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.
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