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November 23, 2024

Neocons Going Out with a Bang

Among the most significant differences between the Trump and Harris campaigns were their respective attitudes to the conflict in Ukraine. Trump has been explicit in his desire to bring about a peaceful resolution through diplomacy. The Democrats appeared more focused on “winning,” whatever that actually means.

On Election Day, American voters sent a clear message that they support Trump’s objective of ending the war in Ukraine. Yet the outgoing Biden administration has now apparently authorized a number of measures that escalate American involvement.

Most notably, Ukraine has reportedly been given the green light to strike inside Russian territory using advanced long range missile systems. Biden secretly authorized the transfer of the Army Tactical Missile Systems (ATACMS) to Ukraine back in February but has only now approved their use within Russia.

Markets are not panicking but seem to be nervously monitoring these events. We witnessed some post-election weakness in the gold price which was arguably attributable to the fact that a destabilizing contested election result did not materialize. Gold has since strengthened as the dynamic with Russia has become more tense. Stock market indices are still above pre-election levels but may be held back somewhat by the rising geopolitical risk.

In response to the Biden administration decision, Putin has approved a modification of the Russian nuclear doctrine. The new policy permits consideration of a response with nuclear weapons to a conventional attack on Russia or Belarus that threatens its territorial integrity or sovereignty.

We will be taking this as a qualitatively new phase of the Western war against Russia and we will react accordingly. - Russian foreign minister Sergei Lavrov

Russia has since retaliated by testing a new intermediate-range ballistic missile system, called Oreshnik. Russia claims it successfully struck a military industrial complex within Ukraine using these missiles, which are capable of carrying nuclear warheads.

Notwithstanding this nuclear brinkmanship as Biden’s chaotic one-term Presidency comes to an end, we are cautiously optimistic that the situation with respect to Ukraine, along with other flashpoints of confrontation among the world’s great powers, will stabilize after Trump takes office.

After Trump is inaugurated, we expect a more pragmatic foreign policy to prevail. Paired with Trump’s support for lower taxes, deregulation and industrial renewal, a more stable international situation should help sustain a more favorable overall investment climate.

While markets are clearly registering these frightening developments, there appears to be a general consensus that this is largely posturing on both sides in advance of Trump’s return to office. War hawks in the U.S. government who currently occupy decision-making roles may be looking to do what they can to deepen American involvement in the proxy war in their final moments of power. The Russians, meanwhile, are signaling to the Americans that they better be careful.

Ukraine policy in flux

The conflict in Ukraine has been presented by the Biden administration and its allies in academia, the media and elsewhere as a case of unprovoked Russian expansionism. Just as they did with Trump, Biden and Harris have made direct comparisons of Putin to Hitler. Putin has been repeatedly depicted as a deranged autocrat with aspirations of European conquest.

As Biden discussed in his most recent State of the Union address, the central premise behind our involvement in Ukraine is that if we simply allow Putin to take the country, he will advance into other countries, even NATO allies. Per this narrative, we must avoid the sort of mistakes made by notorious appeasement advocates like Neville Chamberlain and stop Putin before it’s too late.

While the “Putin equals Hitler” narrative is easy to understand and communicate and positions the U.S. in a heroic way as the defender of democracy and national sovereignty, the reality of U.S involvement in Ukraine is far more complicated.

From a foreign policy perspective, Trump’s election is pivotal not just as a retreat from a costly military conflict with unclear relevance to American interests. It also signifies the abandonment of a deeply flawed foreign policy philosophy that has brought the United States and Russia to the brink of direct war.

It is the demise of the neoconservative foreign policy agenda that gives us hope for a more stable, peaceful and prosperous world as Trump retakes the White House.

The neoconservative grand strategy

Putin did not commence “military operations” in Ukraine out of the blue. The conflict erupted after many decades of friction with the west.

Key points of disagreement have included Ukraine’s involvement in American/NATO military activities and institutions, control over Crimea (a nearly 100% ethnically Russian province where the Russian navy has maintained its only warm water port for about 250 years), and the fate of other ethnically Russian eastern areas.

The origins of the conflict really begin with the collapse of the Soviet Union and the end of the Cold War. Some 30 years ago, America’s longtime adversary was dismantled, while highly populated emerging market countries like China and India were nowhere near being the economic and technological powers they are today. The U.S. swiftly became the dominant power in what international relations experts described as a “unipolar moment.”

