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Words to fear in the 21st century: Lǎo hǔ, lǎo hǔ, Lǎo hǔ

14 July 2008

Summary:  Tactical surprise was often devastating in the 20th century.  We should fear it today, but in the 21st century it might take different forms.  Ninth in a series discussing America’s grand strategy in the 21st century.  At the end are links for more information.

The radio call Tora, Tora, Tora – in English Tiger, Tiger, Tiger — signaled that Japan’s attack on 7 December 1941 achieved tactical surprise.  Surprises like this shaped the battlefields of the 20th century.

  1. It almost worked for Germany in WWI, taking their Army to the gates of Paris.
  2. It did work for Germany in WWII, as they conquered France.
  3. It might have worked for Japan if they caught the two US carriers based at Pearl Harbor and made a 3rd attack to destroy Pearl Harbor’s infrastructure and supplies.
  4. We feared this during the Cold War.  Perhaps an attack across the Rhine, or a nuke attack which destroyed our communications and control apparatus — and our ability to retaliate with a 2nd strike.

None of these are likely today.  Indeed with decline in global military spending, nobody can stage a serious attack on us.  A military attack, that is.  We remain vulnerable to more modern forms of attack, as France was in 1940 to Blitzkrieg.

What if terrorists destroying a city?

Yes, Dr. No, SPECTRE, or al Qaeda might burn a city.  That would be a bad thing, but not necessarily significant to the global geopolitical situation.  Cities burned through out history.  In fact, history can be marked by the burning of cities.  Mere deaths in large numbers do not change history or gain geo-politicaladvantage.  To paraphrase Stalin:  one death is a tragedy, one million deaths are a footnote.  It’s the cruel logic of life.  Or, for Disney fans, the Circle of Life.

What about September 11?

A footnote in history, notable only for the idiocy of its planners and our foolish, incompetent response.

A more likely inflectino point in 21st century history

In the 21stcentury our danger is Lǎo hǔ, lǎo hǔ, Lǎo hǔ — in Japanese Tora, Tora, Tora — an economic attack that achieves tactical surprise.  Often predicted, as was Japan’s strike on Pearl Harbor, but still unanticipated because our decision-makers believe it will not happen.

Each year our debts to China grow.  Each year, as they and their Asian neighbors grow, the importance of China’s exports to the US diminishes.  Someday those lines will cross.  One day the Chinese will see that they have grown strong, and the trillion dollars we owe them can be a powerful source of leverage.  (See “To see an example of this, see “Too Chinese (and Russian) to fail?“, Brad Setser, Council on Foreign Relations, 12 July 2008)

They will use that leverage, one way or another.  If we persist in positioning ourselves as their enemy, the odds increase that they use it in a hostile fashion.  But one way or another, our relationship to China will change in the next decade or so — probably to our disadvantage.

They might exert their strength slowly or rapidly.  Their internal political andeconomic dynamics are largely invisible to us, so reliable forecasts are impossible even for western experts.  But their are many potential flashpointsin our relationship with China.

  • Trade policy
  • Our defense of Taiwan
  • Their role as our primary creditor, and possible US action to inflate away their loans

The least likely scenario is geographic expansion by China.  Other than buffer zones, in its long history China has seldom sought to govern the hordes of barbarians in the outside world.

The most fascinating thing about tactical surprise

Almost all the major tactical surprises of the 20th century were anticipated by their opponents, but these warnings were ignored. For example, the Wehrmacht’s advance through the Ardennes in both WWI and WWII, and Japan’s strike at Pearl Harbor and invasion of Singapore.

Will this be true of those in the 21st century?

The difference between cyberwar and economic warfare

In comment #1 ShogunNole mentions the book Unrestricted Warfare.  From Wikipedia:  “Unrestricted Warfare (超限战, literally “warfare beyond bounds”) is a book on military strategy written in 1999 by two colonels in the People’s Liberation Army, Qiao Liang (乔良) and Wang Xiangsui.”  It discusses alternative modes of warfare, including lawfare, economic warfare, and cyberwar.  The last two have received the most attention, often conflated despite their great differences.

Cyberwar theorists often write as if no protections have been taken, and the PLA can hire a few hackers and bring the US to its knees.  In fact both government and corporations have made massive investments to defend against such attacks — both to prevent their success and mitigate the effects.  A high level of tactical surprise will be difficult to achieve due to the high level of routine awareness and defensive efforts.  Unlike Holly-world, as in Die Hard 4, hackers cannot easily take over utility systems and do anything they like.

Economic warfare is different, in that — so far as we can tell from public sources — the government has taken few steps to prepare, defend, or mitigate against an economic attack.  This might be America’s chief vulnerability.

Excerpts from Unrestricted Warfare

Otherwise, the immortal bird of warfare will not be able to attain nirvana when it is on the verge of decline: When people begin to lean toward and rejoice in the reduced use of military force to resolve conflicts, war will be reborn in another form and in another arena, becoming an instrument of enormous power in the hands of all those who harbor intentions of controlling other countries or regions.

 In this sense, there is reason for us to maintain that the financial attack by George Soros on East Asia, the terrorist attack on the U.S. embassy by Usama Bin Laden, the gas attack on the Tokyo subway by the disciples of the Aum Shinri Kyo, and the havoc wreaked by the likes of Morris Jr. on the Internet, in which the degree of destruction is by no means second to that of a war, represent semi-warfare, quasi-warfare, and sub-warfare, that is, the embryonic form of another kind of warfare.

