On the Record
I'd rather be dead in a ditch (than ask Brussels for a Brexit delay).
British Prime Minister Boris Johnson
On Our Radar
An Election Is Pushed Off, With More Brexit Drama to Come. In just three days, British Prime Minister Boris Johnson lost his majority in the House of Commons, Parliament approved a law forcing him to ask the European Union to delay Brexit if an exit agreement isn't in place by Oct. 19 and Commons rejected his proposal for an early general election. The next big wave of drama comes in mid-October when Johnson, if he hasn't already resigned, goes to Brussels for the Oct. 17 European Council summit. If Johnson breaks the law and does not ask the European Union for an extension to prevent a no-deal Brexit, he could resign at that point or Labour and the rest of the opposition in Parliament could trigger a no-confidence motion to replace him and request the delay at the 11th hour. Given the size of the rebellion in Johnson's Conservative Party that we saw this week, a no-confidence motion has a decent chance of succeeding, but success depends on whether the opposition can agree on a nonpolarizing candidate (that is, on someone who isn't Labour leader Jeremy Corbyn). The Liberal Democrats have suggested appointing the "father" or "mother" of the House — the two eldest members in the House of Commons, whose virtues include not having long-term political ambitions and the stature to restore some order to the chamber as he or she prepares the country for another election, likely in November or December. At this point, the two biggest threats to any plan to stop a no-deal Brexit are 1) the opposition cannot agree on a successor to ensure a successful confidence motion against Johnson or 2) Johnson prorogues Parliament yet again in the second half of October to drive the United Kingdom to Brexit on Oct. 31.
The ECB's Return to Stimulus. Markets will be watching the European Central Bank (ECB) closely on Sept. 12 when new stimulus measures are likely to be announced. Most of the economic data coming from the eurozone since the ECB's July meeting have been negative, inflation remains low and Germany still appears to be on the path to recession. Given the climate, ECB President Mario Draghi is expected to announce the return of quantitative easing on top of taking interest rates further into negative territory. Draghi nonetheless is going to face a lot of resistance from central bankers in Northern Europe, who are concerned about the impact that negative interest rates have on their domestic savers and who are also skeptical of measures meant to assist Southern Europe at a time when many of the governments in the region are not introducing structural reforms to become more competitive.
The Trade Truce Test. After the White House followed through with another tariff increase on Sept. 1, U.S. and Chinese negotiators agreed over a phone call to hold deputy working-level talks in mid-September and higher-level face-to-face talks in early October. China may be slightly encouraged by a rise in U.S. market commentary speculating that President Donald Trump's fear of an economic slowdown tarnishing his 2020 reelection campaign will soon drive him toward a deal, especially considering that his trade war now encompasses everyday consumer items. China also has been showing some restraint: Beijing refrained from retaliating against the White House's Aug. 23 tariff retaliation, it has not released its unreliable entity list and it has not followed through yet with a threat to impose restrictions on rare earth exports. In trying to show progress on Trump's fentanyl demands, Beijing also released a paper outlining its targets and efforts to crack down on fentanyl suppliers. Some tepid moves are being made to improve the mood for talks, but the big question that remains is whether we would see a truce take shape around the early October meeting. That test will come Oct. 1, when the White House is expected to raise tariffs on $250 billion of imports from 25 percent to 30 percent. If the White House delays or drops the tariffs, say, in return for Beijing re-opening the door to agricultural purchases, we could be back in truce territory — at least, for a little bit.
India May Be Able to Join Japan in Evading Trump Tariffs. According to an Inside U.S. Trade report, the Trump administration is considering drafting another "early harvest" trade agreement with India, as it has with Japan, to demonstrate that it can seal trade "victories." The leak claims that President Trump may be aiming to sign the deal with Indian Prime Minister Narendra Modi as early as the U.N. General Assembly, which runs Sept. 17-30. This would mark a big shift, considering New Delhi's struggle to even nail down a meeting with U.S. Trade Representative Robert Lighthizer to sort through the U.S.-India trade spat. But it could reveal growing political pressure on Trump to show trade wins, which would be good news for other potential targets like Vietnam. When Washington stripped India of its decadeslong tariff benefits under the Generalized System of Preferences in May, New Delhi shot back by escalating tariffs on $241 million worth of American goods. A partial trade agreement could see both sides scale back these measures as a first step toward addressing Washington's deeper concerns pertaining to Indian regulations on e-commerce, data localization, intellectual property and market access (all of which affect American commercial interests in the Indian market).
But even the longer-running Japan negotiation with the White House shows the difficulty of reaching a final deal. Ongoing working-level talks are feverishly trying to hammer out the degree of Japan's agricultural opening and rigorous e-commerce provisions even as the Japanese side continues to press for industrial access to the U.S. market. Most important, Japan is still seeking binding protection from threatened U.S. automotive tariffs — with Prime Minister Shinzo Abe and President Trump likely to work that out in person. With so much still to be worked out and Trump seeking a high-profile trade deal win (and relief for U.S. farmers), the coming weeks will be critical in whether he can hold that up by the U.N. General Assembly.
