Playbook to defeat China takes shape in Ukraine

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The media handwringing over Ukraine is understandable in an age of pervasive private reporting, but it doesn’t change the facts:

  • Any notion that dialectal history is now headed towards some light on the hill is dead.
  • Any notion that liberal democracy is the unwavering future of humanity is dead.
  • Any notion that globalisation and choruses of kumbaya will deliver the above is dead.

This has been the case for some years now but we needed a war to make it obvious to most.

What lies ahead is an existential struggle to preserve the great gains of enlightenment thought and civilisation against the encroachments of pre-modern political systems. Needless to say, virtue-signaling via tweets and selfies won’t help.

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There is no need to panic about this. In the realm of real politik, the bottom line is Ukraine overreached. It should never have tried to join NATO and NATO should never have contemplated its joining.

17m Russians died in WW2 at the hands of Germany and that is not forgotten in under a lifetime no matter how things appear to have changed. Whether you agree with the Russian invasion of Ukraine or not, this basic historical fact makes creating/sustaining a Russian buffer to Europe a sensible strategic policy.

Precisely the same calculus applies to Taiwan for China. Why would China allow a hostile stationary aircraft carrier to grow endlessly off its coast? It can’t and it won’t. When it is ready it will take it.

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Moreover, when Western nations have found themselves in the position of Russia and China, they have done exactly the same thing if they had the power to do so. That’s how NATO overreached in Ukraine. The US has done so repeatedly in Cuba and Central America.

It is the basic logic of national interest in the Westphalian state system that drives strategic policy.

So, the question is, how far will these fascistic nations go in defending their interests and how far does that impinge upon our own civilisation?

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In the case of Russia, Ukraine is probably as far as Vladimir Putin will go unless he is a mad man (which is always possible). Invading other NATO-protected states will trigger an inconceivable pan-Atlantic war.

As well, the Russian economy is small and half of it is oil and gas. In fifty years it will have subsided into bucolic obscurity as the world goes green. In that sense, today’s hoo-ha is the last stand of a fossil-fueled relic. To ultimately defeat Russia, all we need to do is wait.

The case of China is more tricky and the main game ahead. If it takes Taiwan, it is not difficult to imagine the racist Han of the CCP seeing themselves as the natural leaders of all of Asia, quite apart from any self-perpetuation urge within the CCP, or basic strategic calculus for China.

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That is the most pressing danger for liberal capitalism in the next three decades. That China launches an imperial land grab via the oceans of South East Asia and the Pacific (if you’ll pardon the mixed metaphor).

This is why the Taiwan conflict is so important. Not in and of itself but the opportunity it provides liberal states to contain the CCP for the future. Like Ukraine, Taiwan is not worth going to war over. But it is worth rewriting the rules of global commerce to prevent it from mushrooming into Great Power conflict. We should be preparing Draconian multilateral blockades of goods and capital to be deployed the moment China invades. The Ray Dalios of this world must have a sword of Damocles hanging over their heads. It may even be enough to stop it if China calculates enough unrest will result at home.

The weekend developments for Russia around its forex reserves and membership of SWIFT are a good sign that an economic containment strategy for China will be possible.

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Why resist now? Because, like Russia, China has its own inbuilt decline that will be nearly impossible to resist. In China’s case, the problem is demographics:

The recent Chinese CENSUS recorded a birth rate that pushed the population outlook below the worst-case line on the chart. Even better, the more that China urbanises the more difficult it will be to turn it around.

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In short, the Chinese economy is entering a century-long population calamity that will render its dream of economic domination as near enough to impossible as anything in economics.

As in the case of Russia, all liberal civilization needs to do to beat China is wait it out.

However, there is a window in the immediate decades ahead for the CCP to make its play for regional power. This is the period to worry about and the one we should be urgently preparing for.

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Has anybody in Canberra got the slightest grasp of this?

On the Liberal side, the Morrison Government is the least strategic of modern history. From the Pentecostal “psycho” at the top, down to policy formulation and implementation in defence, resources and industry, the Government is a national security joke.

For example, AUKUS, will not deliver submarines until around the time that China will be fighting its own internal demise. At least in the meantime, the agreement should equip us to traffic US submarines.

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Or, the structural decline of Australian fuel refining and a strategic oil reserve stationed in America. WTF.

Or, national energy policy that is shipping all of the cheapest Aussie gas to China to build weapons while hollowing out our own industry with the most expensive. WTF.

Or, the total abdication of any industry onshoring project, the embrace of the financialisation economy that offshores industry, and the sell-out to miners that does the same. WTF.

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Or, mass immigration that has already enabled Bejing to capture three electorates through the ballot box, including one that holds the balance of power for the Morrison Government itself. WTF.