… During the 1990’s, and concurrent with the series of military actions launched by nonprofessional warriors and non-state organizations, we began to get an inkling of a non-military type of war which is prosecuted by yet another type of non-professional warrior.

  • This person is not a hacker in the general sense of the term, and also is not a member of a quasi-military organization.
  • Perhaps he or she is a systems analyst or a software engineer, or a financier with a large amount of mobile capital or a stock speculator.
  • He or she might even perhaps be a media mogul who controls a wide variety of media, a famous columnist or the host of a TV program.
  • His or her philosophy of life is different from that of certain blind and inhuman terrorists.
  • Frequently, he or she has a firmly held philosophy of life andhis or her faith is by no means inferior to Osama bin Ladin’s in terms of its fanaticism.
  • Moreover, he or she does not lack the motivation or courage to enter a fight as necessary.

Judging by this kind of standard, who can say that George Sorosis not a financial terrorist?

… We believe that before long, “financial warfare” will undoubtedly be an entry in the various types of dictionaries of official military jargon. Moreover, when people revise the history books on twentieth-century warfare in the early 21st century, the section on financial warfare will command the reader’s utmost attention [see Endnote 12]. The main protagonist in this section of the history book will not be a statesman or a military strategist; rather, it will be George Soros. Of course, Soros does not have an exclusive monopoly on using the financial weapon for fighting wars.

 Afterword

Please share your comments by posting below.  Per the FM site’s Comment Policy, please make them brief (250 words max), civil, and relevant to this post.  Or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).

For information about this site see the About page, at the top of the right-side menu bar.

For more information from the FM site

To read other articles about these things, see the FM reference page on the right side menu bar.  Of esp interest are:

Other posts about Financial Warfare:

  1. A brief note on the US Dollar. Is this like August 1914?, 8 November 2007
  2. Words to fear in the 21st century: Lǎo hǔ, lǎo hǔ, Lǎo hǔ, 14 July 2008
  3. Two essential texts in the theory and practice of financial warfare, 11 September 2008
  4. Rumors of financial war: Russia vs. US, 22 September 2008

Posts about China:

  1. Power shifts from West to East: the end of the post-WWII regime in the news, 20 December 2007
  2. What you probably do not know about China’s food crisis, 21 April 2008
  3. China becomes a super-power (geopolitical analysis need not be war-mongering), 9 July 2008
  4. Words to fear in the 21st century: Lǎo hǔ, lǎo hǔ, Lǎo hǔ, 14 July 2008
  5. “The changing balance of global financial power”, by Brad Setser, 22 August 2008
  6. The most important news of the month. Perhaps the year., 29 September 2008 – A warning from our #1 creditor. 
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34 Comments leave one →
  1. ShogunNole permalink
    14 July 2008 2:00 am

    Two Chinese generals published a book called Unrestricted Warfare back in 1999 which spelled out that the Chinese would not only use military means to defeat an enemy (The USA), but that they would also use economic and cyber warfare as well. I would not be surprised if they hacked into some of sensitive computer systems and did some market manipulations at the same time to put this country in a world of hurt if push came to shove. As is, we do not have the manufacturing base to sustain a lengthy major military campaign against a group of “2nd tier” competitors anymore.
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    Fabius Maximus replies: Thanks for mentioning this. I plan to discuss that in a future note. But you raise an important issue: the economic and cyber aspects are very different, and I am adding a note to this post explaining this.

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  2. GoldenHorde permalink
    14 July 2008 2:11 am

    FM: How appropiate to your topic on economic warfare; that on December 8th,the day after Pearl Harbour, Iran announced that it had completely stopped selling oil for US Dollars. Looks like US Dollar index futures are poised to start hitting all time lows again soon.

    TEHRAN (Reuters) – Iran has completely stopped selling any of its oil for U.S. dollars, an Iranian news agency reported on Saturday, citing the oil minister of the world’s fourth-largest crude producer.

    The ISNA news agency did not give a direct quote from Oil Minister Gholamhossein Nozari. A senior oil official last month said “nearly all” of Iran’s crude oil sales were now being paid for in non-U.S. currencies. “Iran stops selling oil in U.S. dollars“, Reuters, 8 December 2007.
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    Fabius Maximus replies: This had little effect. It makes little difference in what currency transactions take place (even then, Iran is a just a dot) compared to in what currency people choose to hold wealth.

    Decisions by several central banks to diversify their reserves away from US dollars (e.g., Russia) are the elephants on this battlefield. Also significant are decisions by individual investors or institutions to diversify out of US dollar denominated securities — on a mass scale that become currency flight.

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  3. Yours Truly permalink
    14 July 2008 3:43 am

    FM,

    interesting for you to cite the work of the two PLA generals. But I’ve read in some blogs (from both sides of the Taiwanese Strait) that their ideas are not all feasible, that is if they don’t wish to have some sort of economic or cyberwar MAD. You’re correct in appraising that cyberwar is not going to happen like in the realm of Hollywood.

    I’m not well versed in economic warfare, but how likely are the mainland chinese going to pull off something like what Soros did,then DENY it all? The Japanese did succeed in scoring tactically, but they were still defeated strategically, I know it’s a bad comparison, but would the chinese necessarily succeed in the long run with an economic/financial Pearl Harbour? That is without scaring the rest of the neighboring powers s!@#less?

