Strategic Intelligence Summary for 02 August 2018 – Forward Observer Shop

Strategic Intelligence Summary for 02 August 2018

Strategic Intelligence contains intelligence reporting on the state of global security and instability, geostrategic issues affecting the United States, pre-war indicators, and assessments on the current risk of war. This report is available each week for Intelligence subscribers.

In this Strategic Intelligence Summary: (4,415 words)

  • CRS outlines “Changes in the Arctic”
  • South Africa wants to allow uncompensated land seizure from whites
  • Blackouts leave Venezuelans in the dark
  • Mattis task force outlines path to make Marines more lethal
  • U.S. Army increases investments in counter-drone weapons
  • U.S., Canada consider replacing Arctic early warning radar
  • NATO exercise in Georgia kicks off
  • Senate allows President Trump to waive Russian military sanctions
  • Putin creates new patriotic wing of the military
  • China gifts warships to Sri Lanka, Philippines
  • India to spend $1bn on U.S. missile defense system
  • China to participate in Aussie war games
  • Iranian troops reportedly pulling back from Israeli borer
  • Israel warns Iran about cutting off sea lanes
  • North Korea working on new ICBMs
  • And more…

ADMIN NOTE: In light of recent changes going on in the military, I’ve modified PIR3. As I point out below, the U.S. is at the beginning of a major shift away from the “Pacific” and into the “Indo-Pacific”. As a result, I’ve expanded our scope beyond the South China Sea to include the Indo-Pacific at large.


In Focus: This week I want to provide you with an overview of a major shift happening right now. I don’t think this is getting the attention it deserves. We’ve heard of Chinese ascendancy, their economic expansion, the Asian Export Import bank and the Belt and Road Initiative (which now extends to roads and ports in 60 countries), investment across Asia, Africa, and South America, technological and industrial progress aided by persistent and aggressive espionage against the United States (intellectual property theft to the tune of $200-$300 billion per year, conservatively, for over a decade), their long-term military strategy and growing blue water navy — all the things setting China up to be dominant in the 21st century. Late last year we reported that China is on track to have as many fast attack submarines as there are boats in the entire U.S. Navy. That kind of military rise will allow China to challenge the U.S. in the Pacific and disrupt the established order in southeast Asia — not to mention enable their control of the $5 trillion of trade that passes through the South China Sea each year. That kind of power means that the Chinese will use control of the South China Sea to reward the countries who fall in line with China’s vision and bully those who don’t. Rightly, U.S. allies in Asia are worried as they’re forced to choose between reinforcing long-held strategic partnerships with the U.S. or pivoting to fit into inevitable Chinese dominance. Old news, right? Here’s what I’ve been watching as the U.S. response to disrupt China’s rise to dominate Asia.

Secretary of State Mike Pompeo will be in Singapore this weekend at the annual Association of Southeast Asian Nations (ASEAN) ministerial meeting to discuss, among other things, economic security for ASEAN countries in light of China’s military and economic bullying. U.S. allies like Australia, Japan, Thailand, Vietnam, Singapore, the Philippines, and others have increased defense spending as a result. (Vietnam’s arms imports are up nearly 700 percent in the last decade.) To be sure, no U.S. ally in Asia is capable of confronting China alone and, conservatively, they’re probably 10-20 years behind where they need to be to pose a significant challenge. Around this time last year, Secretary of Defense James Mattis called on ASEAN to be the bulwark against Chinese expansion in the southeast Pacific. That means militarily, economically, diplomatically — every avenue available should be pursued to stop Chinese dominance, according to the strategy. One reason: preventing Chinese dominance is better than trying to topple Chinese dominance. If we want to avoid war, the strategy goes, then we can’t allow China to become so dominant that war is the only choice. But China’s rise to dominance means more than just its military. We’re seeing Australia, Canada, Germany, and other European nations veto Chinese bids to purchase farmland and critical infrastructure in their countries on the grounds of national security. Chinese investment is an enabler of espionage and technology transfers. It’s a big, big deal. (Earlier this year, the U.S. Securities and Exchange Commission blocked a plan for Chinese investors to purchase the Chicago Mercantile Exchange.)