The Limits of a Concession in Hong Kong. As part of a four-point plan to quell Hong Kong's three-month-long political crisis, Chief Executive Carrie Lam agreed to meet one of the protesters' key demands and withdraw the extradition bill that sparked the unrest in the first place. The markets and foreign governments reacted positively to Lam's concession, assuming it could now lead to de-escalation. But Lam's refusal to concede to other demands — in particular, an independent probe into police conduct — is still likely to inflame protesters. Lam wants to avoid demoralizing the police forces she is relying on to manage the unrest by agreeing to an independent inquiry, but the police brutality allegations also have a strong galvanizing force on the opposition. The Oct. 1 National Day of China is also a big opportunity for protesters to maximize global attention to their cause. Looking forward, we're watching closely for any signs of divisions among the Civil Human Rights Front and more radical student leaders.
Things Aren't Looking Great for an Iran-U.S. Breakthrough. French Finance Minister Bruno Le Maire went to Washington to try and win U.S. approval for an oil-backed $15 billion credit line to Iran in exchange for Iran returning to full compliance with the Joint Comprehensive Plan of Action (JCPOA) nuclear deal and lowering tensions in the Persian Gulf. The White House did not outright reject the credit line proposal, but it also didn't inspire confidence in France's mediation when it announced more sanctions on Iran and underscored its commitment to its "maximum pressure" strategy. Iran also announced it was taking another step away from its JCPOA commitments by resuming research and development it had paused under the deal and vowing another escalation in 60 days if the European Union fails to provide it with an economic safety net. The White House still appears to be trying to get Iran to commit to a face-to-face meeting between President Trump and Iranian President Hassan Rouhani at the U.N. General Assembly this month, but Tehran is unlikely to agree to such a meeting until it has a guarantee on some sanctions relief. We'll see if the French have any other clever ideas to try and break the deadlock, or else Iran may be compelled to stoke military tensions again to try and get the United States to bend.
Low Ambition and High Contention in a Draft Afghan Deal. On Sept. 2, U.S. envoy Zalmay Khalilzad announced that the United States and Taliban had reached a draft agreement under which the United States would withdraw 5,000 troops from Afghanistan and close five bases over 135 days, while violence would reduce in the provinces of Kabul and Parwan. The limited scope of the draft agreement — which awaits President Trump's approval — appears to lower the ambitions for peace in Afghanistan, suggesting the Taliban will continue fighting Afghan security forces until the two sides agree to a nationwide cease-fire. Afghan President Ashraf Ghani's government — sidelined from all nine rounds of U.S.-Taliban talks — has naturally raised hackles over the deal and Ghani's trip to the White House that was supposed to take place in the coming week has been called off for now. For the United States, any drawdown of its remaining 9,000 troops would depend on Taliban commitments to uphold a counterterrorism pledge against al Qaeda and the Islamic State and honoring the terms of the draft deal, which have yet to be made public.
On Our Minds
Turkey Has Nukes on the Mind. In a characteristically nationalist speech by Turkish President Recep Tayyip Erdogan, the firebrand leader included a very uncharacteristic comment on nuclear weapons: "Some countries have missiles with nuclear warheads. Not just one or two. But I cannot have them. I don't accept this." It's always been a possibility that regional powers nervous about Iranian and potentially Saudi nuclear ambitions could try and kickstart their own weapons programs. Turkey sits under a NATO nuclear umbrella and hosts U.S. tactical nukes at Incirlik air base. It is also a signatory to the Nuclear Non-Proliferation Treaty. But Turkey's ties with the West have been fraying as Turkey has been pushing beyond its boundaries and trying to remove what it sees as Western interference in its affairs, from anti-Kurdish operations to diversifying military suppliers. If Turkey cannot fully rely on its interests matching those of the United States and other NATO partners, then Ankara could go down a more unilateral path. But building a nuclear weapons program is expensive, intensive and would open Turkey up to sanctions and a major breach with NATO. Erdogan may simply be stoking nationalist fervor by asserting Turkey's sovereign nuclear rights as a way to distract from a stagnant economy and flagging support for his party. Even so, his comments have us taking a harder look at Turkey's nuclear ambitions.
Discord on Display Among Iraq's Shiite Militias. Abu Mahdi al-Muhandis, the deputy commander of the Popular Mobilization Forces in Iraq, raised a lot of eyebrows when he claimed this week that the group was establishing its own air force directorate. Although not approved by the federal government in Baghdad, the claim made some sense since the mainly Shiite militias supported by Iran are no doubt seeking to defend themselves against a recent spate of likely Israeli attacks on their facilities. But within hours, the group's chairman and Iraqi government national security adviser Faleh al-Fayyadh denied the claim. This is not the first time we've seen these two militia leaders contradict each other. Al-Muhandis, who is closer to Iran than al-Fayyadh, blamed the United States for a likely Israeli attack on a militia facility, which al-Fayyadh quickly downplayed. We're watching this dynamic closely for signs that Iran uses its more reliable proxies to expand its reach and capabilities in the region. This also makes the Popular Mobilization Forces a prime target for Israel, which has been extremely assertive in trying to handicap Iran's regional militant network.
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On Our Calendar
In the coming week, British Prime Minister Boris Johnson will try again to win two-thirds of Parliament's support for an early election, though opposition members have vowed to either vote against the proposal or abstain from voting; the European Central Bank is expected to announce new stimulus measures; and Kuwait's emir, Sheikh Sabah al-Ahmad al-Jaber al-Sabah, meets with President Donald Trump in Washington. For more, see our Geopolitical Calendar.
Stratfor Talks
John Douglas was one of the FBI's first criminal profilers and is a source of inspiration for Netflix's true-crime series, "Mindhunter." Stratfor's Chief Security Officer Fred Burton recently interviewed Douglas about his career and his new book, The Killer Across the Table, for the Stratfor podcast.
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