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#21 - Changes Unseen in a Century
百年变局 - Bai3Nian2 Bian4Ju2 - Changes in a Century
The end of the year has seen significant changes. Japan has functionally discarded its post-WWII pacifist stance. China and Russia are forging a deep economic alliance, with a 2022 trade relationship roughly double the value of US-France trade and growing. The US continues to add Chinese companies to its ever expanding trade restriction list, part of an economic delinkage that will take years to unravel and upend the existing system of global trade. The Ukraine War notwithstanding, the global center of geopolitics is inexorably shifting from Europe to Asia.
The Global Economy is Devolving into Two Competing Trade Blocs
Welcome to 1930s style zero sum economic competition. What used to be a generally free and open global trade system is degenerating into two trade blocs, respectively led by Washington and Beijing. This is not a return to simple Cold War days since the Beijing-led bloc has far more economic vitality than the Soviet Union ever had. China can use that economic influence to maintain and enhance trade access to key non-aligned partners, if not get preferential treatment.
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Disturbingly, the two emerging blocs have roughly similar manufacturing output, which matters more for the conduct of war than total GDP. This is the primary reason why the US must continue to decapitate Chinese tech advancement. Hindering US strategy in this area is the orthodox economic thinking of policy makers on both sides of the aisle. Recent administrations have thought of trade competition with China in isolation from US allies and partners. The goal is not that US companies always win out, it is that non-Chinese trade linkages form a sustainable and robust closed loop that is mutually beneficial for all parties involved. This international trade bloc must be forged and guided by the US. While it is likely that the momentum of international events will carry Washington towards this solution, the US must be cognizant of allies’ national security imperatives and take steps to preemptively address issues like Japan continuing to import Russian liquified natural gas (LNG). With China potentially delinking from the US (and therefore US allies and partners), Beijing must look for alternatives. It has found a viable candidate in Russia.
China and Russia are Forming a Lasting Union
Russia and China are focusing on economic integration for four reasons:
They share a large land border
Russia has strategic natural resources that China requires
Both countries are slowly being pushed out of the US-led international trade regime
Russian/Chinese cross-border trade routes are more secure than maritime routes
This reinvigorated Russia-China trade is growing by leaps and bounds across categories including minerals, food, and energy, but the basis of the trade relationship is energy. This is because Russia is generally the world’s second largest supplier of energy resources and China is one of the world’s largest consumers of energy.
The Russian invasion of Ukraine catalyzed Sino-Russian energy cooperation and Russian dependence on China like never before. China’s spending on Russian energy hit a record $8.3 billion in August and brings the total over the past six months since the Ukrainian invasion to almost $44 billion, an increase of 74 percent.
One of the many energy agreements that Putin and Xi have signed in the past year allows China to pay for gas supplies in rubles and yuan. This allows Russian and Chinese companies to drop dollar and euro transactions through SWIFT and bypass US/EU trade restrictions and sanctions. Because of these sanctions, China is able to buy Russian LNG at a 50% discount and resell this LNG to Europe and Japan. China is Russia’s LNG launderer.
In addition to this, while Russia and China do not have a formal military alliance, their defense cooperation has steadily increased in recent years. Starting in 2013, China and Russia significantly ramped up their bilateral and multilateral exercises. Through mid-2022, they have held at least 78 military (and paramilitary) exercises. The most recent large-scale exercise was Vostok-2022 in Russia. China, India, Belarus, Azerbaijan and Kazakhstan, and others participated.
This deepening Sino-Russian cooperation and the Ukraine War have caused profound changes in the strategic direction of both Tokyo and Taipei.
Japan is Rearming
On December 16th, Japan released a new national security strategy which publicly sets a goal for national rearmament by 2027. Tokyo stated that “[at] this time of an inflection point in history, Japan is finding itself in the midst of the most severe and complex security environment since the end of WWII. In no way can we be optimistic about what the future of the international community will bring.” That’s a hell of a statement and Tokyo pulls no punches when it announces that “Japan will strongly oppose China's growing attempts to unilaterally change the status quo by force, demand it to not conduct such activities, and respond in a calm and resolute manner.”
To effect this strategic change, Tokyo also believes the Japanese military requires “counter strike capabilities: capabilities which, in the case of missile attacks by an opponent, enable Japan to mount effective counterstrikes against the opponent to prevent further attacks while defending against incoming missiles by means of the missile defense network.”
The Government of Japan also outlined that it will “prevent Russia from taking actions that undermine the peace, stability, and prosperity of the international community, while cooperating with its ally and like-minded countries and others.” It is almost certain that Japan is referencing Russia’s Pacific positions.
While outsiders may note that this policy marks an extreme break with the past, the sentiment it embodies is generally mirrored by Japanese public opinion towards China.
Taiwan is Preparing to Repel a Future Invasion
China is losing the public in Taiwan. A strong majority of Taiwanese support the recent move to 1 year minimum military conscription cycles (up from a paltry 4 months). As the military and government enhances readiness, Taiwan citizens are preparing by hardening their society.
In regards to weapon systems, Taiwan has multiple ongoing indigenous defense programs that highlight their need for asymmetric capabilities. These programs include the Indigenous Defense Submarine (IDS), the Tien Chien (Sky Sword) II missile system, and the Chen Hai light frigate project. Additionally, over the past two years Taiwan has stepped up its acquisition of equipment from the US. This includes, but is not limited to the following:
11 M142 HIMARS launchers equipped with 60+ M57 Unitary precision-guided missiles
100 Harpoon Coastal Defense Systems (HCDS) with 400 RGM-84L-4 Harpoon Block II Surface Launched Missiles
40 155mm M109A6 Paladin Medium Self-Propelled Howitzer Systems
AIM-9X Block II Sidewinder Missiles
Volcano anti-tank munition-laying systems
Taiwan and Japan’s strategic change of course should concern Washington because the global center of gravity has shifted.
