Good morning. Here’s your Daily Situational Awareness for Tuesday, 08 August 2023.
- READ TIME: 7 Minutes, 42 Seconds
- Inside the Beltway
- (1) D.C. Lobbyists Expect Gov Shutdown After Congress Returns
- (2) Biden Admin: China “Looming Threat” to U.S. Ev Industry
- Domestic INTSUM
- (3) U.S. Credit Card Debt Tops $1 Trillion
- (4) New Industry Initiative Aims to Prep Grid for Mass EV Adoption
- Mexico SITREP
- (5) AMLO Cites Increasing U.S. Migration Numbers
- (6) AMLO Attacks Against Galvez Signal Her Likely Nomination
- Russia-NATO SITREP
- (7) Belarus Conducts Military Exercises on Polish and Lithuanian Borders
- China & Indo-Pacific SITREP
- (8) Alhajji: China Will Keep Oil Below $100 Per Barrel This Year
- (9) China Escalates Conflict at Second Thomas Shoal
- Global SITREP
- (10) Niger Coup Update
- (11) Australia – U.S. Join to Increase Munitions Production
- (12) TSMC Approves German Semiconductor Factory
INSIDE THE BELTWAY
- (1) D.C. LOBBYISTS EXPECT GOV SHUTDOWN AFTER CONGRESS RETURNS: According to a survey of “K Street” lobbyists in Washington D.C., 65% think there is likely to be a government shutdown on 01 October, and 80% think a shutdown by 01 January 2024 is likely.
- 91% of Democrats on “K Street” expect a government shutdown, while 73% of Republican lobbyists said a shutdown is likely.
- Why It Matters: Congress will have two weeks to pass 12 appropriations bills when they return from their August recess. Freedom Caucus Republicans in the House are pushing Speaker Kevin McCarthy (R-CA) to cut spending even more. If Freedom Caucus Republicans stick to their guns on cutting spending levels below the debt-ceiling deal, there could be a government shutdown. At the same time, the House scrambles to make a deal on a Continuing Resolution. The Fiscal Responsibility Act signed by President Biden in June includes a provision meant to discourage a Continuing Resolution after December 2023 by imposing an automatic spending cut, which could push the shutdown to 01 January 2024. – R.C.
- (2) BIDEN ADMIN: CHINA “LOOMING THREAT” TO U.S. EV INDUSTRY: Chief counsel for China trade enforcement at the Office of the U.S. Trade Representative Brian Janovitz said China is a “potential looming threat” and a “very formidable challenge” because it is targeting the rapidly expanding electric vehicle (EV) sector.
- Janovitz added that the Biden administration is concerned about overdependence on Chinese inputs.
- Why It Matters: China is currently the top EV and component maker globally, and tariffs have kept Chinese EV makers from penetrating the U.S. market. However, U.S.-based EV and battery producers still depend on Chinese key metals and components. As much of a threat as Chinese market dominance could be, Chinese firms could also restrict exports and hamstring U.S. EV makers. – R.C.
- (3) U.S. CREDIT CARD DEBT TOPS $1 TRILLION: Americans’ balances on credit cards and other revolving accounts crossed over $1 trillion for the first time.
- The percentage of Americans 90 or more days delinquent on credit card payments increased from 3.04% in Q1 2022 to 4.35% in Q1 2023.
- Per capita, each American now has $2,996 in credit card debt – 4X the level as the year 2000 and a record high.
- Why It Matters: Americans carrying a lot of debt could soon be in financial trouble. The Federal Reserve likely won’t cut interest rates this year, so variable rates, like credit cards, will remain high and could go higher. Also, after a 3-year grace period, Americans must resume their student loan payments in October. – H.B.
- (4) NEW INDUSTRY INITIATIVE AIMS TO PREP GRID FOR MASS EV ADOPTION: The Electric Power Research Institute (EPRI) announced the “EVs2Scale” initiative between the Energy Department and private industry to prepare the U.S. electrical grid for rapid electric vehicle (EV) adoption by 2030.
