Debt Ceiling Knife Fight Threatens to Slash U.S. Credibility

Welcome back to Foreign Policy’s SitRep! Jack and Robbie here.

We hope everyone’s not tired of all the Chinese spy balloon stories yet because it turns out now there are also militarized blimps. Jeez, guys, what happened to party balloons?

Alright, here’s what’s on tap for the day: Biden’s debt ceiling fight with Congress has foreign-policy implications, the White House shuffles two key European ambassador posts, and Washington is taking Russia’s claims of a hit on Putin with a shaker of salt.

Yes, it’s that time again—debt ceiling season. And everything’s on the line: the U.S. government’s ability to pay U.S. troops and service Treasury debt owned by China, the stability of the global economy, and even your TurboTax refund.

So, no pressure, debt ceiling negotiators.

Congress has voted to raise the U.S. debt ceiling 61 times since 1978, but what was once a perfunctory exercise in boring bureaucracy has become one of Washington’s biggest ongoing political knife fights since 2011, when the United States came within 72 hours of default and ultimately ended up cutting a deal to put caps on defense spending that became the bane of the Pentagon’s existence for a decade (more on that later).

And with the Treasury Department signaling that the United States could default on its debt by the beginning of June, U.S. President Joe Biden and congressional Republicans are still miles apart in negotiations to resolve the standoff. House Speaker Kevin McCarthy got a $1.5 trillion debt extension through the lower chamber last week that would impose drastic spending cuts, including on some signature programs of the Biden administration. Democrats insist it’s dead on arrival.

Crunch time. The window to negotiate a new deal is closing. Biden is set to huddle with congressional leaders, including McCarthy—no fan of the sitting president—and Senate Majority Leader Chuck Schumer, on Tuesday at the White House to try to sort out the mess.

But if there’s still no deal, it could force the White House to curb or cancel a major foreign-policy reassurance mission. Biden is set to leave on May 19 for a G-7 summit in Japan and a meeting of Quad leaders in Australia, and as Air Force One takes off, members of Congress will be scouring flight deals to go home for Memorial Day weekend. In 2013, then-President Barack Obama had to nix a trip to Asia to deal with the possibility of a government shutdown.

Still, it would be a bad time not to go see allies. The White House is set to unveil a new executive order curbing outbound U.S. investment to China in sectors critical to national security, such as artificial intelligence and quantum computers, and it wants U.S. treaty allies in Asia to follow suit in tweaking their own rules. Not to mention, it will be Biden’s first trip to Australia as president.

Brass tacks. So, what happens if the United States can’t pay its debts? Cash is king, and the U.S. dollar accounts for 60 percent of global currency reserves, making it still by far the world’s most circulated banknote, but the United States failing to service its debt could be the proverbial kick in the teeth that allows China to mount a challenge with renminbi-based trade. (The Chinese banknote accounts for about 12 percent of world trade.)

Then there’s the military angle. Ask anyone in the Pentagon’s E-ring (that’s Pentagonese for the building’s outer ring, where most of the top-ranking civilian and military officials sit), and they will tell you that the decade of looming threats of sequestration—across-the-board budget cuts triggered by the 2011 debt ceiling deal—wreaked havoc on the U.S. military’s ability to fight a near-peer adversary such as China. Sequestration stifled military construction for overseas bases, slashed maintenance, and forced the Defense Department to create a warfighting fund for Afghanistan and then ongoing wars that was chided as a slush fund by congressional doves.

And former U.S. officials believe the price could be even higher this time, with China on the move and Russia engaged in a full-scale invasion of Ukraine. “As [Russian President Vladimir] Putin escalates this conflict in a futile effort to break the will of the Ukrainian people, the United States and our allies, he will be watching to measure the credibility of U.S. economic power,” former U.S. Defense Secretaries Chuck Hagel and Leon Panetta wrote in an op-ed for the Hill. “To default on our financial obligations at this time would both undermine our own power and encourage Putin to continue his futile war on democracy.”

Democratic Sen. Ben Cardin announced this week that he won’t be seeking reelection in 2024. Cardin is an influential voice on foreign policy in the Senate and heads up the bipartisan U.S. Helsinki Commission.