Neoconservative foreign policy was hatched in this promising new environment for the United States. The general idea was that America was now “top dog.” The neocons wanted to figure out how to keep it that way.

The movement is commonly referred to as neoconservatism because of the prominent involvement of Republicans in the Bush-Cheney era, many of whom were actually former Democrats. It is also now sometimes referred to as neoliberalism, Atlanticism or even “liberal-primacist,” as Trump foreign policy advisor Elbridge Colby puts it.

Whatever term one prefers to apply, the main gist of neoconservatism has been to extend American/western ideals and liberal institutions around the world by projecting American/NATO power. Neocons advanced policies and behind the scenes strategies that were designed to undermine governments perceived as hostile to their goals. The concept of regime change has always been core to the neocon playbook.

Afghanistan and Iraq

The U.S. response to the 9/11 attacks was perhaps the first major display of neoconservative foreign policy in action. The U.S. occupied Afghanistan and then pursued the overthrow of Saddam Hussein in Iraq.

The big idea was that the Middle East could be totally refashioned. Autocratic regimes would get replaced with democratic structures that would be ushered in by U.S.-led “nation-building” efforts.

Unfortunately, both Afghanistan and Iraq proved to be much costlier (in terms of blood as well as treasure) and less successful than hoped. In the case of Operation Iraqi Freedom, while a bad actor was removed, a power vacuum led to the rise of terrorist groups like ISIS and strengthened Iran. As we know with hindsight some 20 years later, the Taliban continues to control Afghanistan.

Barack Obama rose to prominence as a harsh critic of the Iraq war and beat Hilary Clinton in the primary in large part by disagreeing with her on this issue. Given Obama’s early contempt for neoconservatives, it is rather astonishing to consider that Liz Cheney, who champions her father’s neoconservative approach, actually campaigned with Kamala Harris, whom Obama strongly supported.

Obama was also, at least early in his Presidency, interested in taking a pragmatic approach to Russia. He famously teased Mitt Romney for being exceedingly focused on Russia in the 2012 Presidential campaign. Obama quipped that “the 1980s were now calling to ask for their foreign policy back.”

Just a few months prior, Obama was caught on a hot mic, expressing to then Russian President Dmitry Medvedev that he would have more “flexibility” after the election to work out their differences. Medvedev agreed to “transmit this information to Vladimir [Putin],” who was shortly returning to office.

Obama launched his political career and was propelled to the Oval Office as an anti-war pragmatist. He was attacked for being too willing to talk to American adversaries. Yet somewhere along the way, he fell in line with the neocon perspective.

Regime change in Ukraine

It was in Obama’s second term that the U.S. intervened in the Maidan revolution in Ukraine. Violent protesters drove out the legitimately elected President Yanukovych, who supported an association agreement with Russia over one with the EU.

Within weeks of Yanukovych’s ouster, Russia annexed Crimea and set in motion the complex chain of events and series of diplomatic failures that eventually led to the eruption of war between Russia and Ukraine in 2022.

Neoconservatives became famous as the architects of wars in the Middle East after 9/11, but the neoconservative agenda really developed as a strategy to address former Soviet territories like Ukraine in the late 1990s. Highlighting the bipartisan nature of the movement, a major contributor was Jimmy Carter’s National Security Advisor Zbigniew Brzezinski (who happens to be the father of Mika of Morning Joe fame).

Brzezinski wrote an influential book in 1997 called The Grand Chessboard: American Primacy and Its Geostrategic Imperatives. The main message of the book was that the Eurasian area (Russia, Ukraine and nearby countries) was of the utmost strategic importance. American foreign policy, he argued, should be focused on preventing any other nation from consolidating power in that region.

American meddling in Ukraine over the past few decades starts to make a lot more sense in the context of a foreign policy establishment that perceived control over the Eurasian landmass as vital to preserving American geopolitical dominance.

What went wrong?

The intentions of the neoconservative movement were arguably admirable, at least from the American vantage point. And their strategic insights were not entirely irrational.