Back in May, U.S. Pacific Command officially changed their name to U.S. Indo-Pacific Command (INDOPACOM). Established in 1947, PACOM’s area of responsibility has traditionally included everything from the U.S. West Coast all the way to central Russia (Arctic), the Middle East, and the waters east of southern Africa. As opposed to a decade ago, INDOPACOM’s job is tying India into the Indo-Pacific Strategy to counter China. Talks are on-going to include Japan as a routine member of U.S.-Indian military exercises and the annual Rim of the Pacific (RIMPAC) — the largest military exercise in the world — included 25 nations this year. Notably present: India. Notably absent: China. (China was disinvited by the Trump administration; although China kept a spy ship off the coast of Hawaii to observe and collect signals intelligence during the exercise.)

Former U.S. PACOM commander Adm. Harry Harris, long speculated to become ambassador to Australia, is actually now the ambassador to South Korea. That’s a lot of military experience for an ambassador position, but it underscores how vitally important that relationship is. Adm. Harris serving in a diplomatic role will have positive effects on achieving U.S. strategic security objectives in the region.

Secretary Pompeo, along with Japanese and Australian officials, recently announced a new trilateral economic investment project for Asia in order to build up the economies of U.S. allies in competition with China. Its direct purpose is to prevent China’s regional dominance. Said Secretary Pompeo: “These funds [$112 million] represent just a down payment on a new era in U.S. economic commitment to peace and prosperity in the Indo-Pacific region… We have never and will never seek domination in the Indo-Pacific, and we will oppose any country that does.”

And that brings us to the export-driven Chinese economy. Early on, the Trump administration reckoned that if it were going to use tariffs to curb Chinese espionage and flatten out the U.S. trade deficit, the time to do that is when the U.S. economy is booming. The U.S. economy grew at 2.2 percent in the first quarter of 2018, followed by 4.1 percent in the second quarter. It could always be revised down, but the Atlanta Federal Reserve published their third quarter estimates at 4.7 percent. The the time to impose tariffs and use a trade war to bring China to the negotiating table is when a growing economy can absorb the downside. And that’s why we’re seeing aggressive tariffs now (the Trump administration may raise tariffs from 10% to 25% on roughly $200 billion of Chinese goods later this month), which is starting to weigh on the Chinese economy.

Despite official numbers from China at 6.7 percent annual growth (year over year from the most recent numbers available), the actual growth might be half of that. We’ve previously covered the trillions in off-the-books debt from the central government to bail out state-owned enterprises, and the private sector may be facing a debt crisis. In the first seven months of 2018, there have been 20 private sector bond defaults. To put that in perspective, there were 20 defaults in all of 2017. This is unlikely to be a result of trade tariffs, but it does underscore two fundamental truths: 1) China has exploitable vulnerabilities, too, and 2) Economic warfare is a central part of China’s war against the U.S., and the Trump administration is willing to meet that threat and expose Chinese weakness. A Tuesday meeting of the Chinese Politburo outlined the health of the Chinese economy and pointed out ‘external challenges’ to growth. The Politburo acknowledges that the Trump administration treats the trade deficit as a national security issue, especially as the Chinese continue to steal intellectual property from U.S. corporations. We have to recognize that, as a former U.S. intelligence official put it, China is at a cold war with the United States. The U.S. government under the Trump administration is no longer turning a blind eye.

Previous administrations did little to curb the trade deficit because, starting under Bill Clinton and George W. Bush, the belief was that China’s economic rise would force it to adopt more open and democratic governance. Wrong. And then the Obama administration followed that line of thinking. In 2011, Obama met with then-president Hu Jintao and said,“There has been an evolution in China over the last 30 years since the first normalization of relations between the United States and China. And my expectation is that 30 years from now we will have seen further evolution and further change.” There are financial talking heads like Jim Cramer, who said on his “Mad Money” show on CNBC several months ago: “Sure, the Chinese may steal our trade secrets. Yes, they take our manufacturing jobs, but boy, oh boy, do our companies make money there. Starbucks is huge in China. FedEx is the shipping company of choice for their exports,” so of course U.S. corporations doing business there have a vested financial interest in allowing China to operate however it wants — just as long as they get access to the Chinese economy. And so for eight years, Obama did basically nothing, either to retaliate against Chinese theft or to make America more competitive. In that same 2011 speech, Obama went so far as to defend China, saying: “China has a different political system than we do. China is at a different stage of development than we are. We come from very different cultures with very different histories.” China took that as a signal to continue what they were doing because, hey, we just have a different culture and that’s okay. Treating China for eight long years as a developing democratic peer instead of an economic and military competitor was extremely short-sighted, and America continues to pay the price for that oversight.

