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Latest US sanctions on Russia: incitement to a coup and a new form of protectionism

The latest sanctions seem concerned as much with protecting the US’s economic positions as punishing Russia

Alexander Mercouris

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The latest round of sanctions the US Treasury has imposed on Russia are a strange affair.

Earlier rounds of sanctions have been linked to specific acts of real or alleged Russian misbehaviour e.g. the death of Sergey Magnitsky, the Crimean crisis, the war in the Donbass, the shooting down of MH17, and the alleged Russian meddling in the 2016 US Presidential election.

This latest round of sanctions is different in that it is not directly linked to any Russian action – real or alleged – at all.  Nor are the people sanctioned – for example the Russian businessman Oleg Deripaska – directly accused of anything.

In place of any specific accusation against Russia or any of the individuals concerned, here is how a statement from US Treasury Secretary Steven Mnuchin justifies the latest sanctions

The Russian government operates for the disproportionate benefit of oligarchs and government elites.  The Russian government engages in a range of malign activity around the globe, including continuing to occupy Crimea and instigate violence in eastern Ukraine, supplying the Assad regime with material and weaponry as they bomb their own civilians, attempting to subvert Western democracies, and malicious cyber activities.  Russian oligarchs and elites who profit from this corrupt system will no longer be insulated from the consequences of their government’s destabilizing activities.

(bold italics added)

In other words Russia is a bad corrupt country which does lots of bad things around the world of which the US disapproves.  Anyone in Russia who is rich (“an oligarch”) and is therefore “profiting from this corrupt system” is in some way responsible and risks being sanctioned irrespective of anything they do unless this changes.

The implication is that if they do not want to be sanctioned the “oligarchs” must overthrow Russia’s government.

The latest sanctions are therefore an incitement to a coup.  All other steps the US has taken having failed, Russia’s businessmen (“oligarchs”) are now being told that unless they engineer the overthrow of Russia’s government they will be sanctioned.

The first thing to say about this policy is that it is decades out of date.

There was a time in the 1990s when a small group of stratospherically wealthy and corrupt individuals really did control Russia’s government.

By way of example, most of the people who met in the Kremlin during the 1998 financial crisis to decide whether or not to devalue the rouble were not members of the government or even officials, and the meeting during which the decision was finally taken to devalue the rouble was chaired not by a government minister but by the former Acting Prime Minister of Russia Yegor Gaidar, who at the time was neither a member of the government nor an official, but who was merely an adviser of Russia’s President, Boris Yeltsin, who was at the time away reviewing the fleet.

The decision was in fact made by the same small group of wealthy and corrupt individuals who at that time really did control Russia’s government, meeting informally under Gaidar’s chairmanship, and not through the official structures.

It is not a misconception to call these individuals “oligarchs”.  In the 1990s that is exactly what they were.  The most politically powerful amongst them – Boris Berezovsky – was not even properly speaking a businessman.

That is not the situation in Russia today.  A person like Oleg Deripaska – the aluminium magnate whose name appears on the latest sanctions list – may be a person of great influence and power.  However he does not control Russia’s government, and has no means to do so.

I should say that I first came across the suggestion that the “oligarchs” could be mobilised to overthrow President Putin or force him to reverse his policies by imposing sanctions upon them in early 2014 at the start of the Ukrainian crisis.

As I recall reports appeared in the media that the German intelligence agency the BND was advising Chancellor Merkel that if the EU imposed sanctions on Russia the “oligarchs” would either force President Putin to change course or would overthrow him in order to save their fortunes.

Many rounds of sanctions later one might suppose that that theory had been tested to destruction.  However Steven Mnuchin’s statement suggests that faith in it dies hard.

The latest round of sanctions the US has imposed on Russian businessmen and their companies will not weaken President Putin’s position or that of the Russian government, and will not affect Russia’s economy.

As China’s semi-official English language newspaper Global Times has recently pointed out, Russia – unlike countries like Iran – has a big largely self-sufficient continental sized economy possessing immense scientific, technological and natural resources, making it therefore largely immune to sanctions.

As for the wealthy Russian individuals who the latest sanctions are targeting, the reason so many of them keep money abroad is not because they control Russia’s government, but because they do not control it, and do not wholly trust it.

The result is that they have been squirrelling away much of their money abroad, beyond their government’s reach.

Now what they are discovering is that their money is at far greater risk of being seized by the US government than by their own – something the Russian government has been telling them for years – so that it is in fact safer kept at home than it is squirrelled away abroad.

In other words the latest sanctions and Steven Mnuchin’s statement could not have played more completely into the Russian government’s hands.