    Hope you could read the comments on some of these blogs. Just wished I could remember their web addresses… (unfortunately,they’re not in English).

    I must apologize as well for my previous comment,too assuming and blunt.
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    Fabius Maximus replies: Nothing wrong with blunt in my book! As for the previous comment you posted, I have had the same thought many many times.

    As for feasibility, “modern” warfare has historically been considered infeasible — until it succeeds. That does not mean every proposed form of war succeeds — far from it — but that we should be careful when dismissing these things.

    As for China’s ability to wage economic warfare, this reminds me of pre-WWII western experts dismissing the capability of the Japanese military. Events proved they were wrong, as I suspect the experts you read were wrong. If nothing else, they can draw up the ranks of China’s citizens with degrees in finance and business from major western universities, and experience working in western institutions.

    Will they stage a “financial Pearl Harbor”? IMO it is inevitable that China will exploit its leverage over the US in some way, although not necessarily in an explicitly hostile manner. However their increasing ability to do so gives their position strength. Much as the US had vs. its allies after WWII, and used against the UK in the Suez Crisis. Wikipedia: “Part of the pressure that the United States and the rest of NATO used against Britain was financial, as President Eisenhower threatened to sell the United States reserves of the British pound and thereby precipitate a collapse of the British currency.”

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  4. Robert Petersen permalink
    14 July 2008 6:11 am

    I will try a different perspective: Financial warfare is certainly interesting, but only relevant as long as there is such thing as globalisation going on. People should keep in mind that there is a strong solution to that problem: A closed economy. Right now we have a globalised economy which is closely connected. But actually we had the same thing just before WW1. The British Nobel prize winner and economist Norman Angell wrote a book in 1910 (I was so lucky to find it in an antiquarian store in Poland) claiming that war now was impossible with all the trade going on btw countries like Germany and Britain. War would now be suicide. It certainly was, but that didn’t prevent the European countries from going to war in 1914 and after the war to close their economies. As far as I remember we even had to wait until around 1992 before the level of trade before 1914 was surpassed btw the developed countries.

    Perhaps I am wrong, but I think we already see the early signs of the death of globalisation. Increasing competition for raw materiel – especially oil – will force nations or coalition of nations (NATO) to seek reliable supplies. Which we of course can’t share with others. Already countries in Northern Europe and Canada are lining up for a dash to the North Pole. Why? Geologists believe that one-third of the remaining oil is hidden there and climate change makes it feasible to use it. The Russians are already there and patrol the Pole with their strategic bombers. China actually does the same, but they are going to Africa instead.
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    Fabius Maximus replies: Perhaps. However, the important part of Angell’s theory was correct! In his 1909 book, best known as “The Great Illusion”, he showed that war between integrated economies was irrational and would leave all parties poorer. WWI proved this beyond any reasonable doubt. It took 50 – 70 years for Europe to return to the 1914 level of integration (depending on the metric used).

    Angell was wrong in his assumption that Europe, its leaders and people, would act rationally. When forecasting geopolitical developments madness is always an option.

    However, your examples do not show any weakening of globalization. Exploration and production of oil in new areas has been and is proper under the current regime, nor does anyone “share” resources. China contracts with African nations for long-term oil supply, which works well for both sides.

    The weakness of globalization is IMO that it opens national labor markets to competition — acting to equalize wages. This helps China, but depresses wages in the US. Ricardo said that free trade benefited everyone BUT ONLY IF the key factors of production were immobile (On the Principles of Political Economy and Taxation (1817), chapter 7). That was true then, but no longer true today.

    This key exception to the theory of competitive advantage is usually ignored by economists, but in a recession workers workers might vote their intuitive understanding of it — and elect representatives in favor of raising trade barriers.

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  5. Robert Petersen permalink
    14 July 2008 7:30 am

    Another angle to this fascinating post: What about market manipulation when it comes to oil? I am a diehard believer in Peak Oil, but I am also pretty sure that under the present circumstances some degree of market manipulation takes place. Take for example Gazprom announcing oil a 250 Dollar per barrel within two years. Is this a honest prediction or is this an attempt to manipulate the market? Perhaps to damage American interest? Or when Iran launches missiles and push oil prices upwards – is this a financial war against the United States? Do we have credible sources about that subject?
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    Fabius Maximus replies: I doubt that speculation in paper (e.g., oil forwards, oil futures) can have a substantial effect on the price, other than for short periods. For every buyer of a derivative there must be a seller, so the net effect is somewhat muted.

    Manipulation of commodities involves storage. Like the Hunt brothers did with silver, and many others before and since. Buying and taking it off the market. Most commodities can be bought and easily stored. Not oil. It is expensive to store and requires special facilities. There are zero signs of increased stockpiles for speculation.

    Gazprom’s forecast could easily prove right if oil production is peaking. That’s just a double from current prices — after oil prices have risen 6x in the past 5 years.

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  6. Duncan Kinder permalink
    14 July 2008 12:03 pm

    An early example of economic warfare was the struggle between Louis XIV’s France and Venice for control of the then-lucrative mirror making industry:

    Particularly vivid is her account of the mirror-making rivalry between Venice and Paris, a competition that she says involved machinations worthy of Don Corleone. (DeJean occasionally labors to supply contemporary analogies, as though her historical narrative weren’t compelling enough on its terms.) Mirror-making reached its 17th-century apogee in the glass-blowing factories of Murano, she tells us, but Louis XIV was determined that France should have its own mirror industry. So he initiated what DeJean describes as “the first decidedly hostile takeover,” involving “industrial espionage of the highest order.”