And I should mention again that last month, Chinese officials approached the European Union to strike a trade deal that would drive a wedge between the EU and the United States. Chinese diplomats proposed a deal to jointly wage action against the U.S. at the World Trade Organization, and sought trade deals that would re-align European interests with China’s future. EU officials, of course, politely declined the alliance. But that’s the kind of power China wants to yield; they want to create their own world order and shape global politics in the image of China. That’s a bad thing for Americans but that’s a world the next generation risks inheriting. That’s why I’ve described President Trump’s job as “saving Pax Americana”. (InFocus; Strategic Intelligence Summary for 23 March 2018) We’ll see if he can do it without going to war, either at home or abroad.

ADDENDUM: I’ve been thinking about where we are with the trade war with China. Is President Trump winning? Yes, I think he is and will ultimately win against the Chinese. Here’s a brief assessment, in conjunction with my analysis above:

– The European Union chose a U.S. trade alliance over China in July. China showed their hand when they tried to flip the international order and they failed.

– President Trump is working on solving trade issues with the EU so both can focus their economic power and influence to curb unfair Chinese trade practices and economic/industrial espionage. (Germany just blocked a Chinese take over bid of one of its major tool manufacturing companies. In recent months, France and the UK have blocked similar buy-outs and investments. They’re getting it now. The age of unfettered Chinese state-backed investment in critical infrastructure and crucial parts of Western economies is coming to a close.)

– Since yesterday and through the weekend, Secretary of State Mike Pompeo is in Asia meeting with U.S. allies and attending the Association of Southeast Asian Nations (ASEAN) to discuss economic security. Australia, Japan, and the U.S. recently announced the creation of an investment package to help bolster economic security in the region. (By the way, we cover the schedules, locations, and appearances of top U.S. officials each day in our Early Warning reports. If you’d like to receive these each morning by email, you can sign up on the My Account page.)

– The President’s objective is to bring the European Union and ASEAN nations into the same program that begins to modify China’s bad behavior while protecting major trade. The way to do that is to turn the international order against China in ways that forces the Chinese Community Party to make concessions or risk increasing isolation.

– China’s economy is strong, but it has weaknesses. For a decade following the 2008 financial crisis, China’s response to economic and financial weakness was to print money to sustain and grow state-owned enterprises, and underwrite the losses of making products so cheap that they’re more competitive than goods manufactured in the U.S., Mexico, or other places. That means a lot of debt — far more than what’s being reported. China has very calculated and long-term strategic plans but I don’t think they’re as prepared to deal with short-term responses to an unpredictable American president. And now that Chinese exports are beginning to feel a pinch from U.S. trade tariffs, China’s short-term response is probably going to be printing more money — on top of the trillions (USD) they’ve already printed for the last decade and for which there has been no account or resolution. There’s a reason why many Chinese are trying to move their wealth out of China (which is why China had to implement currency controls): the policy of printing money devalues the Yuan, which devalues the purchasing power of their wealth. Chinese wealth is simply safer abroad than at home, and that feeling may accelerate if the Chinese economy gets punished with further tariffs. The Shanghai SE Composite Index is down another two percent today, putting total returns for the year at negative 16 percent. In the past three years, it’s down 26 percent. The Hang Seng is down seven percent this year. They’re not winning.

– The U.S. is by no means completely safe from its own fundamental fiscal problems or from foreign tariffs in response to its own, but right now the U.S. has the upper hand, especially if the EU tariffs are solved. And ultimately, if the U.S. is successful in enlisting EU and ASEAN nations under the same banner, Trump is likely to achieve his goal of tariff-free trade among U.S. allies while retaining economic tools to encourage good behavior by China.

