Breaking Glass

The Credit Strategist - March 2025

It comes as no surprise that President Trump turned American foreign relations on their head upon re-entering office. The proposed minerals joint venture with Ukraine is a case in point. Such a stark transactional arrangement as part of a larger effort to end the Russia-Ukraine War is unsettling to the tradition-bound foreign policy establishment that presided over the post-Second World War era. But that era ended after several events dramatically altered the global landscape. A new era is now upon us that creates an opportunity for the United States to play a stronger hand in international affairs despite the high risks of doing so if that hand is not played wisely.

The first two decades of the twenty-first century appeared to weaken America’s standing with respect to its strategic enemies Russia and China. In large part, this was due to some self-inflicted wounds. America’s failed invasion of Iraq destabilized the Middle East, empowered Iran and its proxies, and motivated China to build its military to defend against American power. Economic policy failures led to the 2008-9 Great Financial Crisis and revealed deep cracks in America’s financial system. Then the steps taken to address that crisis – issuance of trillions of dollars of debt and imposition of excessive regulation on the financial system (piled on top of 9-11 reforms) – damaged America’s economy and global business reputation. Somehow, despite experiencing their own serious economic, social, environmental, and demographic problems during this period, China and Russia (with the help of Iran and North Korea) managed to use military, diplomatic and economic power to expand their influence in the Middle East, Africa, South America and Eastern Europe, culminating with the wars in Ukraine and Gaza that ended up stretching them too thin and exposing their limitations.

Those wars caused the balance of power to tack back in America’s favor. Russia’s February 2022 attack on Ukraine exposed the weakness of its military, isolated the country from the West, and drained its economy and population. Then Hamas’s Iran-backed and -blessed October 7^, 2023 attack triggered a ferocious Israeli (and American-backed) military response that decimated the Iran-China-Russia axis by crippling Iran’s Hamas and Hezbollah proxies, toppling the Assad regime in Syria, and exposing Iran’s (and Russia’s) military weakness.

Within three short years, America’s enemies overplayed their hands, resulting in stark military and economic losses from which it will be difficult to recover (especially if America plays its cards correctly). President Trump returned to the Oval Office in January 2025 with a much stronger hand to play in foreign policy than when he left four years earlier. And Mr. Trump clearly recognizes the situation and is exploiting it. He is using America’s stronger hand to try to end the wars in Ukraine and Gaza (which will require dealing with Iran). His approach is nakedly transactional, which seems to disturb many people, but there is merit to this approach. Henry John Temple, twice British Pime Minister in the mid-1800s, famously said, “Nations do not have permanent friends or enemies, only interests.” This was the philosophy followed by the late Henry Kissinger as well. Successful foreign policy requires a cold-blooded assessment of America’s interests, not nostalgia for past relationships and arrangements. In foreign affairs, allies are not friends; they are parties that share common interests at certain points in time and opposing interests at others. Their relationships are transactional and situational, not static and permanent.

President Trump believes it’s in the interest not only of the United States but of Europe and the world to see the war in Ukraine end. He believes that forming a partnership to develop Ukraine’s minerals (including all-important rare earth minerals) will help achieve that goal as well as a broader goal – re-establishing diplomatic and economic relations with Russia (which will help avoid being drawn into war with Russia). If that means brushing over Russia’s responsibility for starting the war and committing unspeakable war crimes, he can live with that. I don’t think that means he believes for a moment that Putin didn’t start the war or commit war crimes or that he doesn’t want to end the pointless killing on a human basis. But as a matter of pragmatic statesmanship, he views those events as historical obstacles to peace and his goal is securing a future free of further financial and physical carnage. This is an extremely high-risk strategy because it depends on the cooperation of Vladimir Putin, a man whose actions can only be controlled – if at all – by cold and bloody power and not by treaties or other written or verbal promises. But the alternative is to enable Ukraine to keep fighting a war that it can only win at enormous cost in money and lives or most likely not at all. President Trump sees ending the war as a much better alternative.

Ending the war will be difficult if not impossible without the United States. Europe is weak economically, demographically, morally, and militarily. It may collectively be capable of challenging Russia, but nobody wants to test that thesis without the United States. And President Trump also recognizes that the war is placing significant strains on American resources. The United States is stretched thin supporting allies in Europe, the Middle East, and Asia. If called upon to do so, it may no longer be capable of fighting wars in multiple theaters against authoritarian foes. Supporting Ukraine and Israel drained American military stockpiles and delayed the production of weapons systems. If China moves against Taiwan as it promises to do later this decade, the United States may not be able to do anything about it. Ending the necessity to keep arming Ukraine is a strategic priority for the United States while the minerals deal offers both countries economic benefits and deals Russia and China a strategic and economic setback. Allowing the war to continue would drain Russia’s resources but also those of the United States while costing many lives without changing the likely outcome. Rather than fight to the bitter end and litigate fault for the war as President Zelensky tried to do in the Oval Office, President Trump wants a practical outcome that serves America’s and Ukraine’s immediate interests while minimizing the odds of future wars and better preparing the United States to act if those wars occur. Such an approach necessarily sacrifices issues like Russia’s conduct but the price for peace was always going to be steep.

Criticism that the minerals deal improperly commercializes foreign policy is misplaced. China makes commercial deals all the time in its Belt-and-Road Initiative as does Russia with countries throughout the world. Why shouldn’t the United States do the same and combine foreign aid with economic enterprise? Playing by different rules that limit America’s ability to forge business and economic partnerships with countries is self-destructive and self-defeating (especially when countries depend on the U.S. for aid). The minerals venture with Ukraine should enrich both countries while sending an important signal to Russia that cooperation is far more fruitful than conflict. There is even talk of opening commercial relations again with Russia which for many would be a hard pill to swallow. But it makes sense strategically for both countries. Russia indisputably started the war and should be required to contribute significantly to the cost of rebuilding Ukraine. But it has paid a huge price for its invasion strategically, economically, and socially. Sweden and Finland joined NATO, precisely what Russia didn’t want to happen, while the war cost it enormous amounts of money and casualties. It is in Putin’s interest to end the war and rejoin the global community to which the United States and Europe hold the cards to entrance.

It was a tragedy that this war wasn’t avoided in the first place but it will be farce (in the sense that Marx used that phrase in The 18^th Brumaire of Louis Napoleon) if peace can’t be established by wise diplomatic and economic management from this point onward. That will require, however, a different playbook than the one employed since the Second World War of which the minerals deal is a viable component. It would establish a formal economic presence for the United States in the heart of Ukraine’s economy that should give Russia serious pause the next time it considers initiating military action against that country while creating the potential model for similar arrangements with other European countries under Russian threat and even for Russia itself.