Wednesday, January 18, 2017

“War with China Could Break Out in the South China Sea”

“War with China Could Break Out in the South China Sea”, Introduction
by Brian Maher

“The World Today Looks Ominously Like It Did Before World War I.” Thus ran a po-faced headline in The Washington Post, of recent vintage. But is it true? Is the world really on the verge of a possible war? And where would it start? So we buckle on our armor… mount our steed… and prepare to confront these questions today…

The Great War- re-christened World War I in honor of its sequel- slammed the hatch on what many consider the first era of globalization. The Post: "From the mid-19th century to 1914, advances like steamships, the telegraph, the telephone and the Suez and Panama canals dramatically shrunk distances and increased communication, and the world underwent a period of rapid globalization. But that first era of globalization had its discontents, much like today’s has its discontents. And by August 1914 it was clear that Germans weren’t really citizens of the world after all but citizens of Germany… the French, citizens of France… and the English of England."

Josh Feinman is chief global economist for Deutsche Asset Management. He produced a recent report called Backlash Against Globalization: Déjà Vu? From which: “The first great globalization wave, in the half-century or so before WWI, sparked a populist backlash too, and ultimately came crashing down in the cataclysms of 1914–1945.”

History seems to run in cycles then. Not perfectly- you can never step in the same river twice said Heraclitus- but close enough to sketch meaningful parallels. Feinman again: “Modern globalization has been spurred by some of the same forces that powered the pre-WWI epoch: New technologies, an open, free-trade, rules-based world economic system underpinned by the leading power of the day, and a period of general peace among major countries.”

But is this second era of globalization nearing the end of the tether? World War II was the world’s last great heavyweight fight- over 70 years ago. The globalization that followed- massive expansions in international trade, economic integration, communications- now seem permanent features of international life. But those same globalist forces seemed permanent features of international life before August 1914. On the eve of WWI one leading expert of the day even gloated that because of such extensive economic interdependence, “There will never be another war between European powers.”

As in 1914, we find the forces of globalism in swift retreat. The British people have voted themselves out of the EU. The American people have voted Donald J. Trump into the White House. Nationalist, anti-globalization movements surge in France, Italy, here, there, everywhere. Many Europeans are concluding once again that they’re not citizens of the world or even citizens of Europe- but Frenchmen, Englishmen, Italians... Germans. Maybe nationalism isn’t quite as dead as the one-worlders assumed.

Does that mean World War III breaks out tomorrow, if at all? No, it doesn’t. But WWI started by accident. Some moonbat knocked off a couple royals in Sarajevo one day. Ultimatums were issued, sides were drawn. Armies mobilized. Next thing they knew Germany was marching on Belgium and four years later over 17 million were dead and the war to end all wars gave way to the peace to end all peace. That’s what French PM Georges Clemenceau called the disastrous Treaty of Versailles that led to WWII.

Few actually wanted war in 1914. But they got it anyway. And who’s to say a similar accident today couldn’t trigger another great power war?

We wrote about it last week. Russia’s the great bugbear again. The U.S. just deployed 4,000 troops to Poland, right up to the Russian frontier. U.S. troops stationed in the Baltic are within shouting distance of St. Petersburg. Maybe someone gets an itchy trigger finger one day and shoots down a Russian plane by mistake. Does Russia respond? How? And does the U.S. respond to that response? It’s not difficult to imagine events spiraling quickly. No one wants to blink first.

And it seems tensions in the seas off China mount by the day. Territorial disputes between China and its neighbors, including treaty allies of the United States, can potentially result in a shooting incident that puts Uncle Sam in a real fix- come to the aid of an ally- or back down and lose all credibility in the world. Or what if U.S. and Chinese forces stumble their way into an incident of their own? How does Trump respond? The Chinese president?

War is much like love, said the great H.L. Mencken- easy to start… but very hard to stop. That was the great lesson of WWI. We only hope it’s a lesson that doesn’t have to be learned all over again...

Below, Jim Rickards shows you why rising tensions in the South China Sea could well result in another war. Does Trump’s election make it likely? Read on."
"War with China Could Break Out in the South China Sea"
By Jim Rickards

"History shows that many wars begin not by design but by accident. World War One is the classic case study... No one really wanted a world war. And 16 million people died as a result. The Ottoman, Russian, German and Austro-Hungarian empires all collapsed in the aftermath. Still, the war happened anyway through miscalculation and misreading the intentions of the other side.

Today the U.S. and China are confronting each other in the South China Sea the way Germany and Russia confronted each other just before World War One. Could another world war happen by accident?The answer is yes, it could.

The shoving matches between China and Japan in the East China Sea, and between China and the Philippines in the South China Sea are getting worse. It’s just a matter of time before some incident or accident at sea sparks a war. The problem is that the U.S. has treaty obligations to Japan and the Philippines, as well as to Taiwan. So a Chinese war with them can quickly become a Chinese war with America.

