Stupid China declares trade war on itself

What started the Pacific war? Martial Japanese expansionism. But what was the actual moment when Japan decided to pull the trigger? It was this:

A series of events led to the attack on Pearl Harbor. War between Japan and the United States had been a possibility that each nation’s military forces planned for in the 1920s, though real tension did not begin until the 1931 invasion of Manchuria by Japan. Over the next decade, Japan expanded slowly into China, leading to the Second Sino-Japanese war in 1937. In 1940 Japan invaded French Indochina in an effort to embargo all imports into China, including war supplies purchased from the U.S. This move prompted the United States to embargo all oil exports, leading the Imperial Japanese Navy (IJN) to estimate it had less than two years of bunker oil remaining and to support the existing plans to seize oil resources in the Dutch East Indies. Planning had been underway for some time on an attack on the “Southern Resource Area” to add it to the Greater East Asia Co-Prosperity Sphere Japan envisioned in the Pacific.

That’s right. An oil embargo started the Pacific war. A resource conflict to gain access to oil without which Japan was doomed anyway.

What’s that got to with China today you might ask? Well, it’s not a perfect analogy but it’s a pretty good lesson for any commodity importer. China today is making exactly the same mistakes as Imperial Japan did in the 1930s. It’s a resource-poor developing economy that needs to import vast quantities of materials to grow. And what’s it gone and done? Declared economic war on its major commodity supply chains, particularly in Australia.

Predictably, the results for China are disastrous. First, iron ore has gone mad:

It may not be oil. But it’s just as important to the CCP whose political legitimacy hangs on continued development using iron ore. And the more China applies a chokehold to Australian commodities trade, the higher iron ore goes as it builds a geopolitical risk premium. The damage to Chinese steel mills is mounting fast:

While poor little Australia makes out like a bandit. Here’s what goods trade will look like with iron ore at $200, where I reckon it’s going:

The huge iron ore dividend washes away all trade war AND Covid-19 impacts. It’s a goddamned income boom.

Second, bellicose Beijing has succeeded in relaunching the US 1st Fleet, a carrier group that will patrol the Indian Ocean and South East Asia henceforth, shoving a US naval plug directly into China’s most vulnerable commodity shipping routes, including for iron ore and oil.

Third, it has every nation in Asia reconsidering its economic vulnerabilities to China and scrambling to boost strategic offsets, such as keeping the US engaged in the region.

In short, the Chinese trade war on Australia has delivered an income boom to the victim and a devastating blow to its own vastly important steel sector jeopardising CCP legitmacy, has exposed its huge commodity vulnerability to US muscle and trashed the Chinese reputation worldwide.

The lesson being that the last thing any commodity importer should ever do is declare a trade war, especially on its own supply chains.

Der.

David Llewellyn-Smith
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Comments

  1. Might the discussed errors of judgement by the CCP give rise to a possible regime change. There is a crack, what will be the wedge?
    I’m hopeful Chyna unravels before they destroy what is left of our culture.

    • The “errors of judgment” are probably more about creating an external enemy to shore up internal support than anything else.

        • Xi is a dictator who is likely surrounded by yes men. What happens if you try to tell the dictator that he is wrong?

      • Yes, absolutely spot on. That is exactly the reason.
        The majority of Chinese are in complete ignorance of the real world.
        All the current conflicts (US, Japan, India, Australia, Canada, etc.) can easily be twisted within China by the CCP for their own purposes (i.e. distract and motivate the masses).
        The wheels are getting very wobbly in the Chinese economic vehicle, they desperately need the distraction.
        Note that the average Chinese couldn’t care less about nationalistic rhetoric, it’s only the CCP “plants”.
        My only fear is that when this all blows over 1-2 years from now (which it will), the whole world will have not learned the lesson, and instead say “ah, the Chinese are nice people after all, what happened in 2020/21 was only an aberration, back to business as usual.”
        Please take note, the way the CCP is acting now, is the real CCP. They won’t change.
        Yes we can trade with them, but on our terms, not theirs. Australia’s freedom and sovereignty are not for sale.
        If China wants a seat at the adults table, then they need to act like they deserve to be there.

  2. Unlike Japan, China is not a ‘resource poor’ country. The problem is how much it’s consuming!!

  3. Australia really is the lucky country!

    CCP survived COVID, and somehow turned it in to a positive. Started with denial then cover up then lock down then elimination, then vaccine, then winners.
    I think they will also spin the trade war into a positive, even after they back down. Can you imagine the Christmas lunch at the CCP owned steel mill, complaining about lack of profits, lack of lobster and lack of Australian wine.
    How about Xi’s head on a platter!

  4. Good analogy however I suspect we’re no where near this junction yet wrt our China relationship.
    I’d place us more or less at the formation and Japanese Imperial sanctioning of the Kwantung Army.
    Guaranteed access to Manchuria’s raw materials was the reason for the Japanese military to outsource the development of Manchuria to the more Industrially focused Kwantung Army. They needed sources of raw materials developed at minimum cost and with a minimum of local interference. The Kwantung Army were the law in any region that they controlled, dissenting voices were quickly dispatched.
    I’m not sure what a modern Chinese version of the Kwantung Army would look like but I suspect we’ll soon know the answer.

    • Wow, that sent me down the Wiki rabbit hole – learnt something today. Thanks.

      How’re the Russian’s trying the officers of Unit 731 but the Yanks letting them off…yuk.

      • To be fair the regions controlled by the Kwantung Army were very much Aisa’s “wild west”
        The Sheriff (whoever that happened to be this week) was judge jury and executioner, but wait a minute what if we delayed the executions by a few weeks or months to help with Medical and “Scientific” knowledge.
        To begin with the Japanese army needed better treatments for frost bite and various epidemic diseases so why not try a few experiments on the soon to be dead anyway.
        Sanctioning this kind of morality creates a very slippery slope, so as the supply of “dissenters” increased so did the scope, magnitude and operations of unit731
        The Russians were front and center in this war for Manchurian resources so many Russians soldiers and civilians ended their lives in the torture camps of unit 731. They were never likely to forget nor were they about to forgive whereas for the US unit 731 became a valuable source of real world data which they weren’t about to turn down, simply for moral reason.

        • My understanding is that bugger all of any real value was learned from Unit 731, and it became pretty clear that the place was basically just a fun camp for sadists and psychopaths, with only the most tenuous connections to “science”.

          • I don’t really know if the knowledge gained was valuable or not
            They did develop some unique bombs to disperse fleas infected with plague and several out diseases and biotoxins.
            Some of their disease agents were used against the Russian army and the Chinese communists, its all very macabre stuff and a sort of window into the darker side of humanity that lurks just below the surface.