Thought of the Week:
“Space, the final frontier. These are the voyages of the Starship Enterprise. Its five year mission. To explore strange new worlds. To seek out new life. And new civilizations. To boldly go where no man has gone before…” William Shatner’s (Captain James T. Kirk) lines during Star Trek’s opening credits are among the most recognizable in television history. As a kid, I loved watching reruns of the original show with my father. The program had everything—communicators and phasers, the Vulcan death grip and mind meld, and of course, three-dimensional chess. In the show Captain Kirk regularly beat First Officer Spock at 3-dimensional chess, not because he was a better player, but because of his unorthodox, unpredictable style. Spock relied strictly on logic and expected his opponents to do the same, while Kirk purposefully made moves that seemed illogical or overly risky, which threw Spock off his game. The scenarios were cast as competing methods to tackle a similar problem—Spock’s logical approach vs. Kirk’s intuitive, human approach. Today, to describe one as “playing three-dimensional chess” implies that he or she operates at a level of understanding and mastery well beyond the comprehension of the average citizen. A game of three-dimensional chess is not unlike the situation the White House currently finds itself facing in the Middle East. This week, we met with a former congressional national security staffer who now serves as a high-ranking White House adviser; he outlined the six, not three, fronts* the Biden administration currently faces:
- Israel/Hamas: the Biden administration wants to end the war, and sees a hostage deal as the key to reaching an agreement;
- Israel/Lebanon-Hezbollah: the situation is tense, there has been some exchange of fire, and there exists a 40% chance that war breaks out on Israel’s northern front.
- Israel/West Bank: while the U.S. believes the Palestinian Authority has a role to play, Prime Minister Netanyahu does not regard them as a potential partner.
- Jordanian, Iraqi, and Iranian proxies: the killing of U.S. service members crossed a red line; however, it didn’t change President Biden’s calculus not to escalate the war. Expect “measured” U.S. action in response.
- Red Sea shipping: the U.S. may take tit-for-tat action but no escalatory responses against the Houthis. At present, Washington hands don’t see the increased shipping costs as a major issue.
- S. political dynamics: there is not much more the U.S. can send to Israel without Congressional passage of a defense supplemental. An eventual border deal may be the price the White House has to pay for Israeli and Ukrainian funding.
How the Biden administration handles this three [six]-dimensional game of chess could determine whether they’re able to move their reelection campaign forward at warp-factor speed.
*For a more complete analysis of any or all fronts, please contact the Washington office.
Thought Leadership from our Consultants, Think Tanks, and Trade Associations
American Enterprise Institute (AEI) Says the Trump-Biden Economic Consensus is Bad for Business. While former president Trump and President Biden differ in many ways, they both reject the broad consensus that governed economic policy in the decades before the 2016 election—one that was supportive of business and in favor of free enterprise. Their rejection is bad for businesses, workers, and consumers alike. Exhibit 1: Free Trade. Former president Trump’s tariffs, which raised the cost of inputs for domestic manufacturers and invited retaliation, led to higher consumer prices and a decrease in manufacturing employment. President Biden largely kept these policies in place. Exhibit 2: Industrial Policy. Officials from both administrations argue in favor of a new consensus that relies on government planning rather than market outcomes. This break with the past goes beyond the aforementioned trade protectionism to include immigration, regulation, and antitrust enforcement. Exhibit 3: Debt and Deficits. In a potential second term neither Trump nor Biden seem set to take serious steps to address the U.S.’s long-term fiscal imbalance; in fact, both oppose reduced spending on entitlements, the programs most responsible for the nation’s long-term debt trajectory. Exhibit 4: Social Construct. Neither Trump nor Biden are comfortable calling for greater personal responsibility; each prefers separate narratives of grievance, victimization, and class division that make the odds of political violence uncomfortably high. Unlike 2016 or 2020, corporate leaders have direct evidence of the harm caused by protectionism, industrial policy, aggressive regulation, and spiraling debt. Business should stop weighing in on social developments, but be vocal about the issues that directly impact their businesses. Corporations should be louder about the positive roles they play in society and champion the free enterprise system broadly. Although no one knows how 2024’s election will unfold, business leaders can no longer afford to be complacent. With neither party in their corner, they need to build support among politicians, public figures, and opinion leaders to make the case for their value and free enterprise.