The maritime regions off China’s east and southeast coasts are vital to Chinese interests... The South China Sea is rich in natural resources. It has rich fishing grounds and as much as $5 trillion in oil and gas. But apart from its fisheries and vast energy resources, the South China Sea is home to some of the most important sea routes in the world. A third of all the world’s seagoing trade, and roughly $5 trillion worth of goods transit through South China Sea each year.

The Malacca Strait links the Indian Ocean to the South China Sea. The amount of oil transported from the Indian Ocean through the Malacca Strait and into the South China Sea is three times the amount that passes through the Suez Canal every year. And fifteen times the amount that passes through the Panama Canal. The Malacca Strait is therefore one of the great choke points in global shipping.

Without access to the strait, China’s access to oil and other raw materials from the Middle East and Africa would become greatly reduced. In wargames, American ships and bombers have rehearsed blockading the Malacca Strait. Chinese leaders are well aware of the implications and have watched these wargames with alarm. China has now essentially claimed the entire South China Sea for itself (except for small zones immediately adjacent to the surrounding nations). But its control is disputed by six countries – China, Vietnam, Philippines, Malaysia, Brunei and Taiwan, all of which lay claim to some portion of it.

Of course, Chinese assertiveness in the South China Sea is nothing new. China has claimed territorial rights to almost the entire South China Sea in defiance of international arbitration and the competing claims of the other nations. China has been backing up its claims by dredging the ocean floor to create artificial “islands” on existing rocks and atolls. Then it’s built military bases on those islands and threatened to interdict any fishing or commerce which it does not approve.

Control of the South China Sea would be a sensitive subject at the best of times, but now it is more of a tinderbox than ever. Lately, the seriousness of the confrontation has been dialed up. The U.S. has conducted freedom of navigation patrols in the area by sea and air. Numerous incidents have occurred between China and other claimants involving fishing and coast guard vessels in accidental collisions and intentional boardings. China also seized a U.S. underwater surveillance drone and has been conducting strategic bomber overflights in the area.

Some of this is in response to comments by President-elect Trump about China’s currency manipulation and unfair trade practices and the suggestion that the U.S. “One China” policy may be up for review. Soon after his election, Trump received a congratulatory phone call from the president of Taiwan. That might seem like a routine courtesy, but not from the Communist Chinese perspective. But from the Chinese perspective, the Taiwan issue is nonnegotiable. Beijing insists Taiwan is a “breakaway province” and not a separate country. U.S. politicians usually tiptoe around this issue, but not Trump. He not only chatted with Taiwan’s president, but he questioned the U.S. “One China” policy in a tweet.

Trump’s actions set off alarms in Beijing. The Communist leadership decided to send Trump a message by stealing the underwater drone operating in Philippine waters, nowhere near the disputed South China Sea waters claimed by China. The drone was later returned, (after Trump tweeted that the Chinese should “keep it”), but the point was made. In short, geopolitical tensions between China and the U.S. are definitely on the rise.

What about the future? The indications for that are not good. In his confirmation hearing for secretary of state, Trump’s nominee, Rex Tillerson, said that China should be denied access to the artificial islands they created in the South China Sea.

Attempting to deny China access by a blockade or other means would be tantamount to an act of war. China fired back immediately. A leading Communist Chinese publication said, “Unless Washington plans to wage a large-scale war in the South China Sea, any other approaches to prevent China access to the islands will be foolish.” President Xi of China is on the world stage at the Davos World Economic Forum this week even as Donald Trump is about to be sworn in as 45th president of the United States. We are certain to hear more on this topic soon from both leaders.

But Trump’s not even president yet. That won’t happen for a few more days. Imagine how much worse this could get once Trump takes office and his policy suggestions become reality. The prospects for peaceful resolution are not good. This volatile mix of disputed claims, natural resources and complex treaty networks has the ingredients needed to escalate into a Third World War.

All it would take to start a war is some spark such as a collision at sea or an attack based on mistaken identity or misunderstood intentions. For example, an accidental collision at night between a Philippines’ naval vessel and a Chinese fishing boat resulting in Chinese casualties has the potential to start the next world war. Now, I’m not saying it necessarily would, but the potential exists.

So in addition to trade wars and currency wars, China and the U.S. could soon find themselves in a shooting war in the South China Sea. Of course, the implications of this for markets are nothing short of catastrophic. But the serious potential for a shooting war in the South China Sea has largely being ignored by markets. World Wars often emerge in unexpected places or on thin pretexts. The same could happen here. In fact, a war there is probably just a matter of time. The entire situation is a tinderbox waiting to explode.”

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