With Russian businessmen being told that the money they have squirrelled abroad may be seized irrespective of what they do unless they overthrow the Russian government – something which Russian businessmen know is beyond their power and is therefore impossible – they have no realistic option if they want to keep their money safe than to bring it home.

It seems that even before Mnuchin’s statement and the latest round of sanctions that is what some of them were doing.

A few weeks ago – before the Skripal crisis – a group of Russian businessmen in London wrote to President Putin asking for permission to return home with their money because of the threats they were facing; whilst the Russian government’s latest eurobond sale, which was specifically addressed to Russian businessmen, was heavily oversubscribed as they rushed to buy bonds issued by their own government.

The latest sanctions and Mnuchin’s statement will only accelerate the process.

A policy which only strengthens Putin’s position – forcing Russian businessmen to repatriate their money to Russia and increasing their dependence on the Russian government – looks completely counterproductive, and on the face of it that is what the US’s sanctions policy is.

However there may be more than one agenda at work.

The Russians are complaining that one of the purposes of the sanctions is to block Russian arms exports, a field in which Russia has recently been encroaching on US markets, such as Turkey and Saudi Arabia, and even farther afield, to countries like Indonesia.

There is of course a political dimension to this in that arms sales tend to bring closer political ties, and the US may be especially leery of US allies like Turkey and Saudi Arabia buying arms from Russia because of the danger that this might increase Russian influence there.

However attempts to block the arms sales of a major competitor on the international arms market does have something of a look of protectionism about it, which is not altogether surprising given the recent protectionist steps being taken by the Trump administration – especially with respect to China – and the importance of arms sales not just for the US economy but for individual US companies.

With China and Russia now increasingly cooperating in aircraft development, including their planned wide body airliner, with both China and Russia producing advanced and competitive narrow body airliners (the Comac C919 and the Irkut MC-21), and with Russia advancing with its development of the new Perm family of civil aircraft engines, which are capable of powering all these aircraft, it is also understandable that the US might wish to sanction Russian arms makers given the strong linkage between arms manufacturing and the civil aircraft industry.

Just as the latest US tariffs on China seem intended – at least in part – to obstruct development of China’s artificial intelligence industry, so the latest sanctions on Russian arms makers may be intended to obstruct development of the Chinese and Russian aviation industries – and especially of Russia’s civil aircraft engine industry – given the threat these industries pose to the position of the US in the international aviation market where the US has long enjoyed market dominance, and which accounts for a significant part of its exports.

If Russia’s and China’s nascent aviation industries are one of the ultimate targets of the latest sanctions, then that might also explain the sanctioning of Oleg Deripaska, the chief executive of RUSAL – Russia’s giant aluminium conglomerate – aluminium being of course a key material used in aircraft building.

It should be said however that there may be multiple other reasons why Deripaska – one of the most powerful and toughest of all Russian businessmen – has been targeted for sanctions.

If sanctions really are evolving into a tool to protect US positions in key industries such as artificial intelligence, arms manufacturing and civil aviation, then that I suspect will surprise no-one.

All I would say about that however is that in that case the US has missed the bus.  The sort of protectionist measures the US is imposing on China, and the sort of sanctions the US is imposing on Russia, would have devastated both the Chinese and Russian economies two decades ago.

By now – as Russia’s resilience in face of sanctions shows – both the Chinese and the Russian economies have achieved a level of sophistication and size that makes them essentially impervious to these sort of actions.

By way of example, though China’s exports peaked at over 37% of its GDP in 2006, by 2016 that had fallen to under 20%.  Today the major driver of China’s economy is internal demand, just as the main driver of Russia’s economy after 2020 will be investment.  Neither can be affected by the protectionist actions or sanctions the US is taking.

This is all the more so as China and Russia – and especially China – press ahead with constructing their own alternative international financial architecture (eg. the so-called “petro-yuan“) to underpin their economies, and the trading systems which they are constructing

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US-China trade war heats up as surplus hits record $34 Billion (Video)

The Duran – News in Review – Episode 136.

Alex Christoforou

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According to a report by the AFP, China’s trade surplus with the United States ballooned to a record $34.1 billion in September, despite a raft of US tariffs, official data showed Friday, adding fuel to the fire of a worsening trade war.

Relations between the world’s two largest economies have soured sharply this year, with US President Donald Trump vowing on Thursday to inflict economic pain on China if it does not blink.
The two countries imposed new tariffs on a massive amount of each other’s goods mid-September, with the US targeting $200 billion in Chinese imports and Beijing firing back at $60 billion worth of US goods.