Eurasia Group Believes Fatal Attack on U.S. Service Members Increases the Risk of Large-Scale Regional Conflict. A drone attack launched by an Iranian-backed militia that killed three U.S. service members increases the risk of a large-scale regional conflict from 30% to 40%. While the base case remains a limited-scale regional conflict (50% odds), the likelihood of de-escalation is down to 10%. The 40% risk of a large-scale regional conflict entails a 25% likelihood that the conflict will not involve Iran directly with only limited oil supply risks, but a 15% chance an expansion includes Iran and has major oil supply risks. The U.S. is expected to respond with increasingly frequent and aggressive strikes against militias in Syria and Iraq, targeting larger and more sensitive targets and potentially IRGC personnel, although strikes against Iran directly are unlikely. Although additional sanctions pressure is also likely, because the White House remains focused on limiting escalation, such pressure will focus on tightened enforcement that stops short of targeting Chinese buyers. The death of service members in the Middle East will be fodder for the Trump campaign as it seeks to contrast the relative geopolitical stability under the Trump administration with the situation under President Biden. To argue that the Biden administration is weak on foreign policy, the former president’s campaign will harp on the scores of attacks on American service members in the Middle East that have already happened as well as China’s role in purchasing Iranian oil exports.
National Association of Manufacturers (NAM) Says LNG Permit Freeze Will Harm U.S. and Allies. Last year, the U.S. became the largest global exporter of liquefied natural gas (LNG), surpassing Qatar and Australia. While growth has been explosive over the past eight years, the Biden administration’s decision to stop approving new export licenses is likely to disrupt plans for billions of dollars in projects. The announcement to pause pending applications for LNG exports was made in the name of achieving the president’s climate goals. Although the freeze on permits will not affect export authorizations that have already been granted, no timeline was given for restarting the review process. U.S. exports of LNG, an affordable, plentiful energy source, have enabled Europe to power its economy without Russian gas. The U.S. has seven LNG operations up and running; 10 others have received Department of Energy (DOE) export approval and remain in development; and four projects have gone through initial permitting and a Federal Energy Regulatory Commission (FERC) review, but will be effectively blocked without final export licenses from the DOE. The Biden administration’s move was cheered by environmental advocates and many of the president’s allies on the left, while Republicans and industry groups warned that the pause could hurt both the U.S. economy and European allies who have come to rely on American LNG amid the ongoing war in Ukraine. In an election year, the White House appears to be gambling that additional action on climate will light a fire under disaffected young voters.
“Off the Record”
K Street and congressional insiders are volunteering to oust D.C. Councilmember Allen (D), who represents the Hill, over his handling of local criminal justice policy. Lobbyists, congressional aides, political fundraisers, and communications executives are deploying their professional skills, such as raising money, recruiting organizers, and devising a messaging strategy, but in their personal time and separate from their day jobs. These K Street and congressional insiders are making the highly unusual foray into local politics because they’re worried for their personal safety and say city officials haven’t taken D.C.’s crime situation seriously enough.
In Other Words
“I don’t think we need a wider war in the Middle East. That’s not what I’m looking for,” President Biden on the anticipated U.S. military response to a deadly attack on troops in Jordan.
“Taylor Swift has made a career of making songs about picking the wrong man,” Trump campaign spokesperson Karoline Leavitt on Taylor Swift potentially endorsing President Biden.
Did You Know
The Homeland Security Committee voted 18-15 to impeach Homeland Security Secretary Mayorkas; a vote in the full House could come as soon as next week. While Secretary Mayorkas is accused of “willful and systemic refusal to comply with the law” and “breach of trust,” impeaching a Cabinet secretary is rare. The last one to be impeached was Secretary of War William Belknap in 1876. Belknap’s impeachment did not result in a conviction, and Mayorkas’ impeachment will most likely yield the same result.
Graph of the Week
U.S. real Gross Domestic Product (GDP) rose 3.3% during the fourth quarter of 2023, well above the consensus forecast of 2.0%. While consumer consumption drove the quarter’s expansion, government spending and net exports also supported the advance. For the full year, real GDP grew 2.5%.