Forward to the Past (again)…

It seems to us that the Iron Chancellor, Prince Otto von Bismarck, would recognize the current world more than one might expect. We have written before about the risk of the so-called “Thucydides Trap” in which the PRC challenges US hegemony, with unfortunate consequences for both sides.

However, the ratcheting-up of tensions recently between the US and PRC also echoes the end of the first era of globalization, which was cut short by World War I in 1914, as has been highlighted in a fascinating paper, “Beijing’s Bismarckian Ghosts:”

While history may not repeat itself, and it is always dangerous to draw the same conclusions about likely outcomes, the description of how a newly-reunified Germany challenged the then global superpower, the UK, and its Empire, is remarkably consistent with the range of methods the PRC has been using for the past several decades. While, in the same way that the “Kremlin’s” opacity in terms of decision-making kept US political analysts guessing for decades, the deliberation in Beijing’s Zhonhanhai produce the same effect. Are the parallels coincidence or deliberate re-use of the Bismarckian “playbook”?

Some points to consider:

  • A rising autocracy, with a state-protected economic system, challenges an established democracy with a free-market economic system
  • While they threaten and bluster at each other, they have significant interdependence in trading terms, with the rising power using exports as an engine of growth and “turning all her forces to the systematic conquest of external markets” (to quote Henri Hauser, a French economic historian writing during WW I)
  • The hegemon is adamant that the rising power has been “cheating” and using illicit means to gain knowledge of new and important technologies
  • Each side argues about the appropriate standards to be used in new technologies (the telegraph and radio then; the internet and 5G now)
  • The rising power seeks to build influence and economic advantage through the creation of huge infrastructure projects (the Berlin-Baghdad Railway then; the Belt and Road Initiative now)
  • Investment in basic research and advanced education becomes an obsession of the rising power
  • Each side tries to gain an advantage through influence on, control or manipulation of the global financial system, and the wielding of financial tools as a weapon
  • The rising power feels threatened and hemmed in by it geography, and seeks to challenge the hegemon’s control of vital global sea lanes
  • The hegemon starts wielding tariffs as a means to curb the rising power’s mercantile expansion

With its authority unchallenged, the Chinese Communist Party is able to play “long game”; and is quite clearly a student of the ways in which great power rivalry is conducted, and the tools and techniques that should be used.

However, what remains to be seen is the extent to which it is willing to push and consolidate any advantages it gains in the various realms of competition, how the hegemon responds- which brings us back to the Thucydides Trap- and whether the CCP is willing to stand its ground when challenged.

As we said above, assuming that the past will inevitably repeat in the future is dangerous. However, being aware of the currents and eddies of history is essential to being able to create the informed scenarios that enable Awbury to continue to build its franchise in the management of complex credit, financial and economic risks. These do not exist in isolation, but are profoundly influenced by the interplay and rivalries of geo-politics, so awareness and understanding are a key to managing risk.

The Awbury Team

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