“China-US trade friction has caused trouble and pounded our foreign trade development,” customs spokesman Li Kuiwen told reporters Friday.

But China’s trade surplus with the US grew 10 percent in September from a record $31 billion in August, according to China’s customs administration. It was a 22 percent jump from the same month last year.

China’s exports to the US rose to $46.7 billion while imports slumped to $12.6 billion.

China’s overall trade — what it buys and sells with all countries including the US — logged a $31.7 billion surplus, as exports rose faster than imports.

Exports jumped 14.5 percent for September on-year, beating forecasts from analysts polled by Bloomberg News, while imports rose 14.3 percent on-year.

While the data showed China’s trade remained strong for the month, analysts forecast the trade war will start to hurt in coming months.

China’s export jump for the month suggests exporters were shipping goods early to beat the latest tariffs, said ANZ’s China economist Betty Wang, citing the bounce in electrical machinery exports, much of which faced the looming duties.

“We will watch for downside risks to China’s exports” in the fourth quarter, Wang said.

Analysts say a sharp depreciation of the yuan has also helped China weather the tariffs by making its exports cheaper.

“The big picture is the Chinese exports have so far held up well in the face of escalating trade tensions and cooling global growth, most likely thanks to the competitiveness boost provided by a weaker renminbi (yuan),” said Julian Evans-Pritchard, China economist at Capital Economics.

“With global growth likely to cool further in the coming quarters and US tariffs set to become more punishing, the recent resilience of exports is unlikely to be sustained,” he said.

According to Bloomberg US President Donald Trump’s new U.S.-Mexico-Canada Agreement isn’t that different from the North American Free Trade Agreement that it replaced. But hidden in the bowels of the new trade deal is a clause, Article 32.10, that could have a far-reaching impact. The new agreement requires member states to get approval from the other members if they initiate trade negotiations with a so-called non-market economy. In practice, “non-market” almost certainly means China. If, for example, Canada begins trade talks with China, it has to show the full text of the proposed agreement to the U.S. and Mexico — and if either the U.S. or Mexico doesn’t like what it sees, it can unilaterally kick Canada out of the USMCA.

Although it seems unlikely that the clause would be invoked, it will almost certainly exert a chilling effect on Canada and Mexico’s trade relations with China. Forced to choose between a gargantuan economy across the Pacific and another one next door, both of the U.S.’s neighbors are almost certain to pick the latter.

This is just another part of Trump’s general trade waragainst China. It’s a good sign that Trump realizes that unilateral U.S. efforts alone won’t be enough to force China to make concessions on issues like currency valuation, intellectual-property protection and industrial subsidies. China’s export markets are much too diverse:

If Trump cuts the U.S. off from trade with China, the likeliest outcome is that China simply steps up its exports to other markets. That would bind the rest of the world more closely to China and weaken the global influence of the U.S. China’s economy would take a small but temporary hit, while the U.S. would see its position as the economic center of the world slip into memory.

Instead, to take on China, Trump needs a gang. And that gang has to be much bigger than just North America. But most countries in Europe and East Asia probably can’t be bullied into choosing between the U.S. and China. — their ties to the U.S. are not as strong as those of Mexico and Canada. Countries such as South Korea, Germany, India and Japan will need carrots as well as sticks if they’re going to join a U.S.-led united trade front against China.

The Duran’s Alex Christoforou and Editor-in-Chief Alexander Mercouris discuss the escalating trade war between the United States and China, and the record trade surplus that positions China with a bit more leverage than Trump anticipated.

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Via Zerohedge Trump Threatens China With More Tariffs, Does Not Seek Economic “Depression”

US equity futures dipped in the red after President Trump threatened to impose a third round of tariffs on China and warned that Chinese meddling in U.S. politics was a “bigger problem” than Russian involvement in the 2016 election.

During the same interview with CBS’s “60 Minutes”, in which Trump threatened to impose sanctions against Saudi Arabia if the Saudis are found to have killed WaPo reported Khashoggi, and which sent Saudi stock plunging, Trump said he “might,” impose a new round of tariffs on China, adding that while he has “great chemistry” with Chinese President Xi Jinping, and noting that Xi “wants to negotiate”, he doesn’t “know that that’s necessarily going to continue.” Asked if American products have become more expensive due to tariffs on China, Trump said that “so far, that hasn’t turned out to be the case.”

“They can retaliate, but they can’t, they don’t have enough ammunition to retaliate,” Trump says, “We do $100 billion with them. They do $531 billion with us.”

Trump was also asked if he wants to push China’s economy into a depression to which the US president said “no” before comparing the country’s stock-market losses since the tariffs first launched to those in 1929, the start of the Great Depression in the U.S.

