President Biden undoubtedly craves a do-over. While there’s ample justification for withdrawing U.S. troops from Afghanistan after 20 years, nobody would deliberately trigger the disastrous collapse of the U.S.-backed Afghan government that occurred in 10 days. The hasty withdrawal was obviously a miscalculation that now marks the lowest moment of Biden’s presidency, and creates a new electoral liability for Biden’s fellow Democrats.
Financial markets, however, are unfazed by the Taliban’s return to power and the inevitable imposition of another barbaric theocracy in Afghanistan. While defending the withdrawal decision on Aug. 16, Biden said an indefinite U.S. military presence in Afghanistan “is not in our national security interest. It is not what the American people want.” The reaction in stock and bonds markets makes clear that investors agree.
During the week leading up to the fall of Kabul, the Afghan capital, on Aug. 15, U.S. stock markets hit record highs. There were wobbles related to disappointing news on consumer confidence and retail sales, but not to any news from Afghanistan. There was a slight drop in bond yields after Kabul fell, which may have been a momentary “flight to safety” in U.S. Treasuries. But that quickly dissipated, and stock markets hit a new high the following day. All is normal in markets, or as normal as can be amid a pandemic snapback.
US President Joe Biden speaks about the Taliban's takeover of Afghanistan from the East Room of the White House August 16, 2021, in Washington, DC. (Photo by BRENDAN SMIALOWSKI/AFP via Getty Images) ·BRENDAN SMIALOWSKI via Getty Images
Afghanistan is obviously a resource-poor nation with little participation in (legal) global markets, so the Taliban takeover might be safe for markets to ignore. Still, the market has yawned at much-bigger geopolitical debacles. “Military/terrorist shocks have historically impacted headlines more than bottom lines,” Sam Stovall, chief investment strategist at CFRA, wrote on Aug. 16. “The effects typically dissipated fairly quickly as investors conclude that they would not result in a global recession.” Stovall points out that the S&P 500 rose 4.4% in the month following the ignominious U.S. retreat from Saigon in 1975, which cleared the way for the full communist takeover of South Vietnam.
There could be longer-term consequences of the fall of Afghanistan that do affect markets. Public support for Biden’s Afghanistan policy fell from 69% in April to 49% after the Taliban takeover, according to polling by Morning Consult. It’s no surprise Republicans are trashing Biden’s hasty pullout, but so are many Democrats. Ian Bremmer of the Eurasia Group told Yahoo Finance the hit to Biden’s approval could be fleeting if all Americans get out safely and there’s no direct blowback to the United States. But he also said it could end Biden’s presidency if Americans are hurt or killed or other unexpected disasters materialize.
Taliban members patrol the streets of Jalalabad city, Afghanistan on August 17, 2021, as the Taliban takes control of Afghanistan after President Ashraf Ghani fled the country. (Photo by Stringer/Anadolu Agency via Getty Images) ·Anadolu Agency via Getty Images
China and Russia influence
There are other likely strategic and political consequences markets aren’t yet able to suss out. In his Aug. 16 remarks, Biden said, “China and Russia would love nothing more than the United States to continue to funnel billions of dollars and resources and attention into stabilizing Afghanistan indefinitely.” The U.S. withdrawal, he went on, frees resources to focus on threats elsewhere, which would include China’s growing economic and military might. Yet the mess the United States is leaving behind could also undermine its standing with other allies or nations that newly question U.S. resolve. China and Russia will now have far more influence in Afghanistan, though it’s not clear what advantages that may confer.
There’s also the gargantuan amount of U.S. taxpayer money Washington spent in Afghanistan, which, presumably, it no longer will. Total U.S. spending in Afghanistan for the last 20 years totals more than $2 trillion, or $200 billion per year, according to a Brown University estimate. Even by Washington’s bloated standards, that’s a fortune. All of Biden’s proposed tax hikes would raise just $1.3 trillion over a decade, or $130 billion per year. And Biden will be lucky if Congress passes even half of those.
Afghan people climb up on a plane and sit by the door as they wait at the Kabul airport in Kabul on August 16, 2021, after a stunningly swift end to Afghanistan's 20-year war, as thousands of people mobbed the city's airport trying to flee the group's feared hardline brand of Islamist rule. (Photo by WAKIL KOHSAR/AFP via Getty Images) ·WAKIL KOHSAR via Getty Images
U.S. spending in Afghanistan fell sharply as the troop presence fell from 100,000 in 2011 to 2,500 by the time of withdrawal. Most of the money was for U.S. military operations, but billions also went for economic development, reconstruction and counter-narcotic efforts. Congress also appropriated $83 billion to train and equip the Afghan army that collapsed in a matter of days. The Taliban now possesses a U.S.-funded armory and other gear courtesy of American taxpayers.
There will be no windfall from the cessation of U.S. operations in Afghanistan, however. Virtually all of the spending came from borrowed money, which means U.S. taxpayers will continue to make interest payments on money sunk in Afghanistan. The last of the U.S. troops will soon be out, and Congress will stop funding nearly all activities related to Afghanistan. But America will continue bearing the cost far beyond Biden’s presidency.
