A Transactional President and The Transaction Cost Economics of Greenland
Trump’s Greenland obsession has attracted considerable ridicule (go figure) but increasingly some who cannot be considered reflexive Trumpists are stating that greater US control over the world’s largest island makes good geostrategic sense. In a nutshell, increasing American control over Greenland would enhance America’s strategic position in the Arctic, which is an increasingly important theater of jockeying between world powers. Russia has always been a rival in that region, but now the non-Arctic state of China is making moves there as well. (Come to think of it, Trump’s statements about making Canada the 51st state may reflect the same calculation, especially in light of the collapse of Canada’s military and the globalist, leftist tilt of its government in recent decades).
Note that I wrote “control” above. Ownership is sufficient to obtain control, but it is not always necessary to do so. Control rights can also be obtained by contract, which in an international context would be in the form of a treaty or similar inter-state agreement.
Thus, the real issue is what is the best way for the US to achieve its strategic objectives, via purchase or treaty/contract. That is, this is analogous to a firm deciding whether to vertically integrate to acquire inputs, or instead enter into a contract with a separate firm to do so. (In the IO literature, this is sometimes referred to as the “make or buy” decision).
The major advantage of purchase is that ownership confers exclusivity, and the right to exclude. This is of particular importance in the case of Greenland, where excluding a Chinese presence is essential to achieve US interests. This includes a presence in both facilities/bases and natural resource development.
Now it may be possible to formulate treaty language that would grant exclusivity to the US. However, (a) nations can renege on treaties, and (b) as the case in any contract, there can be ambiguity in treaty language that allows ex post opportunism. Thus, enforcing such exclusivity terms is likely to be costly and the risk of breach is non trivial.
Trump’s rhetoric in another controversial acquisition (re-acquisition, actually) proposal illustrates the issues with enforcing the right to exclude certain uses of an asset. Specifically, the Panama Canal Treaty–actually titled The Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal–required the canal to remain out of the control of any power and granted the US the right to defend the canal against threats to neutral operation and access. This has not prevented the development of massive Chinese port facilities at each end of the canal, facilities that have potential military uses that threaten the US’s access to the canal especially but not only in the event of a Sino-American war.
That is, a case can be made that the US has a right to intervene to eject China from the Canal Zone, or at least would have the right to do so under certain contingencies. The practical enforceability of that right is clearly problematic. It would not be so if the US still controlled the CZ.
Another example of the risks associated with obtaining rights to strategic territory via contract is also in the news, namely the UK’s apparently imminent transfer of control of Diego Garcia to Mauritius–a deal that Starmer is apparently panting to complete before Trump takes office.
Trump’s real estate experience no doubt makes him acutely aware of the trade-offs between leasing a property and owning it. These trade-offs are particularly important when development options are considered, and Greenland would be all about development options–transportation infrastructure, military facilities, and mines (for rare earths, specifically). Writing an even passably complete contract describing and allocating such development rights would be challenging in the extreme, and Trump no doubt understands this clearly.
Ironically, the biggest obstacle to development of a US-owned Greenland would be . . . US law. The entire panoply of environmental law that has throttled development in the US would presumably be applicable to Greenland. Certainly environmental groups (plausibly acting as cat’s paws for China and Russia) would engage in lawfare to restrict development. And a future president could do as Biden just did with respect to offshore energy development, and Biden other presidents have done by proscribing development on some federal land.
In sum, (a) some degree of US control of Greenland would advance American national interests, and national security interests specifically, and (b) obtaining that control via contract (treaty) would likely entail substantial transactions costs in specifying and enforcing those rights. In contrast, ownership would confer control and avoid these transaction costs. Thus, buying Greenland makes economic sense, not in the sense of American investments in Greenland are positive NPV projects, but in the sense that ownership is the most economical way to incentivize and secure those investments. Put differently, transactions cost economics strongly favor achievement of American objectives in Greenland via purchase. It is therefore not surprising that a ruthlessly transactional man who has decades of experience in dealing with the trade-offs involved with purchase and contract is pursuing that course.
What is truly horrifying the Europeans is the prospect of the Greenlanders choosing of their own free will to be ruled by America and not an EU nation. They don’t like it when the oiks make their preferences known.
Comment by Timothy Newman — January 13, 2025 @ 12:01 pm
How odd. Not a single mention of the profound geopolitical implications of this proposed land grab vis-a-vis Taiwan, Ukraine etc. As investment advice goes…
What happens if the Greenlanders refuse to play ball, or make some astronomical demand e.g. $56.865 trillion (make us all billionaires and we’ll think about it)? It’s not like they’re first nation eskimos who can be bought off with MAGA hats and a free meal.