“I want them to negotiate a fair deal with us. I want them to open their markets like our markets are open,” Trump said in the interview that aired Sunday. So far, the U.S. has imposed three rounds of tariffs on Chinese imports totaling $250 billion, prompting China to retaliate against U.S. products. The president previously has threatened to hit virtually all Chinese imports with duties.

Asked about his relationship with Vladimir Putin and the Kremlin’s alleged efforts to influence the 2016 presidential election, Trump quickly turned back to China. “They meddled,” he said of Russia, “but I think China meddled too.”

“I think China meddled also. And I think, frankly, China … is a bigger problem,” Trump said, as interviewer Lesley Stahl interrupted him for “diverting” from a discussion of Russia.

Shortly before an audacious speech by Mike Pence last weekend, in which the US vice president effectively declared a new cold war on Beijing (see “Russell Napier: Mike Pence Announces Cold War II”), Trump made similar accusations during a speech at the United Nations last month, which his aides substantiated by pointing to long-term Chinese influence campaigns and an advertising section in the Des Moines Register warning farmers about the potential effects of Trump’s tariffs.

Meanwhile, in a rare U.S. television appearance, China’s ambassador to the U.S. said Beijing has no choice but to respond to what he described as a trade war started by the U.S.

“We never wanted a trade war, but if somebody started a trade war against us, we have to respond and defend our own interests,” said China’s Ambassador Cui Tiankai.

Cui also dismissed as “groundless” the abovementioned suggestion by Vice President Mike Pence that China has orchestrated an effort to meddle in U.S. domestic affairs. Pence escalated the rhetoric in a speech Oct. 4, saying Beijing has created a “a whole-of-government approach” to sway American public opinion, including spies, tariffs, coercive measures and a propaganda campaign.

Pence’s comments were some of the most critical about China by a high-ranking U.S. official in recent memory. Secretary of State Michael Pompeo got a lecture when he visited Beijing days later, about U.S. actions that were termed “completely out of line.” The tough words followed months of increases tit-for-tat tariffs imposed by Washington and Beijing that have ballooned to cover hundreds of billions of dollars in bilateral trade.

During a recent interview with National Public Radio, Cui said the U.S. has “not sufficiently” dealt in good faith with the Chinese on trade matters, saying “the U.S. position keeps changing all the time so we don’t know exactly what the U.S. would want as priorities.”

Meanwhile, White House economic director Larry Kudlow said on “Fox News Sunday” that President Donald Trump and Chinese President Xi Jinping will “probably meet” at the G-20 summit in Buenos Aires in late November. “There’s plans and discussions and agendas” being discussed, he said. So far, talks with China on trade have been “unsatisfactory,” Kudlow said. “We’ve made our asks” on allegations of intellectual property theft and forced technology transfers, he added. “We have to have reciprocity.”

Addressing the upcoming meeting, Cui said he was present at two previous meetings of Xi and Trump, and that top-level communication “played a key role, an irreplaceable role, in guiding the relationship forward.” Despite current tensions the two have a “good working relationship,” he said.

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BREAKING: Explosion in Crimea, Russia kills many, injuring dozens, terrorism suspected

According to preliminary information, the incident was caused by a gas explosion at a college facility in Kerch, Crimea.

The Duran

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“We are clarifying the information at the moment. Preliminary figures are 50 injured and 10 dead. Eight ambulance crews are working at the site and air medical services are involved,” the press-service for the Crimean Ministry of Health stated.

Medics announced that at least 50 people were injured in the explosion in Kerch and 25 have already been taken to local hospital with moderate wounds, according to Sputnik.

Local news outlets reported that earlier in the day, students at the college heard a blast and windows of the building were shattered.

Putin Orders that Assistance Be Provided to Victims of Blast in Kerch – Kremlin Spokesman

“The president has instructed the Ministry of Health and the rescue services to take emergency measures to assist victims of this explosion, if necessary, to ensure the urgent transportation of seriously wounded patients to leading medical institutions of Russia, whether in Moscow or other cities,” Kremlin spokesman Dmitriy Peskov said.

The president also expressed his condolences to all those affected by the tragic incident.

Manhunt Underway in Kerch as FSB Specialists Investigate Site of Explosion – National Anti-Terrorist Committee

The site of the blast that rocked a city college in Kerch is being examined by FSB bomb disposal experts and law enforcement agencies are searching for clues that might lead to the arrest of the perpetrators, the National Anti Terrorism Committee said in a statement.