So on and so forth. The Morrison Government has done just about everything that it could to expose Australia to greater Chinese vulnerability.

This is why we can only conclude (other than a captured Paul Kelly) that the Morrison Government’s one fantastic contribution to defending Australia, the breaking of the Australia/China diplomatic relationship, was utterly and completely random.

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It was pure chance that Morrison jabbering shattered the CCPs glass jaw. Morrison never divorced China. He only insulted it and then Beijing divorced us.

On the Labor side, it is well known that it has way too many greybeards feasting like maggots on the carcass of the Chinese-controlled diplomatic architecture.

But on the policy front, it is actually better. It does have an industrial revitalisation platform, though it needs to be much more aggressive, including the use of tariffs. It has mooted a gas reservation policy for the east coast though it looks vulnerable to interests. It has mooted an extensive examination of the supply-chain vulnerabilities exposed by the pandemic. It has mooted immigration reform though god knows what shape it will take.

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This is nowhere near enough either. Peter Hartcher drilled the truth on the weekend:

Many in the Australian business community still nurture the hope that relations between Australia and China will “return to normal”. They live in a fantasy land. China is striving to achieve dominance, a zero-sum game of global power. In league with the man Xi Jinping describes as “my best, most intimate friend”, Vladimir Putin. Two weeks ago they signed a so-called “no limits” partnership, including a 5400-word declaration of ideological and political hostility to the West and to its values.

The stage for their new partnership was the opening night of the Beijing Winter Olympics. That was the moment they shook hands and consummated the relationship. The closing ceremony of the Games last week was the moment for Putin’s formal annexation of Ukraine’s eastern territory. It’s now starkly plain that the two dictators used the Olympics as a prop, gold, silver and bronze tinsel to embroider their shared project to extinguish human liberty wherever they can.

…“We have been living in this democratic recession for 16 years now, and it’s gotten more serious in the last few years,” the US political scientist Francis Fukuyama tells me. The democratic boom began with the fall of the Soviet Union in 1991. The number of democracies in the world surged. The bust began just before the global financial crisis. The number of democracies has shrunk every year since 2005.

…“What I was not expecting was the US,” says Fukuyama. “I did not expect US democracy would decline as precipitously as it has,” notably after the former president Donald Trump refused to acknowledge that he’d lost the 2020 election, and cheered on a mob that sought to halt the validation of the result.

“We are very polarised and weakened as a geopolitical power while Russia and China are consolidating, to the point where Putin thinks he can get away with reversing the outcome of the Cold War,” Fukuyama says.

The US could be just one election away from joining the ranks of the autocracies. Observe Trump this week lauding Putin’s attack on Ukraine as “genius”. If America were to re-elect Trump, or a neo-Trump figure, it’s not hard to imagine America retreating from its alliances, abandoning the world to the mercies of the neo-fascists, Putin and Xi, as they pursue unchecked repression at home and dominance abroad.

I would be insulting your intelligence to try to tell you that Australia’s position is secure. Worse shocks could well lie ahead. Just three years ago, no one foresaw that China would become overtly hostile to Australia, that the world would be gripped by a pandemic and that Russia would expand its territory by warfare to the border of Poland. What might the next three years hold?

Australia needs to build resilience. The Liberal senator Jim Molan has been trying for years to get the government to take seriously a national resilience agenda. It has not.

“We are very, very good at solving problems in this country,” says Molan, a former top commander in the Australian army. He gives the example of AdBlue, an obscure but essential fluid used in diesel fuel. Australia relies on China for most of its supplies. Supplies were weeks away from exhaustion at the end of last year. This would have marooned thousands of trucks and shut much of the national distribution network. Supermarket shelves would have emptied.

The Morrison government worked with fertiliser maker Incitec Pivot for a solution. Just in time. “This government very competently solved the problem,” says Molan. “I’m talking about a set-up in government where we have a process to find all the AdBlues, all the potential supply shortages which could bring us to our knees.”

He continues his campaign to call for a comprehensive national security strategy that looks at security in every dimension – economic threats, pandemic threats and military threats. Australia has never had one. Australia may be good at solving problems, but only when it identifies them, agrees politically on a solution and mobilises to act. “Once we had a full national security strategy, what we’d need to do would become self-evident,” says Molan.

Is the “Psycho” listening? Hardly. Jim Molan is fighting for his political life amid the Morrison fatwa issued against the NSW LNP.

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Whatever happens to America, Australian resilience is best served by getting as far away as fast as economically possible from China.

Moreover, if liberal democracy can dodge its own dictatorial demons and get it together as a coordinated bloc – Ukraine is aiding in that by binding the US and Europe back together – then resilient free societies will beat the fascistic challenge as it fades dramatically through the second half of the century all by itself.

Our major risk of defeat is at home.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.