    The competition apparently began in the 1660s, when the monarch was spending the equivalent of $1 million a year importing mirrors from Venice. His finance minister, Colbert, had a better idea: luring Venice’s top mirror-makers to France. While Venice threatened and blustered, France offered enticements to the defecting craftsmen that included generous dowries and a personal visit from the king. Forgery, kidnapping, and a factory shoot-out upped the ante still further. With France winning the battle, the Venetians resorted to poisoning the expatriate mirror-makers, and imprisoning and executing others on the brink of defection.

    By 1672, France had nevertheless achieved mirror independence—and a decade later, the public was welcomed to the now-famous Hall of Mirrors at Versailles.

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  7. 14 July 2008 1:07 pm

    One of issues against China, Russia, OPEC or any other country using economic leverage, is that the massive influx of foreign currency is driving needed growth. Although China is having too much hot money flowing in, the domestic markets are creating an interesting side effect. The globalization that brought manufacturing jobs into China is now beginning to outsource them to ‘cheaper’ locations thanks to the rapid rise in costs.

    To a large extent, the global economy is now being held hostage to consumerism and the sheer size of the U.S. market. Taking down that market, at the moment, is not in the best interests of export countries. Why bother when you can simply buy up American assets due to the Federal Reserve’s Grand Strategy of devaluing the dollar by bailout after bailout of the ‘too big to fail’ businesses?

    While the military and the neocons are intent on world conquest, those actions are resulting in the American government begging door to door for handouts of cash to finance the debt and to keep the economy on life support. Slamming the door in our face may eventually happen, but more likely will be the continued takeover of companies and property by foreign interests.

    The federal government has no Grand Strategy other than bomb, bomb, bomb.
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    Fabius Maximus replies: I suspect that you have described the role of the US consumer (aprox 20% of global GDP) backwards. Our greed — spending more than our national income, creating a monsterous trade deficit — has helped fuell global growth.

    But few if any nations are dependent on it. Even in China, exports (including the faster growing exports to the EU) add just 2% (aprox) to their GDP (see this article by Brad Setser of the CFR).

    But other than that detail, I strongly agree with your last two paragraphs. With McCain we have an opportunity to elect a new administration to carry on our “bomb, bomb, bomb” grand strategy.

    Or not. This will be an crucial election. Please support your favorite candidates — donate time and/or money. And above all, please vote.

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  8. Rune permalink
    14 July 2008 2:16 pm

    According to the Carnegie brief for july ’08, the chinese growth is driven by domestic demand. “China’s Economic Rise – Fact and Fiction“, ALBERT KEIDEL, Carnegie Endowment for International Peace, July 2008, 16 pages.

    China’s economy will surpass that of the United States by 2035 and be twice its size by midcentury, a new report by Albert Keidel concludes. China’s rapid growth is driven by domestic demand—not exports—and will sustain high single-digit growth rates well into this century.

    In China’s Economic Rise—Fact and Fiction, Keidel examines China’s likely economic trajectory and its implications for global commercial, institutional, and military leadership.
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    Fabius Maximus replies: This is an interesting report. I wrote a post about it: “China becomes a super-power (geopolitical analysis need not be war-mongering)“.

    Brad Setser, expert on global capital flows at the Council on Foreign Relations, 11 July 2008: “At their peak, {China’s} net exports contributed between 2 and 3% to an overall growth that was over 10%. Statistically, domestic investment and consumption were more important. No one has ever argued the contrary.”

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  9. 14 July 2008 3:25 pm

    You have a great blog FM. I would like to chime in with a few things. In an earlier comment I saw “cyber MAD” . Isn’t that a new reality that space,cyber,and financial structures- all interrelated are subject to a new version of mutual assured destruction ? On a low tech level doesn’t China face international embargo in the event of fist strike actions no matter the fashion ? I don’t know about other people but I could truly live fine without Chinese products for the length of time it would take the world’s military to reduce China’s government to nil heck longer even.I see possible answers in previous comments but if you’d like to add I’d probably learn something.
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    Fabius Maximus replies: As with any war — China vs. US, Israel vs. Iran — one can “prove” that starting it would be irrational. As noted above, this was done correctly before WWI — but the war came nonetheless.

    As stated above, I believe the most likely scenario is that China uses the leverage of a possible “financial attack” against the US, but never actually uses this weapon.

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  10. Yours Truly permalink
    14 July 2008 3:59 pm

    Alfie: Honest to god, I didn’t even realize such a phrase EXISTED in the first place. Just somethin’ I cooked up during a borin’ afternoon at work,well,that is after I’ve read FM’s post. Thanks.

    But really,what’s this space-cyber-financial structure meltdown you speak of? Any websites or blogs that feature this theory? Or is it somethin’ coined by some elderly French theorist on technology & war?

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  11. Ralph Hitchens permalink
    14 July 2008 5:03 pm

    Isn’t there an old saw about if you owe the bank a thousand dollars the bank owns you, but if you owe the bank a million dollars you own the bank?