- The three-year initiative will assess and map demand growth for EV charging so utilities can determine where new substations and transmission lines should be placed.
- EPRI Transportation Director Britta Gross said, “We need the utilities to have more confidence in when and where those loads are coming.”
- Why It Matters: This initiative only looks at one obstacle to mass EV adoption by focusing on transmission. If enough power is not generated, it doesn’t matter how efficiently you can make energy transmission. – R.C.
- (5) AMLO CITES INCREASING U.S. MIGRATION NUMBERS: Mexican President Andres Manuel Lopez Obrador (AMLO) reported that migration from Mexico into the United States increased by 26% between June and July.
- The number of unaccompanied minors increased by 45% over the same period, according to Mexican data.
- Why It Matters: At a 26% increase, Mexico’s data is in the same ballpark as data from Customs and Border Protection, which shows a 30% increase over the same time period. The Biden administration has taken a victory lap on the border due to the supposed decrease in illegal migrant border crossings, which on paper have fallen from this year’s high of ~252,000 to ~144,000 for the month of June. But even that number is distorted, as the administration is sending migrants to U.S. ports of entry, where they are admitted and excluded from the number of illegal crossings. – M.S.
- (6) AMLO ATTACKS AGAINST GALVEZ SIGNAL HER LIKELY NOMINATION: AMLO has used his daily press conferences as a platform to batter opposition presidential candidate Xóchitl Gálvez.
- The Electoral Tribunal of the Judiciary of the Federation recently ruled that AMLO is violating Mexican law in the attacks, as public officials are not allowed to comment on politics surrounding elections.
- The tribunal also ruled that AMLO committed “gender-based violence” in his verbal attacks. Gálvez is female and filed a lawsuit against AMLO last month.
- Why It Matters: AMLO’s singular focus on Gálvez is a good sign that she could win the Frente Amplio (“Broad Front”) coalition presidential nomination and run against the leftist Morena candidate in June 2024’s presidential election. Both primaries should nominate their candidates next month. Galvez is “conservative” by Mexico’s standards, but is clearly using identity politics to her advantage here, citing Mexican law banning gender-based violence – which now applies to political criticism under this ruling. – M.S.
- (7) BELARUS CONDUCTS MILITARY EXERCISES ON POLISH AND LITHUANIAN BORDERS: The Belarusian Defense Ministry announced that military exercises were ongoing near the Suwalki Gap, which it said were based on lessons from Russia’s “special military operation.”
- Wagner Group fighters are reportedly training Belarusian forces and participating in the exercises, although their location near the Suwalki Gap has not been confirmed.
- The Suwalki Gap is a 60-mile stretch of land along the Polish-Lithuania border, which separates Russia’s Kaliningrad enclave from Belarus.
- Why It Matters: The relocation of Wagner forces in Belarus and their integration with Belarusian military units threaten Poland and the three Baltic states of Lithuania, Latvia, and Estonia. The Suwalki Gap joins the Baltic states with the rest of NATO and is also considered key terrain by Russia and Belarus to open a land route to Kaliningrad. Since all sides view the territory as critical to their security objectives, it is a prime location for an escalation of the Ukraine conflict outside its borders, intentional or otherwise. – M.M.
China & Indo-Pacific SITREP
- (8) ALHAJJI: CHINA WILL KEEP OIL BELOW $100 PER BARREL THIS YEAR: Economist Dr. Anas Alhajji said that China has become the buyer that can influence the global oil market.
- China has about 1.1 billion barrels in inventory – over three times more than America’s depleted Strategic Petroleum Reserve (SPR).
- When oil prices are low, China will import and store more oil, and when prices climb, China will reduce imports and use their inventories.
- Why It Matters: Like us, Dr. Alhajji has not bought into the falling oil demand narrative. Despite the trillions spent on renewable energy since 2010, 82% of the energy consumed last year came from fossil fuels. Oil demand will continue to rise, and while Saudi Arabia will set the floor on oil prices with export cuts, China will set the price ceiling. – H.B.
