or Moscow diplomat has ever botched private meetings with Salman by scolding him regarding Khashoggi; their regimes both have their own Khashoggis.
First of all, Biden is reviving a significantly worse version of Obama’s Iran nuclear deal, which Saudi Arabia knows will fast-track a nuclear-armed Iran.
Demonstrating the devastating ripple effects that U.S. ineptitude can inadvertently set in motion, Saudi Arabia earlier this year began active talks with communist China to shift to conducting, at least partially, its oil sales to China in yuan instead of U.S. dollars, a change that could cause other oil-producing countries to follow suit, China now boasting the world’s largest economy.
Saudi Arabia, whose biggest trading partner is China, is a key player in Beijing’s trillion-dollar Belt and Road Initiative (BRI), which seeks to extend China’s economic dominance throughout the world, often through debt-trap diplomacy. Nineteen Arab countries have now agreed to BRI construction projects. China has long been selling weapons to Saudi and is apparently helping the kingdom build its own ballistic missiles.
In the wake of the European Union imposing a phased oil embargo on Russia over its aggression against Ukraine, boosting the global price of oil even further, “OPEC+,” which includes Russia, will increase production by only 432,000 barrels per day in June, despite repeated pleas from the Biden administration for more.
Is it any wonder amid all this that the leader of the free world could not even arrange a phone call with Salman, or with United Arab Emirates President Sheikh Mohammed bin Zayed al Nahyan?
Now, Biden is reportedly seriously mulling a visit to Saudi Arabia in hopes of securing a face-to-face meeting with the crown prince he called a child murderer. It’s more likely that such a trip will be used to humiliate Biden and America, with Salman gleefully standing him up.
Real leadership by the world’s lone superpower recognizes that evil is to be found in corridors of power all over the world. In defense of liberty, it weighs and evaluates the evils, in the end unavoidably dealing with, even sometimes allying with, thugs. With China, Russia, and Iran to contend with, Biden ineptly aimed his ire at, as far as American interests go, a lesser evil.
Just how much “satisfying purity” will Biden and his band of diplomatic blunderers feel when they realize that, with global dominance at stake, they’ve been shooting in the wrong direction?
ANDERS CORR is a principal at Corr Analytics Inc., publisher of the Journal of Political Risk. He is an expert in political science and government. Anders Corr
Cancel All Debts to China
Sri Lanka’s debt is an example—but others should follow
One of the many threats to the United States from China runs through Sri Lanka. In that South Asian country, there are ongoing food riots. Sri Lanka owes so much to Beijing that it had to surrender one of its ports, plus 15,000 acres, for 99 years. Beijing doubtless seeks to turn the port, about 250 miles from its arch-rival India, into a naval base.
Other countries also owe dangerously unsustainable amounts of debt to Beijing. Djibouti, Laos, Zambia, and Kyrgyzstan owe at least 20 percent of their respective gross domestic products (GDPs) to China. Most emerging market countries like this are paying more and more of their national income as interest. Once they can’t pay, the Chinese Communist Party (CCP) springs the trap, demanding major concessions, including military bases that threaten the United States and its allies.
China already has a military base in Djibouti.
Beijing makes extraordinary profits on exports to the United States and Europe, then loans money to poorer countries around the world to finance infrastructure building by China’s own companies. The interest rates, repayment periods, and seniority of the debt (China gets paid first) are highly advantageous to the regime in Beijing, because the CCP makes sure to grease the palms of leaders who cooperate with up to millions of dollars.
The usurious terms that result must be kept secret, or else they outrage voters. According to the Financial Times on June 1, China “proved to be needlessly secretive in its dealings, so sovereign debt is more opaque than it was, as well as more fractured.”
The seniority of China’s loans is a stab in the back of international institutions such as the World Bank and International Monetary Fund, along with U.S. corporations that lent money to emerging market countries long before Beijing came along.
“Unless and until debtors plagued by weak institutions and ... corruption are held to account, a dollar borrowed will continue to be a dollar gained,” according to Jay Newman, author of a book on illicit global finance.
Emerging market countries “will suck in as much money as they can, whenever they can—whether from markets, from bribes, from the IMF, or from China—and hide behind the notion that events spiraled beyond their control,” he wrote.
While the top politicians in these debtor countries spend their illicit millions—pennies compared to the billions in debt with which they saddle their countries—their people sink deeper into poverty and hunger.
In 2019, Sri Lanka was an upper-middle-income country with $8 billion in reserves. Last month, it defaulted on $50 billion worth of international debts. Sri Lanka’s crisis has devolved into government begging from neighbors amid anti-government riots. In the short term, the country needs approximately 100,000 metric tons of food.