The Primary Theater is now Asia, not Europe
Roosevelt and Churchill’s famous 1941 Europe First Policy formed the political core of Allied grand strategy in WWII. From WWI to the twilight of the Cold War, nearly a century, Europe was the cockpit of geopolitics. This is rapidly changing as Asia displaces both Europe’s economic position and accumulation of hard military power.
Facing Asia as the primary theater, US strategic planners must deal with the extreme distances imposed by the Pacific Ocean. A straight line flight from Los Angeles, CA to Taipei, Taiwan would be 6,800 miles. Yet a straight line flight from Lisbon, Portugal to Moscow, Russia is only 2,400 miles, which covers nearly the entire European theater. To compound this problem, the regions the US must transit across to reach Asia are incredibly isolated, suffer from rough weather, and have chronically undeveloped supply nodes and logistics routes that make it difficult to move anything, let alone combat power.
All of this does not mean that Europe is no longer important. Let us not forget that Russia and Ukraine are fighting a conventional war in Europe that has likely cost each side more than 100,000 casualties. The primary theater will not always take precedence. Taking the above WWII Europe First example, the US actually dedicated more resources to the Pacific Theater from 1942 to 1943. Only the buildup for the invasion of Normandy achieved a Europe First Policy in actuality. From 1944 to 1945, Washington sent more resources to Europe, but planned another resource shift after Germany’s surrender to swing combat power against Japan. Urgency (generally not importance) dictates government spending, which is why Europe is currently receiving the lion’s share of resourcing.
As of Early 2023, the Ukraine War is a Complete Toss-Up
The vast majority of elite Western opinion on this topic has swung decisively from defeatism to triumphalism in the belief that Russia has decisively lost and it is only a matter of time until Putin is forced to the negotiating table. While Vermilion would like to believe this, our judgment is quite the opposite, as it was in our January 2022 assessment of Putin's likelihood to invade.
Moscow certainly walked into a woodchipper and suffered immense setbacks in 2022, but now realizes the price of victory. Putin has little choice but to hold on for dear life and wear down the Ukrainians. In an oversimplified way, this has historically been Russia’s strategy for dealing with land war on its borders. It is likely that 2023 will see a war of attrition between Russia, with a struggling defense industrial base fueled by China and Turkey, pitted against a Ukraine shorn of both an economy and industrial base, relying on Western (mostly US) aid.
The major deciding factors will be the volume of Western economic and military aid, Ukrainian ability to conduct maneuver warfare in an attempt to collapse the Russian military in the field, Russian ability to activate their defense industrial base, and Russian ability to cause Ukrainian casualties. The biggest factor will be the severity of Winter 2023. Most European countries have sufficient energy reserves to see themselves through this year’s winter. However, these reserves will run thin in 2023 and if the war drags on without Ukrainian success, Putin’s theory of victory begins to come into focus.
The US Military is Not Even Close to Ready
As war embroils Europe and China continues its strategic breakout, US policymakers are asleep at the wheel. The US military budget as a percentage of GDP is nearly the lowest it has ever been, essentially looking roughly similar to the 1990s.
In inflation-adjusted dollars, the picture appears better, but the numbers lie. At the current funding level, the uniformed force totals roughly 1.38 million service members. In contrast, the military of 1989 could afford 2.24 million personnel. This is despite the fact that held in constant 2022 dollars, the 80s peak base budget in 1985 was roughly $200b less than today’s NDAA. The takeaway is that at lower funding levels, the Army could afford to field 18 active duty divisions in 1985, but today can only field roughly 11 active duty divisions at higher levels of funding. Similarly, the Navy was able to field 13 carriers, 30 cruisers, 69 destroyers, and 100 submarines in 1985. At a higher cost today, the Navy can only afford 11 carriers, 17 cruisers, 72 destroyers, and 68 submarines in 2022.
While the total ship count has withered by roughly half since 1988, total fleet tonnage is still 87% of the 1988 battle force. Clearly, the Navy is hollowing out the fleet in order to maintain high-tonnage vessels like aircraft carriers, which will be critically vulnerable and have an increasingly questionable role in the First Island Chain.
Vermilion has posted about problems with US and China military force structures multiple times, including here, here, here, and here. With the US confident in its military prowess despite being unprepared for conventional war and losing an unconventional one in Afghanistan, and China preparing for conventional war without ever actually having fought one since a defeat in 1979, Sino-American military developments for at least the rest of the decade will be a rich vein of hubris to mine.
Consequences for Strategic Competition:
If it couldn’t be called this before, it can now: there is officially an arms race in the Asia Pacific. China is building the largest military in the world, the US is investing in capabilities to counter China, Australia has accepted US assistance to rebuild its submarine fleet, Japan is rearming, and Taiwan continues to increase its defense budget and prepare. It seems almost certain that global defense spending will spiral upward as Asia reacts to China’s military buildup and Europe reacts to Russia’s invasion.
Russia will look extremely different in the outyears. Either it will collapse, leading right back to the chaotic maelstrom that saw Putin rise to power, or Russia will coalesce under Putin, becoming a unified and dangerous war economy and society. The war in Europe will continue.
A US-led alliance will eventually emerge in response to all of the above threats. The current inefficient patchwork of NATO, AUKUS, the Quad, bilateral mutual defense treaties, ANZUS, and the ambiguous Taiwan Relations Act (TRA) and Taiwan Enhanced Resilience Act (TERA) will drift towards unification and simplification.
May we live in interesting times! Happy 2023!
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