- (9) CHINA ESCALATES CONFLICT AT SECOND THOMAS SHOAL: China ramped up its territorial dispute with the Philippines on Tuesday by calling for the removal of the Philippine Marine outpost at Second Thomas Shoal.
- The escalation comes three days after a Chinese coast guard vessel used a water cannon to attack and block a Philippine military resupply mission to the outpost.
- China’s claim to the shoal was ruled illegitimate by a Hague-based international tribunal in 2016.
- Why It Matters: China feels confident that it can bully the Philippines into giving up the shoal. China successfully used the same tactic against Vietnam in the Paracel Islands and then built major naval bases with large military airfields on the islands and shoals. Officials in Manila are concerned that China will similarly expand a permanent military footprint in the Philippine Economic Exclusive Zone – a region rich in oil and gas reserves. Beijing’s actions may be a test of the U.S.- Philippine mutual defense pact. If the U.S. fails to respond forcefully to support its ally in Manila, Beijing will likely feel unrestrained in its ambitions to seize the majority of the South China Sea. – M.M.
- (10)NIGER COUP UPDATE: Leaders from a collection of West African countries (ECOWAS) scheduled a meeting for Thursday to discuss their failed ultimatum to Niger’s military junta to reinstate its former president.
- U.S. Acting Deputy Secretary of State Victoria Nuland flew to Niger’s capital Niamey on Monday for talks with senior junta officials. Nuland left, saying discussions were “frank and difficult.”
- Coup leaders struck a defiant tone, calling on young Nigeriens to be ready to defend the country.
- Why It Matters: Niger is rich in uranium and oil deposits and has played a key role in the West’s fight against Islamic extremism in Africa. Now, the new junta has cut ties with the West, ordering foreign forces to leave in the next 30 days. Nuland’s empty threats to junta officials not to align with Russia were roundly dismissed and it is likely that Moscow and possibly Beijing will fill the void left by diminished Western influence. The West, tied down with the war in Ukraine and Iranian military activity in the Arabian Gulf, will unlikely attempt a military solution to the Niger problem. – M.M.
- (11) AUSTRALIA – U.S. JOIN TO INCREASE MUNITIONS PRODUCTION: Australia and the U.S. have agreed to increase joint production of precision-guided munitions in preparation for a potential conflict with China.
- The Australian Guided Weapons and Explosive Ordnance enterprise will focus on producing Guided Multiple Launch Rocket Systems (GMLRS) and 155mm artillery ammunition.
- The move is reportedly a U.S. initiative to address the limitations of its industrial base.
- Why It Matters: The U.S. lacks the industrial capacity to produce significant munitions or regenerate material losses in a conflict with China. Outsourcing munitions production to friendly countries is a short-term solution to a systemic problem and may not address the issue in time to support a conflict with China. Aerial-delivered long-range precision-guided munitions are also in short supply, with roughly one to two weeks of available missiles, a problem that has yet to be addressed. – M.M.
- (12) TSMC APPROVES GERMAN SEMICONDUCTOR FACTORY: Taiwan Semiconductor Manufacturing Company (TSMC) approved a nearly $4 billion plan to build a factory in Germany under its subsidiary European Semiconductor Manufacturing Company (ESMC).
- TSMC’s board also approved additional capital of up to $4.5 billion for TSMC Arizona.
- Why It Matters: Talks to build a European factory have been ongoing since 2021. TSMC continues efforts to decentralize out of Taiwan ahead of potential Chinese military action and coerced or forced reunification with the mainland. While Germany’s new fabrication plant will run into the same supply chain challenges as other factories, it will also be dealing with a unique situation: the risk of continued German power outages, which plagued the country’s industrial production base last year. – M.S.
— END REPORT
M.S. indicates analyst commentary from Mike Shelby
M.M. indicates analyst commentary from Max Morton
J.V. indicates analyst commentary from Jared Vaughn
R.C. indicates analyst commentary from Robert Cook
H.B. indicates analyst commentary from Harrison Burge