There is no question, for example, that Eurasia is strategically important. There is even a certain appeal to the idea of exporting liberal democracy to a region like the Middle East that is characterized by ancient (and some might say oppressive) tribal power structures. Many if not most Republicans bought into this idea some 20 years ago.

The problem, which is the same problem that has afflicted great powers over the course of world history, is that the U.S. overextended itself in its desire to expand and solidify its position of global dominance.

There is room for debate on this subject, but the adventures of the Bush-Cheney administration to reshape the Middle East are widely considered a failure. Afghanistan belongs to the Taliban. Iran is now terrorizing Israel and the entire region and making rapid progress towards a nuclear weapon.

As Trump has consistently pointed out, the U.S. spent trillions on Middle Eastern wars, lost thousands of American lives, killed hundreds of thousand of civilians, and now has little to show for it.

American efforts to peel Ukraine away from Russia have also arguably backfired in a major way. One of the arguments presented to the American people was that supporting the Ukraine war effort would wear down and degrade the Russian military. As a result of heavy military spending and sanctions, the war would perhaps even break the Russian economy.

Some neocons even felt the Russian invasion would lead to the end of Putin’s control over his government. In response to enormous casualties and widespread economic deprivation, the Russian people would rise up and remove Putin from the Kremlin. (Why it would even be in American interests to foment a possible revolution within the world’s largest nuclear power—and potentially cause its disintegration—is a separate question.)

The reality, however, is that the Russian economy is now possibly stronger than it was before the war. Its military is battle-hardened. Its industrial capacity is reinvigorated. Putin appears to enjoy a high degree of popular support. Notwithstanding U.S. attempts to isolate Russia financially, Russia appears to have developed robust workarounds to the U.S. sanctions regime.

No one likes a bully

It has been widely speculated that the US and its allies had the opportunity to prevent Russia’s invasion of Ukraine diplomatically in early 2022 but actually preferred to let the war unfold, based on the theory that it would ultimately weaken Russia. To the extent this was a deliberate strategic decision by the Biden administration, one of the most counterproductive outcomes is how it clearly strengthened the BRICS alliance, which now includes many nations beyond the founding members Brazil, Russia, India, China and South Africa.

In June 2023, Secretary of State Blinken claimed in Helsinki that “Russia is more isolated on the world stage than ever.” Yet Russia appears to be thriving as the ringleader of the BRICS, an economic and political association that is becoming increasingly relevant.

With Russian foreign minister Sergei Lavrov seemingly functioning as the diplomatic mastermind, the BRICS are coming together in response to the U.S.-led sanctions regime against Russia and the weaponization of the global financial system.

Among the highest priorities of the BRICS now is to develop international payment systems that bypass American financial institutions. Systematic growth in the gold reserves of BRICS central banks in recent years is likely connected to this project, which could lead to the creation of a gold-backed BRICS currency.  

With respect to Ukraine, the neoconservatives miscalculated the extent to which Russia would push back on what it has for decades perceived as a serious existential threat to its own security. By bringing Ukraine into its orbit, formally or informally, NATO put Russia in a highly vulnerable position. Moscow sits only 500 flat miles from the Ukraine border.

Supporters of the war in Ukraine also miscalculated the willingness and capacity of other countries around the world, especially China, to lend support to Russia.

The neoconservative playbook was written at a time when the U.S. did not have any serious challengers. Since Brzezinksi first published The Grand Chessboard in 1997, real GDP in China has more than quadrupled. The Chinese economy is still smaller than the U.S. economy at market exchange rates but has surpassed the U.S. economy on a Purchasing Power Parity (PPP) basis, which adjusts for relative costs.

China’s military capability has also seen extraordinary improvement, while the country has become a technological powerhouse in its own right. Chinese manufacturing output is roughly double that of the United States, while its population is approximately four times larger.

The neocon strategy in Ukraine has been to “break” Russia. Instead, Russia and China now have a formidable alliance. This alliance has been widened to include other major nations which share their disdain for the heavy-handed foreign policy tactics of the United States and its European allies.

One of the key concepts championed by the BRICS is the idea of “civilizational diversity” in a multipolar world. No one country has the right to impose its values, customs and political structures on any other.

India is now the most populous country on the planet and has one of the most promising emerging market economies. India has historically pursued a policy of strategic neutrality and has historically had a difficult relationship with China, with which India shares a border. Yet India is increasingly moving in the direction of Russia and China via its involvement in BRICS.

