Argument

War by Other Means

President Obama is taking some heat for incorporating U.S. domestic politics into his Afghan war strategy. He would be negligent not to.

Bob Woodward's new book, Obama's Wars, quotes the president expressing concern about the domestic political implications of military strategy in Afghanistan: "I can't lose the whole Democratic Party," he tells Sen. Lindsey Graham in defending his decision to announce July 2011 as the date for the beginning of U.S. troop withdrawals. Some have denounced this as evidence that the president is endangering the nation by putting politics ahead of military necessity. Former U.S. ambassador to the United Nations John Bolton, for example, described the president's quote as "some of the most cold-blooded, cynical, grotesquely political manipulation of national security that I think we've ever seen."

Like most of Washington, I haven't read the book yet. So I don't know the full context of the quote. But I do know that it's no sin for a president to consider the domestic politics of military strategy. On the contrary, he has to. It's a central part of his job as commander in chief.

Waging war requires resources -- money, troops, and equipment -- and in a democracy, resources require public support. In the United States, the people's representatives in Congress control public spending. If a majority of lawmakers vote against the war, it will be defunded, and this means failure every bit as much as if U.S. soldiers were outfought on the battlefield. A necessary part of any sound strategy is thus its ability to sustain the political majority needed to keep it funded, and it's the president's job to ensure that any strategy the country adopts can meet this requirement. Of course, war should not be used to advance partisan aims at the expense of the national interest; the role of politics in strategy is not unlimited. But a military strategy that cannot succeed at home will fail abroad, and this means that politics and strategy have to be connected by the commander in chief.

This does not simply mean cheerleading for whatever plan looks best on narrow military grounds. Yes, presidents must work to promote public support for their policy. But strategy is the art of the possible. If a military plan cannot be made palatable to a working majority of lawmakers, it will lose and has to be changed to one that can -- and it's the president's job to do so. This requires that any sound strategy must be shaped with domestic politics in mind -- anything else would be malpractice.

This shouldn't be news. Good strategy has always been influenced by domestic politics. In World War II, for example, U.S. Army Chief of Staff Gen. George C. Marshall concluded that the right military strategy was to focus on Germany first, merely holding the line against Japan until the bigger threat was defeated in Europe; only after Germany was out of the way should the country swing forces east and deal with the Japanese. President Franklin D. Roosevelt opted instead for parallel offensives against both Germany and Japan at the same time -- in fact, under Roosevelt's policy the United States actually acted against Japan before it began its first attacks on German troops. Why? Among the more important reasons is that Roosevelt was worried that he would lose domestic political support for the war if he ignored the country that attacked the United States at Pearl Harbor, fighting Germans instead. Most people today think the U.S. strategy in World War II was pretty successful. But if so, it was certainly not because it somehow isolated military planning from domestic politics. On the contrary, U.S. grand strategy in World War II was powerfully shaped by the president's need to sustain popular support at home.

In Obama's case, some concession to anti-war sentiment in the Democratic Party was necessary to prevent the base from splintering and undermining the president's majority for the war. His earlier decision to reinforce troop levels in Afghanistan in response to Gen. David McKiernan's request was already unpopular with many Democrats; had he simply rubber-stamped yet another military request for escalation just a few months later, progressives in his own party would have been furious. Some sort of compromise was needed. The president opted for a time limit, albeit one with plenty of ambiguity in its details.

One can disagree with this choice. Personally, I would have preferred a deeper cut in the second troop request, by Gen. Stanley McChrystal, in exchange for more time. But it is one thing to debate how to marry military strategy and domestic politics -- it is another to debate whether to do it. The need for the latter is clear: Good strategy is politically sustainable strategy. Anything else is unrealistic and self-defeating. And any president who did not worry about the domestic politics of his strategy would be a very poor commander in chief indeed.

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Argument

China Won't Revalue the Yuan

No amount of hectoring by Barack Obama is going to change the calculus of Chinese leaders. An undervalued currency may be critical to their very survival.

President Barack Obama had an intensive discussion about the yuan with Wen Jiabao Sept. 23 on the sidelines of the U.N. General Assembly meeting in New York, if White House officials are to be believed. In response, the Chinese premier reportedly assured Obama that China will press ahead with currency reforms, thereby delaying the disagreement until their next meeting. In reality, Washington remains naive to expect any significant rise in the value of the yuan, and Beijing remains disingenuous in offering such a prospect in the first place.

