Date: 08/17/2021
Author: Mr. X
The humiliating scenes of retreat from Kabul, Afghanistan have prompted many people to speak about the United States facing a crisis of credibility. After repeatedly stating that the fall of Afghanistan to the Taliban was not inevitable, President Joe Biden faced a political fiasco as most Afghan forces melted away in the face of a swift Taliban advance. The capital fell without much of a fight.
However, President Biden took the criticism head-on in a speech on Monday, defending his decision and challenging critics to answer why Americans should keep fighting in a war Afghans themselves seemingly had no stomach for. The GOP has been quick to attack President Biden, but its own messaging is confused. While many Republicans preferred staying in Afghanistan longer, it was former president Donald Trump who initially wanted the withdrawal. In a brief statement, ’45 argued that the problem was the way the withdrawal was done, not the fact of the withdrawal itself.
Still, if geopolitics is about anything, it’s about optics. The Global Times, a media outlet affiliated with the Chinese state, made a revealing tweet about “when” there is a war over Taiwan. It predicted the United States would not fight and Taiwan would quickly surrender.
Currencies, as I’ve written before, are fundamentally about faith. Being unable to meet a foreign policy commitment can jeopardize a political order and thus public finance. The French Revolution was arguably set in motion when the French monarchy couldn’t respond to a Prussian invasion of Holland for lack of funds in 1787.
However, President Biden is hardly a radical or reckless figure. Indeed, it’s a sign of his political strength that he was able to carry out this withdrawal against the opposition of many within the bureaucracy. It’s doubtful that President Trump could have wielded sufficient control over the military and the bureaucracy to accomplish it. While the optics of the withdrawal, are, to be blunt, catastrophic, they may fade quickly. The withdrawal from Afghanistan is not an example of imperial collapse or something akin to the withdrawal of the Roman legions from Britannia. Instead, it’s a refocusing of American priorities on great-power challenges.
The financial world isn’t doubting American credibility. On Monday, the dollar rose against competing currencies. Meanwhile, China reported economic data that was much weaker than what many expected. Factory output and retail sales output slowed and experts expect the economic recovery to slow even further.
China is also suffering from the Delta variant and is experiencing shutdowns that the governing class can ill afford. In contrast to the United States, the Chinese government is spending less on infrastructure and tightening access to credit. China’s efforts to assert political control over major corporations has had a chilling effect on corporate performance. Chip supply issues are continuing to hit Chinese manufacturing. The fact that so much global chip supply is centered on Taiwan is simply another reason the Chinese government is fixated on its “rogue province,” beyond simple national pride.
China also had to partially close the ports of Yantian and Ningbo-Zhoushan, leading to a supply crunch that could potentially have global implications. The supply crunch will fuel further inflation. China is especially vulnerable to this, as its bond market is already suffering from major instability.
Even if the dollar has weakened somewhat, China does not necessarily have an interest in displacing it entirely. A strong yuan reduces the competitiveness of Chinese exports. In June, the People’s Bank of China ordered financial institutions to increase their ratio of foreign exchange deposits to keep the yuan from increasing too much in value relative to the dollar.
The dollar, and American credibility generally, remain intact for now. America can hardly be accused of “abandoning” the country after a two-decade effort. The question is whether China would dare to challenge American credibility with a direct effort against Taiwan. While China is holding military drills with Russia and clearly believes that it has the capability to take the island, it would be a massive risk at a time of political instability. China also has its own problems with Islamic terrorism – and if Afghanistan shows anything, it’s how quickly alliances can shift.
Afghanistan was a humiliation for the United States. However, in the grand scheme of power politics, American credibility and alliances remain intact. Taiwan remains a possible weak point, as it would be extremely difficult for the United States to respond to a direct Chinese assault. However, the economic, political, and social consequences of such a drastic action suggest that the Chinese leadership wouldn’t dare try it in the short term unless they are facing a true crisis that endangers their rule. Nothing can be ruled out, but from a pure cost-benefit analysis, it would be an act of madness.
The American economy, credit, and the dollar remain relatively strong. America faces growing debt, income inequality, and the economic ravages of the pandemic, but so does the rest of the world. Indeed, one wonders if Afghanistan will be much of a political issue at all. Crimea, Taiwan, and the Nord Stream 2 pipeline are far more important to American core interests than Afghanistan – and President Biden may simply have freed up the military to focus on these challenges.
Of course, nothing will change the optics of defeat and surrender. It may look like the Fall of Saigon. Still, one should remember that the fall of South Vietnam was less important than the larger Chinese-American détente and partnership against the Soviet Union that was taking shape around the same time. President Biden may be trying to achieve something similar.
It’s a public defeat, but privately, he’s trying to create a stronger core alliance to protect Eastern Europe and Taiwan from Russia and China. If he can succeed in that mission (or at least deter Russia and China from directly challenging the status quo), the dollar will remain sound and faith in Washington will remain intact.
