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Taking Tegucigalpa seriously

Summary:
The Financial Times has an article discussing Honduras’s relations with the US, Taiwan and China. As is usually the case with this respected publication, the tone of the article is quite serious. It is only when you begin to think about what you are reading that doubts creep in. Honduras is also strategically important to the US, as it hosts the Joint Task Force Bravo air base, Washington’s most important military unit for fighting Latin American drug networks. That sounds pretty serious, but what does it actually mean? Is the US military “fighting” drug lords or is it facilitating their business? Let’s back up and ask why drugs lords earn enormous profits. Most agricultural products are not particularly profitable, why are drugs different? The best answer

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The Financial Times has an article discussing Honduras’s relations with the US, Taiwan and China. As is usually the case with this respected publication, the tone of the article is quite serious. It is only when you begin to think about what you are reading that doubts creep in.

Honduras is also strategically important to the US, as it hosts the Joint Task Force Bravo air base, Washington’s most important military unit for fighting Latin American drug networks.

That sounds pretty serious, but what does it actually mean? Is the US military “fighting” drug lords or is it facilitating their business?

Let’s back up and ask why drugs lords earn enormous profits. Most agricultural products are not particularly profitable, why are drugs different? The best answer is that unlike with corn or wheat, coca leaf producers have the US military fighting against them. That makes their product extremely expensive, and this causes the profits to be extremely high. Of course these are just accounting profits; adjusted for risk of death or imprisonment the drug trade is not unusually profitable. Nonetheless, the US military helps insure enormous dollar profits for drug lords.  Drug lords would be horrified if we ended the drug war.

“Of course, US influence is waning and China’s increasing,” said Antonio Hsiang, a Taiwanese professor at the National Academy of Political and Strategic Studies in Chile and editor of a new book on Taiwan’s relations with Latin America. “Even though the US is a major aid donor to Honduras, corruption is so severe that the Honduran people do not see much of that.”

Honduras is one of the poorest countries in the Western hemisphere. So at first glance it sounds good that the US provides lots of foreign aid. But notice that the public sees very little of that aid. So where does all the money go? The article suggests that it doesn’t go to “the Honduran people” due to “corruption”; so perhaps the money is going to corrupt officials in the government?

So now we have a US military that is enriching “drug lords” and a US Treasury that is financing corruption in Honduras.

Xiomara Castro, the leftist politician elected president of the central American country last week, pledged during her campaign to establish diplomatic relations with China, which would reduce Taipei’s diplomatic allies to just 14. . . .

But since El Salvador made the switch in 2018, the US has pushed back. Washington recalled its ambassador and put Salvadoran officials it accused of corrupt and undemocratic practices in support of Beijing on a sanctions list. Some analysts believe the US will do anything to keep Honduras from getting close with China.

So what’s wrong with pressuring our aid recipients to take our side on foreign policy questions? In the past, I’ve criticized the US for bullying smaller countries. Thus we threatened trade sanction against Ecuador when they disagreed with the US on an obscure UN resolution on breast-feeding. (No, I’m not joking.)

But let’s say I’m wrong.  Suppose it is only natural for big countries to pressure smaller countries to take their side on important foreign policy questions. In that case, what possible objection could I have to US policy toward Honduras?

Here’s the problem. Those 14 countries that have formal diplomatic relations with Taiwan do not include the US. Indeed, in 1979 the US recognized Beijing as the sole legitimate government of China. This is often called our “one China policy”. We are not bullying Honduras to agree with our official policy on China, we are bullying Honduras to disagree with our official policy on China.

Of course the US does favor Taiwan over China in an unofficial sense, and perhaps for good reason. Taiwan’s government is far superior to the government in Mainland China, by any reasonable criterion. You might say that we are bullying Honduras to support Taiwan because we are too cowardly to do so ourselves. We are afraid of angering China, but not afraid of angering Honduras. That’s just how the world works.  Do as we say, not as we do.

But did the FT explain the grotesque irony of the US position? Not that I can see—the article didn’t even mention that we were trying to force Honduras to do adopt a policy that is the exact opposite of our own policy. 

“The US will not let Honduras go because it is crucial for homeland security,” said Antonio Yang, a Taiwanese Latin America expert and honorary professor at the National Defence University in Tegucigalpa.

“Crucial” is an interesting adjective. Germany is a crucial European ally to the US. Japan is a crucial East Asian ally. Canada is a crucial North American ally. You might even argue that Panama is a crucial Central American ally.  Honduras? Hmm . . .

Luis Larach, who has businesses in tourism, energy and real estate, thinks Honduras should focus on nearshoring — trying to attract US companies to move factories to the region from Asia — to drive economic growth.

“You don’t need to have a lot of information to figure out that our big potential for development is with the United States,” he said. “The historic diplomatic relations with Taiwan have been good for our country and our region and, I think, should continue.”

The FT is a serious newspaper, much like the NYT or WSJ. It’s not “The Onion”. But the more I think about what I’m reading, the more confused I get. Honduras has a per capita GDP of $2500, very poor even by Central American standards. They just elected a left wing leader who plans to shut down the charter city project. What do they mean by “potential for development”? In what sense does Honduras have any potential at all? Vietnam has potential. Bangladesh has potential. But Honduras? And how have diplomatic relations with Taiwan been good for Honduras? Perhaps they received some foreign aid, but wouldn’t Mainland China also provide foreign aid? The US does lots of trade with Taiwan despite its decision to shift diplomatic recognition to Beijing.

When I was young, I assumed that the foreign policy experts I saw on TV must know what they are talking about. (Especially when they had central European accents.) But as I got older and saw one US foreign policy fiasco after another, I began to wonder. Is foreign policy expertise actually a thing? How would we know?

If I’m tired and read this FT article quickly, it all seems quite reasonable, quite respectable. But if I slow down and start to think about what I’m reading, then I feel like I’m in a madhouse—none of it makes any sense at all.

Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment". In May 2012, Chicago Fed President Charles L. Evans became the first sitting member of the Federal Open Market Committee (FOMC) to endorse the idea.

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