– Lastly, there’s always the “nuclear option” — China can stop buying U.S. debt in response. Even the threat would send a shock wave of doubt across world markets and possibly coerce EU and ASEAN allies to re-consider. And because, according to the OMB, the U.S. is set to experience trillion dollar deficits for each of the next four years, it’s a move that the Chinese are likely considering. The question is what course of action national security advisor John Bolton and economic advisor Larry Kudlow are prepared to pursue after that. That’s a big question that I, unfortunately, can’t answer.

Welcome to this week’s Strategic Intelligence Summary. Your feedback is appreciated. – S.C.


ADMIN NOTE: This week, we’re joined by Army infantry veteran of Kosovo and Iraq, David Komorowski, who may be joining the FO team as threat intelligence reporter. His reporting is marked by “D.K.”.

Priority Intelligence Requirements:

PIR1: What are the new indicators of disruptive events that could cause global or regional instability?

PIR2: What are the latest military and security developments exhibited by the U.S. and their peer and near-peer adversaries?

PIR3: What is the current situation report and risk of war in each of the four flashpoints? (NATO-Russia, Indo-Pacific, Middle East, North Korea)


PIR1: What are the new indicators of disruptive events that could cause global or regional instability?

CRS outlines “Changes in the Arctic”

In a new report released by the Congressional Research Service (CRS), the Arctic is undergoing changes that will affect U.S. national security (as we’ve reported numerous times before). The report includes information on receding ice sheets and oil/gas implications, along with other commercial, economic, and geopolitical issues. [source] Analyst Comment: I’ve previously described Russian activity in the Arctic as a “third front” of Cold War 2.0 — a strategic but also commercial decision by Russian leaders. The Russian military is expanding into the region, building permanent facilities and moving military equipment. Last year, the Defense Department dispatched a team of strategists to conduct a military assessment of the Arctic region to support decision-making and prioritization on how to defend U.S. interests there as Russia (and China) increasingly expands access and solidifies a permanent presence there. Since the Budget Control Act of 2011, the U.S. Navy has struggled to meet the demands of a global presence while simultaneously shrinking. Based on its military obligations and resource requirements in the Indo-Pacific, Europe, Latin America, and the Middle East, the U.S. is ill-prepared to expand its presence in the Arctic, although the Navy does maintain a security presence. Earlier this year, the U.S. Navy revived the Second Fleet, based in Norfolk, Virginia, to focus on Russian deterrence in the northern Atlantic. Said one U.S. Navy official: “Once again, an effective, skilled, and technologically advanced Russian submarine force is challenging us. Russian submarines are prowling the Atlantic, testing our defenses, confronting our command of the seas, and preparing the complex underwater battlespace to give them an edge in any future conflict.” That challenge extends to the Arctic as well. To dig deeper into the Navy’s strategic vision for the Arctic, I’ll refer you to a policy document entitled, “U.S. Navy Arctic Roadmap: 2014-2030”. [DOWNLOAD]

South Africa wants to allow uncompensated land seizure from whites

The South African government has planned an amendment of the constitution to permit the confiscation of land without compensation to the owner. The African National Congress planned to test the existing laws in order to confiscate the land, but has since moved to the riskier method of modifying the constitution. Investors have expressed concern that the move with be exploited to strip land from white farmers, which would result in another blow to an already struggling economy. D.K. [source]

Blackouts leave Venezuelans in the dark

Caracas, Venezuela and some of the surrounding areas suffered a power outage on Tuesday, leaving many without transportation or electricity. Up to 80 percent of the city experienced the blackout. Nicolas Muduro, president of Venezuela, blames sabotage by enemies of the state, including the US. Power cuts are common in Venezuela, but the capital has been affected only rarely. D.K. [source]


PIR2: What are the latest military and security developments exhibited by the U.S. and their peer and near-peer adversaries?