“Acting on orders from the head of the NAC’s local headquarters, FSB, Interior Ministry, Russian Guards and Emergency Ministry units have arrived at the site. The territory around the college has been cordoned off and the people inside the building evacuated… Mine-disposal experts are working at the site and law enforcement specialists are investigating,” the statement said.

Terrorist Act Considered as Possible Cause of Blast in Kerch – Kremlin Spokesman

“The tragic news that comes from Kerch. Explosion. The president was informed … The data on those killed and the number of injured is constantly updated,” Peskov told reporters.

“[The version of a terrorist attack] is being considered,” he said.

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10 percent of American F-22 fighter jets damaged by Hurricane Michael

Part of the reason the F-22’s were left in the path of the storm is that they were broken and too expensive to fix or fly.

Seraphim Hanisch

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Note to the wise: When a hurricane comes, move your planes out of the way. Especially your really expensive F-22 fighter planes. After all, those babies are $339 mil apiece. Got the message?

Apparently the US Air Force didn’t get this message. Or, did they find themselves unable to follow the message?

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The Washington Times reported Tuesday that between 17 and 20 of these top-of-the-line fighter jets were damaged, some beyond the point of repair, when Hurricane Michael slammed ashore on Mexico Beach, Florida, not far from the Tyndall Air Force Base in the same state. The Times reports that more than a dozen of the F-22 Raptor stealth fighter jets were damaged after being left in the path of the extremely fierce storm:

President Trump’s tour Monday of devastation wrought by Hurricane Michael took him close to Florida’s Tyndall Air Force Base, where more than a dozen F-22 Raptor stealth fighter jets were damaged after being left in the path of the powerful storm.

The pricey fighter jets — some possibly damaged beyond repair — were caught in the widespread destruction that took at least 18 lives, flattened homes, downed trees and buckled roads from Florida to Virginia.

The decision to leave roughly $7.5 billion in aircraft in the path of a hurricane raised eyebrows, including among defense analysts who say the Pentagon’s entire high-tech strategy continues to make its fighter jets vulnerable to weather and other mishaps when they are grounded for repairs.

“This becomes sort of a self-defeating cycle where we have $400 million aircraft that can’t fly precisely because they are $400 million aircraft,” said Dan Grazier, a defense fellow at Project on Government Oversight. “If we were buying simpler aircraft then it would be a whole lot easier for the base commander to get these aircraft up and in working order, at least more of them.”

This is quite a statement. The F-22 is held to be the tip of the American air defense sword. A superb airplane (when it works), it can do things no other plane in the world can do. It boasts a radar profile the size of a marble, making it virtually undetectable by enemy radars. It is highly maneuverable with thrust-vectoring built into its engines.

However, to see a report like this is simply stunning. After all, one would expect that the best military equipment ought to be the most reliable as well. 

It appears that Hurricane Michael figuratively and physically blew the lid off any efforts to conceal a problem with these planes, and indeed with the hyper-technological basis for the US air fighting forcesThe Times continues:

Reports on the number of aircraft damaged ranged from 17 to 22 or about 10 percent of the Air Force’s F-22 fleet of 187.

The Air Force stopped buying F-22s, considered the world’s most advanced fighter jets, in 2012. The aircraft is being replaced by the F-35, another high-tech but slightly less-expensive aircraft.

Later in the tour, at an emergency command center in Georgia, Mr. Trump said the damage to the F-22s couldn’t be avoided because the aircraft were grounded and the storm moved quickly.

“We’re going to have a full report. There was some damage, not nearly as bad as we first heard,” he said when asked about the F-22s, which cost about $339 million each.

“I’m always concerned about cost. I don’t like it,” Mr. Trump said.

Still, the president remains a fan of the high-tech fighter jet.

“The F-22 is one of my all-time favorites. It is the most beautiful fighter jet in the world. One of the best,” he said.

The Air Force managed to fly 33 of the F-22s to safety, but maintenance and repair issues kept 22 of the notoriously finicky aircraft on the ground when the powerful storm hit the base.

About 49 percent of the F-22s are out of action at any given time, according to an Air Force report this year.

This is a stunning statistic. This means that of the 187 planes in existence, 90 of them are not working. At their cost, that means that over thirty billion dollars worth of military equipment is sitting around, broken, just in airplanes alone.

As a point of comparison, the entire Russian military budget for 2017 was $61 billion, with that budget producing hypersonic missiles, superb fighter aircraft and tanks. Russian fighter planes are known for being able to take harsh landing and take-off conditions that would cripple the most modern American flying machines.

It would seem that Hurricane Michael exposed a serious problem with the state of readiness of American armed forces. Thankfully that problem did not arise in combat, but it is no less serious.

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