Biden is tapping former Rep. Sean Maloney, who lost reelection to a sixth term in Congress in New York in 2022, as U.S. ambassador to the Organization for Economic Cooperation and Development, Axios reports. Former Delaware Gov. Jack Markell, who is currently in the role, is set to be tapped as U.S. ambassador to Italy.

The White House also announced this week that it would be sending three additional nominees to the Senate for confirmation: Edgard Kagan to be ambassador to Malaysia, Nathalie Rayes to be ambassador to Croatia, and Steven Swig to join the board of directors for the Millennium Challenge Corp.

What should be high on your radar, if it isn’t already.

Target practice. Either some unlucky drones took a wrong turn in Moscow or there was a ham-fisted assassination attempt on Putin … or there was a false-flag operation. Russia claimed with great fanfare that Ukraine had tried to assassinate Putin with armed drones, releasing a video of drones being taken down by defense systems over the Kremlin. Ukraine denied any role, and U.S. Secretary of State Antony Blinken cautioned to take any claims from Russia with a “very large shaker of salt.”

Why won’t anyone buy our nice weapons? The skies over the Kremlin may be booming, but Russia’s arms sales business is anything but, despite the war in Ukraine and its shadowy operations across the Middle East and Africa. It was on the decline before Russia invaded Ukraine, as data on its arms exports show, but things are bound to get worse as Western sanctions and export controls squeeze Russia’s defense industry and cut it off from critical tech. “If the war on Ukraine dealt the knockout blow to Russia’s arms exports, the industry had already been on the ropes for some time,” Cullen Hendrix, a senior fellow at the Peterson Institute for International Economics, wrote in Foreign Policy. Still, Russian Defense Minister Sergei Shoigu is urging Russian defense companies to double their missile output as the war drags on and a possible Ukrainian counteroffensive looms on the horizon. Easier said than done, Sergei.

Let’s make this official. NATO is set to open a liaison office in Japan, the first such base of operations in Asia, Nikkei Asia reported Wednesday. The 31-nation military alliance will use the new Tokyo office to consult with Japan, South Korea, Australia, and New Zealand, longtime U.S. treaty allies in the region, and deepen its efforts to confront China’s regional aggression, which NATO deemed a security challenge for the first time in a strategic concept released last year.

A woman walks past a bakery with graffiti on its windows following massive May Day labor demonstrations, more than a month after French President Emmanuel Macron’s government pushed through unpopular pensions reforms, in Paris on May 2. Alain Jocard/AFP via Getty Images

Thursday, May 4: Philippine President Ferdinand Marcos Jr. is set to appear at the Center for Strategic and International Studies in Washington. German Chancellor Olaf Scholz begins a two-day visit to Ethiopia and Kenya.

Friday, May 5: Friday is the 161st anniversary of the Mexican victory over France in the Battle of Puebla, which you probably know as Cinco de Mayo. Brazilian President Luiz Inácio Lula da Silva is set to begin a two-day visit to the United Kingdom.

Saturday, May 6: Britain’s Charles III is officially crowned king in a coronation ceremony at Westminster Abbey.

“On January 8th, I was talking to a Brazilian colleague and he said, ‘You guys export so much to the world. We didn’t want you to export January 6th.’”

—U.S. Ambassador to the United Nations Linda Thomas-Greenfield, speaking to students at the University of Brasília on May 2

Runner-Up

“I can fly Apaches, but I can’t operate the mic.”

—U.S. Army Chief of Staff Gen. James McConville, who faced some technical difficulties at a budget hearing before the Senate Appropriations Committee on May 2

Commemoration. This week marks the 24th anniversary of the death of bad-boy English actor Oliver Reed, who had a heart attack during a drinking contest while filming the Oscar-winning film Gladiator in Malta. Reed collapsed and later died after chugging eight pints of beer, 12 shots of rum, half a bottle of whiskey, and shots of cognac and arm-wrestling sailors from the British frigate HMS Cumberland.

Our SitRep editor Keith Johnson is not impressed. “Other than the arm-wrestling sounds like a Tuesday,” he writes in a Slack message.