    ShogunNote: as I’ve mentioned before, NOBODY has an adequate “manufacturing base to to sustain a lengthy major military campaign” anymore. I read “Unrestricted Warfare” some years back and haven’t changed my opinion — it represents the thoughts of a couple of Chinese gentlemen who fear for their jobs. The notion that China might achieve a decisive edge in either the economic or cyber sphere of warfare is a bit of a stretch, as is the notion that China has any serious enemies in today’s world. If the only sticking point between world’s only superpower and the world’s principal wannabe superpower is the issue of Taiwan, I think we’ve pretty much put this geopolitical rivalry nonsense to bed. And if, like the authors of UW, you can’t think in terms other than rivalry, take a long, deep look at both China and the USA: not just population or economic but social, political, cultural, the whole megilla. Who you gonna bet on?

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  12. ShogunNole permalink
    14 July 2008 6:46 pm

    Ralph, At this moment it is true that China does not have any serious enemies and that they are not necessarily an enemy of ours. That said, they are not a friendly government either. Otherwise why would they spend so much time trying to hack in to our governmental computer systems (There have been quite a few articles in the news about that).
    However, it is very plausible that China could achieve an edge in either economic or cyber warfare in the near future. If you don’t think so, just stop by your friendly neighborhood math, science or engineering department and count how many Chinese graduate students there are (Paid for by your tax dollars if you live in the US). Then count how many “American” grad students there are in those same departments.

    I would be very surprised if you see Chinese/American ratios of less than 5:1 in any department. Why is this important? Because MS and PhD level students drive technological innovations (which drive economic and military innovations) and it won’t be long before Chinese born MS and PhD level students decide that there is more opportunity in China than in the US. How long do you think our technological leadership will last once this happens?
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    Fabius Maximus replies: Great points! Thank you.

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  13. anna nicholas permalink
    21 March 2009 1:22 am

    ” Gov and corporations have made massive investment to defend…”

    Well, can you stop wrecking the life of our poor little Gary McKinnon then, please? He just tested the defense system and found it faulty. You should thank him for the insight. (Claims he was, fanatically,
    looking for little green men.)
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    Fabius Maximus replies: I don’t know anything about Mr. McKinnon (see this Guardian article for details), but the “I was testing your defenses” plea is IMO just a whacko guilty plea in disguise.

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  14. Robert Petersen permalink
    21 March 2009 1:35 am

    I agree that there is a chance that China could do this against the United States, but as for now the Chinese have actually been quite prudent, modest and conservative in their foreign policy. We should give them credit for that instead of keep expecting a sudden strike from them – not forgetting that time actually works for them just liked time worked for the United States compared to Great Britain a hundred years ago. It was not necessary for the United States to fight to British in order to replace them, quite on the contrary they fought together in both world wars and in the end the American inherited everything from the British after 1945. I have somewhere in the house a book called “Dragonstrike” – written in 1997 – where to British authors describe a Chinese-American war in 2001 caused by a Chinese war of aggression. Because of financial manipulations with the stock market they actually make a fortune out of bringing the world close to WW3. We are not even close to that scenario. If that has to change the whole Chinese leadership has to be changed and replaced by far more radical men. Men who dare take a confrontation with a weakened United States. Are there any signs that such group exists inside the Chinese leadership? Perhaps in the military?

    As it is it is far more likely that Russia would try to exploit American weakness. Or – more precisely – attempt to, because it doesn’t have the economic power and leverage China has. Russia’s leadership consists of men embittered by the fall of the Soviet Union and the expansion of NATO. I wouldn’t be surprised if they would try to exploit the American weakness, but as mentioned Russia’s option are actually limited compared to China. On the other hand: Supplies to the troops in Afghanistan today depends on Russian cooperation, because of the endangered supply lines through Pakistan.
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    Fabius Maximus replies: All good points. Thank you for this comment.

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  15. seneca permalink
    21 March 2009 2:34 am

    The author leaves out the main example of economic warfare in our time — the successful US effort to bankrupt Russia by forcing it to overspend on defense. Of course, the effort also hurt us, by swelling defense spending, throwing the federal budget into deficit, which was then used as an excuse to cut back social programs.

    There’s another kind of economic warfare than that between nations — that between classes within the same nation. That’s what we’re seeing right now, in the US.
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    Fabius Maximus replies: You’re hot today — another great comment! Thanks!

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  16. 21 March 2009 2:53 am

    China is the Middle Kingdom, and as such has always been preoccupied with its internal concerns and internal stability, which is an enormous headache for such a huge nation. Of course, they may play up nationalist feelings for their own purposes. I thought that was the most likely explanation of for WEN Jiaobao’s recent declamations about American debt. I think playing up an antipathy towards China is a mistake. We have interests in common. Improving living standards in any foreign nation is in America’s interest. We could learn things from China, just as they could learn things from us.
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    Fabius Maximus replies: I thought Wen Jiabao’s comments easily understandable. They have loaned us roughly $2T (including the PBoC, Hong Kong Monetary Authority, and Monetary Authority of Macao). Foolishly trusting us, they loaned it in US dollars, and now fears that we will inflate it away in real terms.

    He’s right to worry. If we can do so with tolerable consequences, we probably will.

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  17. 21 March 2009 5:47 am

    Before the big “surprise” of Pearl Harbor, we were twisting Japan’s tit pretty damn hard. I don’t see how debt repudiation rises to the status of Casus belli.
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    Fabius Maximus replies: Not allowing US raw materials to be used for the conquest of China is not “twisting Japan’s tit”, IMO. We gradually tightened the embargo, giving them ample time to either find other sources or change policy. In no sense is that a legitimate casus belli.

