by Greg Valliere, AGF Management Ltd.
THE GEOPOLITICAL FOCUS IS NOW on Russia’s threat to Ukraine and Iran’s funding of surrogates who are lobbing missiles at ships in the Persian Gulf, but there’s another growing threat — China’s rapid development of hypersonic missiles, which has stunned the U.S. defense community.
PENTAGON OFFICIALS HAVE BEGUN TO SPEAK on the record about the new Chinese weapon, which they dubbed “the shot heard around the world,” after a missile circled the globe in July and was guided to a target in China.
A SERIOUS THREAT: The missiles “can twist and turn on their way to a target, while their incredibly high speeds — above Mach 5, or a mile a second — makes it impossible for existing land-and-space-based systems to detect a hypersonic attack until very late in the missile’s flight path,” according to Arthur Herman, a senior fellow at the Hudson Institute, who wrote about this new weapon in a Wall Street Journal op-ed earlier this week.
CHINA HAS TESTED THE WEAPON TWICE, once in July and again in August. “This means that Beijing is surging ahead with a technology against which the U.S. has very limited capability for defense or detection,” Herman wrote.
THE U.S. SUSPENDED WORK ON A HYPERSONIC MISSILE in the mid-2010s, “while China made hypersonics a Manhattan Project-level priority,” Herman said/ The U.S. may have a similar weapon in 2023, with a defense capability by later this decade. This points to a continuing surge of defense spending; funding for next year, about to win approval from from Congress, will be around $780 billion, with $800 billion or more in annual Pentagon outlays coming within two years.
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THREE DOWN, ONE TO GO: It hasn’t been pretty but Congress is methodically working its way through four major fiscal policy issues:
1. A measure funding the government through Feb. 18 has been passed.
2. The defense spending bill is close to enactment.
3. A debt ceiling increase will get signed into law within days.
4. Then there’s President Biden’s $2 trillion-plus Build Back Better bill, which
faces many obstacles: its cost; deep disagreements over parental leave benefits and the state and local taxes break; and resistance in the Treasury Department over a 15% minimum tax on firms with $1 billion or more in corporate profits — which will be awkward to calculate if firms pump some profits into in Biden’s climate change initiatives.
THREE OUT OF FOUR AIN’T BAD: The House-passed BBB bill will require several changes in the Senate, and then the measure will return to the House — a process that will bump up against the holiday recess. Joe Manchin — an inflation hawk who may get more ammunition at 8:30 this morning — still isn’t on board on several key provisions, so we continue to think this bill is in major trouble.
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This post was first published at the AGF Perspectives Blog.