Sri Lanka is now plagued by fuel shortages, power blackouts, lack of medicine, delayed treatment at hospitals, and double-digit inflation. Rising interest rates in the United States and Europe will only further starve Sri Lanka and other emerging markets of capital.
India stepped in with $3 billion in credit and currency swaps for Sri Lanka. Still, India is the other country, in addition to China, that imposes egregiously opaque terms on their foreign loans. They seek to make their debt senior to that of international institutions and U.S. loans. The latter, which typically have better terms for poorer countries, are being driven out.
During Sri Lanka’s time of greatest need, its “friend” China only offered a few hundred million dollars—in loans. The mask has dropped, and now, it’s time for the CCP to try to extract another pound of flesh.
Sri Lanka, and the world, should say no. The CCP’s usurious debts globally are only imposed by bribing leaders and tricking voters. China’s regime is itself illegitimate, totalitarian, and allied with Russia.
Defaulting on loans to China would thus do the world a service, and ease a humanitarian crisis in emerging market countries. Western capital markets shouldn’t penalize Sri Lanka and other emerging markets for doing the world a favor.
Most emerging market countries are paying more and more of their national income as interest. Once they can’t pay, the CCP springs the trap, demanding major concessions, including military bases that threaten the United States and its allies.
MILTON EZRATI is chief economist for Vested, a contributing editor at The National Interest, and author of “Thirty Tomorrows” and “Bite-Sized Investing.” Milton Ezrati
Can Biden Help Housing?
White House solution isn’t nearly enough
t one time or another, every politician—local, state, and federal— promises to help create “affordable housing.” The issue has become especially critical of late with rents and housing prices rising and higher interest rates making it more difficult to support a mortgage.
The Biden administration has responded with a five-point program. Some of its elements have merit, but from a practical standpoint, it isn’t likely to do much to make housing more affordable.
The problem with housing costs has indeed become more acute. According to Realtor.com, rents on average nationally have risen some 17 percent over the past 12 months. The Case–Shiller home price index reports nearly a 20 percent rise over this time. Prices of construction materials have risen some 19.2 percent, and the cost of construction services has jumped some 18.1 percent. Mortgage rates were less than 3 percent a year ago; presently, they stand at about 5.5 percent.
The National Association of Realtors’ measure of home ownership affordability tracks a 9.3 percent drop over the past 12 months.
Against this adverse background, it’s certainly understandable that the White House wants to do something to ease the strain. Here are the five points of its program and the limitations of each.
President Joe Biden’s plan first looks at zoning and land use. It’s a good place to start. Zoning—such as strictures on multifamily units— often keeps housing prices high. Such impediments to construction have received much of the blame for astronomical home prices in places such as San Francisco and Berkeley, California.
Rent control in New York City and other cities across the country gets the blame for why landlords resist refurbishing and expanding availability in existing structures and why residents continue to keep huge apartments off the market when they might otherwise downsize. Strictures against multiuse arrangements in existing buildings also have held back housing supply.
But if these are good places to look, there is little the federal government can do. Most such rules are made at the local level. Washington can’t simply order states and cities to change their laws, much less enforce them in different ways.
Meanwhile, local politicians face considerable resistance to change. Zoning changes frequently face opposition from existing residents. They reject high-rise buildings because they will change the nature of the neighborhood and hurt property values for those already in place.
Low-cost housing often faces resistance on a not-in-my-backyard (NIMBY) basis. Those resisting are also usually big donors to local politicians. It’s simply unrealistic to expect a mayor or city council members to cross their big donors because Washington thinks it’s a good idea.
Nor is it clear how the White House would implement the second and third points of its program: increasing financing options for non-traditional construction, such as manufactured housing, and improving coordination of multifamily housing financing programs. Much of this is outside Washington’s power to influence, especially in the absence of major legislation.
There are multifamily federal housing finance programs, and better coordination would undoubtedly help stimulate building. Still, such efforts would have to be robust enough to overcome the notorious tendency for Washington bureaucracies to move slowly and guard their prerogatives.
The final element in the White House plan would deal with shortages of labor and the high cost of building materials. The language here is vague. For example, it’s unclear how the White House plans to find more construction workers. There is no talk in the plan about subsidies and training. It does mention the promotion of modular and manufactured housing, as well as conducting research on labor-saving construction technologies.
But even if such an effort could come up with a good idea, it isn’t clear how Washington could get the nation’s highly fragmented construction industry to adopt it. On materials costs, one clear area where Washington could help is by allowing low-cost Canadian softwood into the country, but the plan is silent on that matter.
Affordable housing remains an urgent issue for millions of Americans, especially since housing is becoming less affordable by the week. If any of what the White House proposes does help, it would make little difference at best and certainly will take longer to have an effect than most would like.