    However you raise a fascinating point. Domestically, if I refuse to payback a loan you can send the sherif to seize my assets or wages. What police power can China call upon to collect its debts? Or are international debts made in the jungle, outside the law, where force is the only recourse? The actions of America will provide an answer to that question.

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  18. Gary Rondeau permalink
    21 March 2009 5:58 am

    Perhaps John Perkins in “Confessions of an Economic Hit Man” describes modern economic warfare from the U.S. perspective. Is there any reason other countries shouldn’t try to emulate us?
    Will organizations like the IMF, World Bank, and WTO continue to have U.S. interests at heart, or will “structural adjustments” that impose “economic discipline” on the citizens, like those required by the IMF for aid to debtor nations become requirements for continued debt forbearance by our creditors? The usual approach is to wield economic power in a manner that preserves and strengthens the economic inequality. When groups of Chinese business men start showing up with plans for large infrastructure developments that they would be willing to finance on terms we have no choice but to accept, then we will know the tables have turned.

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  19. Duncan Kinder permalink
    21 March 2009 2:02 pm

    In the event the Chinese should decide to attack us, they probably would proceed according to the Thirty-six strategems.

    From Wikipedia:

    The Thirty-Six Stratagems was originally a Chinese essay used to illustrate a series of stratagems used in politics, war, as well as in civil interaction, often through unorthodox or deceptive means.

    The name of the collection comes from the Book of Qi, in its seventh biographical volume, Biography of Wáng Jìngzé. Wáng was a general who had served Southern Qi since the first Emperor Gao of the dynasty. When Emperor Ming came to power and executed many members of the court and royal family for fear that they would threaten his reign, Wáng believed that he would be targeted next and rebelled. As Wáng received news that Xiao Baojuan, son and crown prince of Emperor Ming, had escaped in haste after learning of the rebellion, he commented that “檀公三十六策,走是上計,汝父子唯應急走耳”, which can be translated literally as “of the thirty-six stratagems of Lord Tán, retreat was his best, you father and son should run for sure”. Lord Tán here refers to general Tan Daoji of the Liu Song Dynasty, who was forced to retreat after his failed attack on Northern Wei, and Wáng mentioned his name in contempt as an example of cowardice.

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    Fabius Maximus replies: Great! Thank you for mentioning this!

    Like

  20. seneca permalink
    21 March 2009 2:42 pm

    Gary: good points! Currently, the US controls all three institutions (World Bank, IMF and WTO) and it’s hard to picture that changing. It’s more likely we and other nations will simply drop out of them. The IMF won’t have the funds to deal with all the countries facing bankruptcy and WTO “free trade” regulations will collapse under protectionist pressures. Your picture of Chinese businessmen arriving to supervise frastructure developments in the US has the ring of truth.
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    Fabius Maximus replies: You point about the 3 global aid/trade institutions is interesting and important. Consider the IMF: vital, but we are unable to provide the capital it needs to function. Today it has capital of $250 billion. The IMF recently said this must double to meet current needs (South Korea alone could use a large piece of that in 2009). If this global downturn lasts into 2010 they will need to double that again — and perhaps again.

    We do not have any money to put in their pot. China does, but probably would demand a far larger voice. Will we agree, or (as you suggest) will China provide aid on its own (bilateral arrangements), adapt some other institution, or with other of the world’s creditor nations (e.g., Arab oil exporters) create their own?

    Like

  21. Morgan permalink
    21 March 2009 3:02 pm

    More likely, the Chinese will attempt to annex the US as a protectorate or colony. The US is incredibly underpopulated compared to its food production potential. Its forests are growing, its air is clean, its water is clean. China needs room to grow.

    Like

  22. 21 March 2009 3:18 pm

    I think this is totally on-target, and certainly describes one potential scenario. The big condition/question is whether China manages to keep it together. They’re under a great deal of pressure as the economy unravels; food riots are a constant reality at this point. We may be on the verge of one of those periods where China’s Unifed Empire collapses back into Warring States; should that happen, it would almost certainly be in tandem with the rise of autarkies/disintegration of globalization that commenter #4 cites. In which case. . .interesting times.

    Also, your point about the destruction of cities is well-taken, though I would still argue that that would be a singular/discontinuous event in that it would almost certainly result in a quick slide toward domestic authoritarianism, as well a reaction in foreign policy that would make our response to 9-11 look like a well-calculated act of statesmanship.
    .
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    Fabius Maximus replies: The ability of China to maintain social cohesion is a big question, about which we know almost nothing. I agree with this, from this excerpt from “The Wheels of Heaven Stop“, Eric Kraus, Truth and Beauty, 12 March 2009:

    Predictably, the Western media are replete with stories of how the Chinese model is set to fail – succumbing to social unrest, democratic deficits, bank failures, or the Chinese’ genetic inability to consume. Meanwhile, China remains the sole major economy to still enjoy substantial economic growth; similarly, having heard constant warnings of the impending failure of the Chinese banking system over the past decade, we would note that it is currently one of the precious few banking systems not threatened with implosion.

    Likewise, the warnings of “social unrest”; T&B is no expert on Chinese sociology (in this, we are in very good company – including the vast majority of commentators who so recently reinvented themselves as China specialists…) and thus prefer not to issue terrible warnings regarding matters beyond our ken.