Mattis task force outlines path to make Marines more lethal

Keen to maintain an advantage against near-peer adversaries in a modern conflict, the Marine Corps may push for more experienced Marines in their infantry squads. Robert Scales, chairman of the Close Combat Lethality Task Force, suggested that more infantry (“grunt”) positions should be reserved for Marines in their second enlistment. Resistance to the idea has come from those attached to the concept of the “18-year-old infantryman”, though Scales insists that multiple skills within small units is a tried and true model. D.K. [source]

U.S. Army increases investments in counter-drone weapons

Leonardo DRS is developing the Mobile Low, Slow Unmanned Aerial Vehicle Integrated Defense System (MLIDS), a vehicle mounted weapon system capable of disabling or destroying small, inexpensive drones that often act as improvised explosive devices targeting soldiers in the field. The contract should be complete by May 2019, though an unspecified number of units will be with forward deployed soldiers by summer of 2018. D.K. [source] Analyst Comment: The Islamic State, at least in that conflict, pioneered the use of drone-borne explosive devices, although we’ve seen similar attacks. Of particular note, Russian-backed separatists in Ukraine probably used incendiary grenades attached to drones to bomb a munitions warehouse, destroying 83,000 tons of ammunition. And Army leaders are preparing for more of these kinds of attacks, especially as drone warfare becomes more widely adopted by potential peer and near-peer adversaries. Pentagon leaders have often expressed their expectations of future warfare as being more lethal in environments where the threat of drone warfare against U.S. troops is persistent and difficult to defend against.

U.S., Canada considering replacing Arctic early warning radar

As strategic planners continue to examine defense strategies for the Arctic, radar equipment on the verge of obsolete needs to be replaced. The systems in place are reportedly unable to track ballistic missiles and other aircraft and weapons. Says one official: “The weaponry that can reach out and touch North America now include cruise missiles with increased ranges that can be air-launched, but also launched from maritime platforms, opening avenues of approach that we’re not used to seeing.” [source]


PIR3: What is the current situation report and risk of war in each of the four? (NATO-Russia, Indo-Pacific, Middle East, North Korea)


Significant Developments:

NATO exercise in Georgia kicks off

Noble Partner 2018, a two-week NATO exercise just outside of Tbilisa, Georgia kicked off today. The United States and other NATO members participated in the opening ceremony, where the Georgian president criticized Russia for what he describes as the illegal occupation of twenty percent of the country. Russia has maintained a garrison in southern Georgia since hostilities between the two nations in 2008. D.K. [source]

Senate allows President Trump to waive military sanctions

After being pressed by Defense Secretary James Mattis, the U.S. Senate approve legislation allowing President Trump to waive sanctions on the purchases of Russian military parts made by U.S. allies. India, Vietnam, and Indonesia, and other U.S. allies currently field and are dependent on Russian-made defense systems. By law, as long as the countries can certify that they’re moving away from Russian systems purchased in the past, they’ll be able to purchase spare parts for the Russian-made equipment. [source]

Putin creates new patriotic wing of the military

According to an order announced on Monday, the Russian military has a new directorate dedicated to growing patriotism and morale. “In conditions of a global information and psychological confrontation (with the West) the role of political and moral unity within the army and society drastically grows,” said one Russian official. [source]

There are no new changes this week in the risk of war between NATO and Russia. The near-term probability of war remains very low, although both sides continue to improve military readiness.



Significant Developments:

China gifts warships to Sri Lanka, Philippines

Over the weekend, the Chinese gifted warships to the Sri Lankan and Filipino navies as part of a goodwill military aid package. Chinese relations with the Sri Lankan navy may be part of a strategic counter to Indian naval power. China continues to work with the Philippines to peel back support for the U.S., and most recently gifted the Philippines with $14 million worth of rifles and patrol boats. [source]

India to spend $1bn on U.S. missile defense system

In September, U.S. and Indian defense officials will hold a defense meeting to discuss bilateral military and strategic cooperation, specifically in reference to China. Recently, the Indian government decided to replace an aging national missile defense system through a $1 billion purchase of U.S.-made National Advanced Surface-to-Air Missile System-II. [source]

China to participate in Aussie war games

Despite laws passed in June aimed at curbing Chinese influence in politics, the Australian government approved the participation of the Chinese People’s Liberation Army Navy (PLAN) in upcoming military exercises off the coast of northern Australia. The PLAN will participate in maneuvers, but not live-fire exercises. [source]