Indian PM Modi and Putin in Moscow (July 2024)

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The conflict in Ukraine may have worked out well for American defense contractors but has been a strategic setback for the U.S. in multiple respects. The U.S. overplayed its hand.

Now close partners, Russia and China are bringing other countries into their circle. Meanwhile, Ukraine, like Iraq, has been decimated.

Some had argued that by sponsoring Zelenskyy’s war effort, the U.S. would deter China from taking control of Taiwan at some point. Perhaps it could have accomplished that if Ukraine had been more successful.

Instead, China now has a better understanding of our military capabilities (or lack thereof, including depleted munitions). The U.S. has also been distracted from the arguably more important goal of projecting power and containing China in Asia.

Within the United States, popular support for American military adventurism is waning, especially among the demographic groups that could be called upon to engage in warfare.

A new path forward

Trump’s election promises a return to a more focused and judicious use of American military power based on hard American interests rather than tenuous theories of advancing American hegemony.

There were neoconservative elements within Trump’s first administration, such as John Bolton, a Bush-Cheney administration figure who served as National Security Advisor. Trump ultimately dismissed Bolton, a notorious war hawk who favored an explicit policy of regime change in Iran, in 2019.

The currently proposed cabinet indicates a clean break with neoconservative thinking. It is already loaded with harsh critics of Biden’s Ukraine policy.

Trump chose as his running mate JD Vance, a disillusioned veteran of Iraq who has been among the strongest voices in the Senate in opposing Biden’s open-ended support for Zelenskyy. Trump’s new National Security Advisor, Rep. Mike Waltz, has loudly complained about the “blank check” for the proxy war and insisted we need to focus resources on the Mexican border instead.

The leaders of the newly proposed Department of Government of Efficiency (DOGE) also strongly disagree with current U.S. policy towards Ukraine. Vivek Ramaswamy and Elon Musk will undoubtedly be influential figures within the new administration.

RFK, Jr. has been a relentless critic of the war and the self-serving role of the defense industry in promoting it. Trump’s proposed Secretary of State, Senator Marco Rubio, has shown some hawkish tendencies in the past but has lately also publicly expressed interest in a diplomatic solution with Russia.

I’m not on Russia’s side — but unfortunately the reality of it is that the way the war in Ukraine is going to end is with a negotiated settlement. - Sen. Marco Rubio

Shortly after the election, Trump made clear who would not be joining his administration: former Secretary of State Mike Pompeo and former UN Ambassador Nikki Haley. Both of these individuals have sided with Biden and championed aggressive support for the proxy war against Russia.

Peace dividend?

War and geopolitical turmoil are generally not good for markets or the economy. The Reagan-Bush era was brought down by a recession in 1991 sparked by Operation Desert Storm, which led to spikes in energy prices. Biden’s own demise resulted in part from the inflationary disruption of energy markets and supply chains caused by the outbreak of hostilities in Ukraine.

Geopolitics is complicated. Conflicts that fester in one arena can easily spill into another. China and Russia are arguably siding with Iran in the conflict with Israel in part because doing so distracts the United States and consumes time, resources and political capital.

In the early 1990s, after Saddam Hussein was repelled from Kuwait and the recession passed, U.S. stocks began an impressive technology-driven bull run. Valuations did become excessive, leading to the early 2000s tech crash. The market’s recovery from that event was substantially delayed, however, by 9/11 and the warfare that followed.

Investors generally benefit from peace and stability, as they did during Trump’s first term before the coronavirus escaped from the Wuhan lab. Investors have rightly focused on the market friendly nature of Trump’s tax, regulatory and trade policies, but an effective foreign policy can be equally important.

Of course, it remains to be seen what Trump’s foreign policy will look like and how successful it will be. But there are good reasons to be optimistic. Trump’s first term saw no major wars and a number of foreign policy victories, like the Abraham Accords.

Perhaps most importantly, the current cast of characters—with their flawed ideological framework, close ties to the military industrial complex, distorted sense of America’s military capabilities, disrespect for the core security concerns of other nations, and remarkable inability to anticipate the full consequences of their decisions—will no longer be running American foreign policy.  

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