    Our frequent travels in China suggest that the mechanisms for social control are particularly well honed, and that any popular protests tend to be quashed quite effectively. An uprising by the population of an entire province, Tibet, was brutally crushed in a matter of days. Despite the massive layoffs in the costal manufacturing cities, as far as we can determine matters have remained remarkably quiet. Perhaps our scepticism may have something to do with the memory of how comically misguided proved to be the equally terrible warnings of the coming chaos in Russia in 1998.

    Like

  23. 21 March 2009 5:08 pm

    As Casus belli go, being frustrated in your land and resource grab makes Japan look bad. But how is our recourse grab, by passing bad paper so much superior? White collar international thievery versus theft by gun and bayonet.
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    Fabius Maximus replies: The two situations are in no way comparable. First, US treasury bonds are not “bad paper.” The future is unknown, but your label of this as “international thievery” is incorrect. Second, China made those loans to us of their own free will. They decided that the benefits of the transaction were worth the risks.

    Like

  24. pluto permalink
    21 March 2009 5:08 pm

    Interesting concepts, Fabius.

    Wish I had more time to go into them in depth. My biggest argument against the effectiveness of Chinese economic warfare in the near future is that, given their export-based economy, they’ve got to sell their stuff to somebody. Presumably that somebody would be willing to serve as a middleman, funneling the goods we need back to us for a reasonable mark-up.

    We can survive for a while (perhaps quite a while) without Chinese goods. Can they survive without food? By denuding their countryside of the farming population (which has gone into the factories to make the goods we buy) they are effectively integrating themselves into the world economy and making economic warfare too painful to contemplate. In effect, to gain the power hit us with such a weapon, they had to become us and I suspect their long-term goals have shifted quite a bit since 1990 when this all started.

    Now if you’re talking 20+ years in the future all bets are off. You and I both feel that the 21st century is NOT going to be an era of US strength and that opens the door to all sorts of possibilities.
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    Fabius Maximus replies: There are several problems with this analysis; here are 3.
    * First, China is not a substantial net importer of food. Their food imports and exports are roughly in balance (depending the weather in any given year).
    * Second, China has too many people — not, as you imply, too few — in agriculture. Managing this shift is one of their greatest challenges. They will not live in poverty on farms to fulfill rich westerner’s fantasies of arcadian life.
    * Third, China can (as have others before them) shift from export-led development to one more focused on domestic demand. Building a better infrastructure for their nation can absorb much of the energy now devoted to exports.

    Like

  25. 21 March 2009 6:17 pm

    “Yes, Dr. No, SPECTRE, or al Qaeda might burn a city. That would be a bad thing, but not necessarily significant to the global geopolitical situation.”

    Well, I’d have to say that might only be correct if the burning stopped at one city. However, burn the right city at the right time and it might only be a prelude to a lot of cities burning very soon after. Ballistic Missile Submarines bat last.
    .
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    Fabius Maximus replies: I doubt that either Dr. No or bin Laden will get a ballistic missile sub anytime soon.

    Like

  26. Fail and Aids permalink
    21 March 2009 6:19 pm

    The idea that a country with a billion people, many of whom are living in poverty would have trouble ‘creating domestic demand’ by loosening credit and other ‘stimulus’ is ridiculous, especially considering that they have the world’s largest cash reserves–credit comes from savings, not debt, and they have a lot of savings.

    China has everything to fuel a miracle except a clean environment; which has been trashed hard by the rapid march to industrialization. Many members of their middle class is already moving to America to buy homes, and it’s a fair bet that as America stumbles, many of those educated English speaking former graduate students will buy a nice clean patch of land to settle down.

    In essence, rural Chinese go to cities to become industrial Chinese in a police state, and industrial Chinese who have risen through the ranks of capitalism travel the world to live in clean, free places. Agents of the Chinese government travel the world securing access to primary resources to feed the fires of industry, which is engaged in displacing the heavy industry of the rest of the world, and create strong military-to-military and government-to-government ties. The average Chinese person has learned over generations of hardship that government is a thing to be avoided by any means necessary, and is in an evolutionary arms race with a totalitarian state (ever seen a ‘line’ at a Chinese supermarket? ever been elbowed in the balls by someone’s grandma as she?).

    Anyway yeah, if they implode, it will be because of their environment. And I don’t mean global warming, I mean pollution with heavy metals and nasty semi-organic compounds, infrastructure built by one of the most corrupt bureaucracies in the world failing, and general mismanagement of resources.
    .
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    Fabius Maximus replies: All true, but perhaps too dark a view. Let’s have hope, and rephrase your words. “China has everything to fuel a miracle and create a clean environment.” they have trillions saved. For example, a fraction of that could build facilities for stage 3 treatment of sewage from every Chinese city.

    Like

  27. 22 March 2009 12:31 am

    FM:”Will we agree, or (as you suggest) will China provide aid on its own (bilateral arrangements), adapt some other institution, or with other of the world’s creditor nations (e.g., Arab oil exporters) create their own?”

    China is already providing aid on its own. I just did a quick google search for ‘currency swap’ and ‘china’ and came up with this story.

    “China’s central bank said on Wednesday it has agreed a three-year currency swap with Belarus worth 20 billion yuan ($2.93 billion). The swap, which may be extended, complements a $2.5 billion loan from the International Monetary Fund approved last year to help the ex-Soviet state overcome the global economic crisis.”

    China will use its currency, backed by their dollar reserves and their economy, for their own benefit. That’s fair game, really. The article doesn’t say this, but I would imagine that the swap comes with some other side conditions, like Chinese access to Belarus’ market and resources.