Middle East:

Significant Developments:

Iranian troops reportedly pulling back from Israeli borer

As the Syrian military have recaptured territory from resistance forces in southwestern Syria, the Russian Special Envoy reported that Iranian heavy weapons and equipment have withdrawn to 85km (52mi) from the Israeli border, outside of any threatening range. Iranian soldiers in an advisory role, however, would remain within Syrian units that maintain a closer proximity to Israel. D.K. [source] Analyst Comment: This week, Russian and United Nations officials announced that they would be patrolling the Golan Heights, a stretch of land generating some contention with Israel as Iranian paramilitary forces operated in the area. This development seems to be part of an agreement between President Trump and Russian president Vladimir Putin stemming from their Helsinki summit last month. – S.C.

Israel warns Iran about cutting off sea lanes

Last week we reported that the Saudi energy minister decided to temporarily suspend commercial transportation through the Straight of Bab al-Mandeb due to attacks against two of its oil tankers from Iranian-backed Houthi rebels. The attacks were unsuccessful, but the energy minister said oil shipments would resume once the security situation was again under control. Speaking this week at a military parade, Israeli Prime Minister Benjamin Netanyahu said, “If Iran will try to block the straits of Bab al-Mandeb, I am certain that it will find itself confronting an international coalition that will be determined to prevent this, and this coalition will also include all of Israel’s military branches.” [source]


North Korea:

Significant Developments:

North Korea working on new ICBMs

According to leaked classified information, North Korea continues to build fissile material, in addition to new intercontinental ballistic missiles (ICBMs) capable of carrying nuclear warheads. [source]

Analyst Comment: Despite the assurances of President Trump, U.S. intelligence has confirmed that the North Koreans continue their nuclear weapons program. Last week, Secretary of State Pompeo appeared on Capitol Hill where he was grilled over, among other things, progress with North Korea. When pressed on whether or not North Korean dictator Kim Jong-un was taking the U.S. “for a ride,” Pompeo responded: “Fear not, senator. Fear not.” Secretary Pompeo seemed to imply that things were moving in a positive direction. This week, the Washington Post, citing unnamed officials familiar with the classified intelligence, reported otherwise. It’s entirely possible that Secretary Pompeo’s comment, making the situation appear rosier that it was, was the justification for the intelligence leak to the reporter. Although Trump and his cabinet officials were highly critical of previous administrations’ policy of “strategic patience,” it seems that now the president is adopting a similar policy while his administration tries to move forward with Chairman Kim. But intelligence leaks like this one work against this strategy.

So far, President Trump has experienced the most success to date with a North Korean dictator: an official end to the Korean War, a successful first-time meeting in Singapore, a freeze on nuclear tests, verifiable progress on decomissioning nuclear sites (if not of questionable significance), and a start to the return of the remains of U.S. troops killed in action during the Korean War. The only thing President Trump (or anyone else) has given in return, that we know of, is participation in the Olympics, some positive press time for the Kim regime, and a handshake. I tend to agree with CIA analysts who say that Kim isn’t going to give up his nuclear weapons, and maybe that’s a reality that the Trump administration has to deal with. But I can confirm one thing for certain: as long as there’s dialogue and a generally optimistic atmosphere, neither South Korea nor Japan are seemingly worried about the prospect of imminent nuclear war, unlike a year ago with the now-infamous “fire and fury” tweet.


– S.C.

Mike Shelby is a former military intelligence NCO and contract intelligence analyst. He spent three years in Iraq and Afghanistan and is now the intelligence and warfare researcher at Forward Observer.

1 Comment

  1. Fantastic write up as always, Sam – especially on China. How much of a national security risk do you see with our deficits and reliance on China buying Treasuries? Since I really don’t see anyone else who is able to step up and replace those purchases, I get very worried at the prospect of creditors losing faith in our borrowing if China is no longer helping to fund us (which, given the National Debt, they somehow haven’t – head scratching to me, but I digress).

    My ultimate dream is us not relying so much on foreign entities buying t-bills, but I also want to win the lottery, so there’s that.

    It almost seems like a game of economic chicken to see who blinks first – my bet is China does, but it is quite a risk.

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