Comment by David Mercer — January 13, 2025 @ 1:18 pm
@ Newman: What must be truly horrifying the US is the prospect of the Greenlanders choosing of their own free will to be ruled by say China (if a bidding war ensues). The US certainly won’t like it if the oiks make these preferences known.
Comment by David Mercer — January 13, 2025 @ 1:31 pm
Transferred the Chagos islands to Mauritius for purely administrative reasons. They are a thousand miles apart and have no other collective history.
Chagossians were expelled to make way for anaval base, shared then leased to the US.
The exiled people mostly ended up in Mauritius where they were (and are) treated badly. After independence China became interested in Mauritius and now has its hooks firmly in the body politic.
If Trump is concerned about Greenland and Panama why has he been silent on the proposed transfer of Chagos / Diego Garcia to Mauritius, which is of similar strategic value? Why is the British government so keen to pay billions to give it away?
Comment by philip — January 13, 2025 @ 1:48 pm
Let’s not kid ourselves about the (military) strategic importance of Greenland to the US. Russia is most definitely not a peer adversary of the US, despite what both parties want us to believe. Re China, what possible reason could there be to base aviation or naval assets there, BMEWS aside? It’s literally got the whole of Europe & Asia between it and this threat – Alaska is waaay closer. Even if it did, the US already has the ability to commit to it via NATO. If it wanted to scale up its military presence there for whatever reason, I’m sure Denmark and the Greenlanders would be more than happy to oblige.
This (and the Canada play) is all about access to natural resources, specifically addressing the fact that the US has failed to secure those it needs to maintain and grow its economy, due to the inaction and lack of foresight of successive administrations. Securing the future of the US economy?? You’re gonna have to pay bigly bigly for that.
Comment by David Mercer — January 13, 2025 @ 3:57 pm
What must be truly horrifying the US is the prospect of the Greenlanders choosing of their own free will to be ruled by say China (if a bidding war ensues).
I don’t think the US gets horrified by hypothetical fantasies.
Comment by Timothy Newman — January 14, 2025 @ 8:33 am
I’m going to have to scour the prediction markets to see if I can make money betting on this Greenland thing – will Trump prevail, or will the Danes keep him out for four years?
‘Another example of the risks associated with obtaining rights to strategic territory via contract is also in the news, namely the UK’s apparently imminent transfer of control of Diego Garcia to Mauritius–a deal that Starmer is apparently panting to complete before Trump takes office.’
This is yet another ‘WTF’ prompts playing in my mind at the moment.
Makes no sense at all, at any level – you have to think of Starmer, and/or those advising him, as Rashan or Chinese agents for it even to begin to make sense.
These days I tend to put this sort of thing down to the supreme idiocy that reigns everywhere, and I’m tired of trying to understand idiots. But the strategic consequences are so grave that I can’t help but think there is much more going on here than I or many others know. I can’t imagine Washington is at all happy about it.
Comment by Ex-Global Super-Regulator on Lunch Break — January 15, 2025 @ 9:50 pm
Big fan of taking control of Greenland. Militarily, and economically. I am also a fan of taking back control of the Panama Canal. These are much better ideas than say President Grant’s infatuation with Haiti.
Comment by Jeff Carter (@pointsnfigures1) — January 17, 2025 @ 12:14 am
Oops, sounds like the Greenlanders want to be independent after all. Talking about rainin’ on Trump’s inauguration parade (nice to see Marj Greene trying her very best to polish this untimely turd).
Trump’s gonna to have to sweeten the deal – try $2bn per person? Still a bargain given the future of America depends on it.
Comment by David Mercer — January 17, 2025 @ 11:42 am
@phillip. He definitely should be concerned about the Chagos/DS. Especially since Starmer’s haste is best explained by a desire to fuck Trump and the US.
Insofar as the mistreatment of the Chagossians are concerned, there are ways of compensating for that which are far less costly than the cost to US security caused by greater Chinese influence.
Comment by cpirrong — January 25, 2025 @ 5:00 pm
OT
[in the voice of Seinfield episode]: Newman! Tim, blast from the past. Are you still in Oil? Someplace exotic or back to Misty Albion?
Comment by Tatyana — January 25, 2025 @ 8:49 pm