    Like

  28. Erasmus permalink
    22 March 2009 2:17 am

    Cannot vouch for authenticity but here is text from reputed text by Chinese General several years ago in which he contemplates invasion of US since China’s population requires lebensraum and they discovered the US first: “War is Not Far From Us and is the Midwife of the Chinese Century“, Chi Haotian, 8 August 2005 — China and what it really thinks of the west and would do in a flash given half the chance. Intro:

    The following is a transcript of a speech believed to have been given by Mr. Chi Haotian, Minster of Defense and vice-chairman of China’s Central Military Commission. Independently verifying the authorship of the speech is not possible. It is worth reading because it is believed to set out the CCP’s strategy for the development of China. The speech argues for the necessity of China using biological warfare to depopulate the United States and prepare it for a future massive Chinese colonization. It was published on 15 February 2005 on http://www.peacehall.com and was published on http://www.boxun.com on April 23, 2005.

    Source linked in text above: “The CCP’s Last-ditch Gamble: Biological and Nuclear War“, Epoch Times, 5 August 2005.

    Even if the entire thing is disinformation, such narrative forms part of the situation swirling around as narratives always do. Also, of course, Generals are often asked to make plans but that has little bearing on what actually transpires.
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    Fabius Maximus replies: I am astonished at the degree to which you suck up misinformation without the slightest effort to check its validity. Epoch Times is widely noted as funded by the Falun Gong and posts blatent disinformation to support its struggle for against China’s government. Posting this sort of thing with no supporting evidence is just sad.

    Like

  29. Erasmus permalink
    22 March 2009 2:24 am

    From the same General this statement which has historical merit, if not comforting:

    “There is often cooperation between counties, but the most fundamental basis for the relationship between countries is competition, conflict and at times extreme conflicts; that is, war. Cooperation is temporary and conditional, while competition and conflicts are absolute. They are the true subject of history. That’s why the so-called peace and development spoken of today is incorrect (at best it is simply an expedient measure). In saying this there is no concrete supporting evidence for this statement, and neither does it conform to any factual or historical experiences.”

    http://english.epochtimes.com/news/5-8-5/30974.html

    Related material regarding the hostile/competitive nature of modern ‘capitalism’ from Bichler and Nitzan at their archives area at:
    http://www.bnarchives.net/

    One of their ‘trademarks’ is thorough historical research through paper archives that are often not on the web.

    A short paper is entitled:
    ‘Dominant Capital and the New Wars’.

    Like

  30. 22 March 2009 5:22 am

    “FM replies: I doubt that either Dr. No or bin Laden will get a ballistic missile sub anytime soon.

    You mistake my meaning. I am not speaking of aggression but of retaliation.
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    Fabius Maximus replies: As Rune notes below, that makes even less sense. I doubt anyone will copy the Taliban and provide bases to folks attacking the US (or even the West).

    Like

  31. Rune permalink
    22 March 2009 9:37 am

    @Vanderleun #30

    Where would you retaliate against? 8 years on and Dr. No’s secret lair is still undiscovered. Though we all tout both the civilian and military leadership of the US as being incompetents, it still seems unlikely to me that nuclear armaments will be used against a non-state actor, even if a US city is blown up.

    Like

  32. Erasmus permalink
    22 March 2009 1:47 pm

    “posts blatent disinformation to support its struggle for against China’s government..”

    One of the articles spent most of the time evaluating the material as to its veracity or disinformation aspects. The CCP similarly publishes ‘blatant disinformation’ about Falun Gong. So what? One could just as easily say it is rather ‘sad’ that someone would feel that only CCP-approved analysis by Chinese about China is ‘kosher’.
    .
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    Fabius Maximus replies: You did note that the source’s valdity was unknown. Still, unconfirmed info from such a source is IMO to be used with only great caution. Esp when the content is so extreme, and unlike anything else we have from more reliable sources.

    The parallelism you describe does not seem relevant. A more appropriate phrasing would be that only material from neutral sources would be ‘kosher.’ While reasonable, that is obviously too narrow a criterion. Hence relying on info confirmed by multiple sources, or with a content that cuts against the interest of the source (e.g., like the stories in the Torah that are unfavorable to the Isralites).

    Like

  33. Erasmus permalink
    23 March 2009 2:50 pm

    “that only material from neutral sources would be ‘kosher.’”

    There is a problem with this viz. China. The CCP – and I don’t think this is disinformation although it could be – exerts, by our standards, extreme control and censorship.

    Therefore from within China or from Chinese publications in their extensive diaspora (which my source was, its main articles being first published in Chinese and then translated into English), ANY criticism of CCP is by definition ‘not neutral’ since again no ‘neutral’ criticism of CCP is allowed.

    You can have neutral non-Chinese-based analysis, but that has obvious limitations as well.

    In any case, that is why I prefaced and suffixed the contribution with qualifiers.

    Like

  34. Lisa permalink
    15 October 2012 8:51 pm

    What about September 11?

    A footnote in history, notable only for the idiocy of its planners and our foolish, incompetent response.
    =================
    I assume you have since then revised this opinion, in the wake of the Bush and Obama admins destruction of the Constitution, and the rise of an almost dictatorial Exec. and a nat’l. security state–to mention just ssome of the worst ills directly attributable to that event? And let’s not forget the existence of several extraordinary websites documenting evidence which shows that the official government version of the events is improbable to say the least of it.

    Like

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