Beijing does not doubt that a re-evaluation of the yuan upward is in China's long-term interest. As Chinese economists continually warn, their economy is way too dependent on exports and fixed investment and not enough on domestic consumption. The Chinese people consume around the same quantity of goods and services as France, a country with one-twentieth the population. Because China imports around half of its consumer products from overseas, making imports cheaper through major reform would be one way of boosting the purchasing power of its citizens.

Yet, since the announcement in June that China would eag its currency peg, the yuan has risen approximately 1.8 percent against the dollar and actually fell against a basket of major international currencies prior to this week. For Obama, the issue is ostensibly about creating export manufacturing jobs for Americans. But the president should be aware that Beijing is even more determined to ensure that its currency remains artificially low.

The first reason, though this is not a viewpoint widely held by the country's economists, is that a large number of Chinese Communist Party officials think that the United States is deliberately attempting to orchestrate a Chinese slowdown by pushing for the re-evaluation of the yuan. These officials point to the 1980s, when the U.S. Congress was making similar demands on Japan to revalue the yen upward. As the U.S. dollar fell from 240 yen to 160 yen over two years, Japanese growth subsequently slowed. Tokyo responded by boosting government spending and lowering interest rates, leading to the rise of a real estate bubble that eventually burst and is still haunting the Japanese economy today.

China now has its own real estate bubbles, the result of record government spending and bank lending in 2009. A recent study conducted by the People's Bank of China estimated that around a quarter of homes purchased in the first six months of 2010 in Beijing were bought for investment and speculation purposes. In "hot" regions such as Tongzhou district and Wangjing area, the figure is closer to 50 percent. Beijing is already committed to deflating these bubbles before they pop -- meaning that its appetite for any further slowdown in exports is close to nil.

Second, like all governments, Beijing cares much more about maintaining jobs than it does about macroeconomic rebalancing. Although official unemployment rates are a healthy 4 to 5 percent, these figures measure less than one-tenth of the country's workforce. Local officials frequently admit that joblessness is probably more than double the official numbers released by their provinces. China lost an estimated 20 million to 40 million export-related jobs in the first few months of the global financial crisis, which explains why Beijing put an abrupt halt to the yuan's rise that occurred from 2005 to 2008.

China's export sector, moreover, is far less robust than it appears. Authorities conducted extensive "stress tests" on more than 1,000 export companies in the first quarter of this year to determine the effects of any significant yuan appreciation. The vast majority of firms were making do on profit margins of 2 to 4 percent. The results revealed that for every 1 percent rise in the yuan against the dollar, the profit margin of the labor-intensive exporters would decline by around 1 percent.

Finally, government policies enacted during the global financial crisis have worked to strengthen the state sector at the expense of the private sector. Between 80 and 90 percent of the 2008-2009 stimulus and bank loans were offered to state-controlled enterprises, according to official statistics compiled and analyzed by the Australian Financial Review in 2009. While the state sector grew from 2008 onward, the private sector has shrunk in both relative and absolute terms. This is important because private businesses, both in export and non-export sectors in China, are twice as efficient at job creation as the state-led sector, according to several Chinese Academy of Social Sciences studies that analyzed data from China's 12 largest provinces.

Given Chinese leaders' obsessive but understandable focus on employment, taking advantage of this greater efficiency would first require more emphasis on China's vibrant private enterprises to drive job creation, leading to a gradual loosening of the Communist Party's grip on economic power. Anyone want to guess whether Beijing is willing to take such a risk?

Aside from staying in power, employment is what matters to Chinese leaders. If they fail to create and sustain enough jobs, the party's hold on power is in danger, as is China's entire authoritarian model. Even before the financial crisis hit, in 2008, there were an estimated 124,000 instances of "mass unrest" in China. Much of this took place in rural areas and away from the seats of political power. Tens of millions of disgruntled workers in urban manufacturing centers would be much harder to contain.

Obama can lobby China on the yuan all he wants. But for the foreseeable future, Beijing will do nothing else but offer empty promises.

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