Your letters on Cold War II

Yesterday I took advantage of our newly refurbished studio to interview Nick Hubble on his new book, How the Euro Dies – look out for it later this week.

With any luck I’ll be recording an episode of The Gold Podcast tomorrow with John Butler. While the studio was getting an overhaul, the market went nuts – I’m keen to find out what John made of Bloody October, and what he sees on the horizon for precious metals.

But in the meantime, I thought I’d go through the mailbag. I received many responses to my question last week on whether the UK would side with China in the event of a second Cold War, thanks to China’s level of financial and political influence within the UK.

I received many thoughtful responses, thanks to all who wrote in! I’d like to share a few of them below:

Cold War II differs from Cold War I in that the USA was the world’s greatest creditor nation and could spend money on anything it wanted right up until it got embroiled in the Vietnam war. It did not owe money to its adversary, the USSR. Conducting a Cold War against a foe that you owe a trillion dollars to is rather different.

Why are the Chinese going to pay the USA to build up its military machine to oppose them?

The USA was hopelessly naive to imagine that China was going to become democratic just because it was getting richer. After all, China was the wealthiest place in the world for a thousand years, and only began to lose its place as the centre of gravity of world wealth creation in the 1830s, but it was never democratic, so why would it be now?

But it was also not inclined to impose its value system on everyone else, even when its fleets of treasure ships could effortlessly outgun everyone else in the fifteenth century, unlike the British Empire in the nineteenth century and its American successor in the twentieth. The Chinese just wanted other cultures to acknowledge the superiority of theirs without imposing it on them. This is pretty much the same attitude the Chinese exhibit outside their own local region (which they consider includes Tibet and Xinjiang), in places such as Africa.

China is really just reasserting its traditional place in the world, after a period of chaos caused by foreign intrusions. It would be nice if it stopped being dominated by the Communist Party, which is following a nineteenth century European cult, but they do have a good grip on the place. But the USA insists it is entitled to rule the world and is paranoid about anyone else threatening its dominance, even though it claims it is not an empire and only cares about spreading democracy and freedom. This time round, it is hard to see why the rest of the world is willing to pay for the USA to “protect” it.

As for us Brits, we will navigate an interesting path through this maze, playing off different powers to our advantage.

We live in interesting times!

While China does currently finance the US military machine by buying US government debt, it’s worth bearing in mind that by doing so China earns tens of billions of dollars annually in interest payments. Some of these will undoubtedly go towards China’s military machine, which currently has a budget of over $150 billion, and is second only to the US. In this way, the US is funding China’s military rise…

Some readers were very open to the idea that the UK would align itself with China…

Your piece includes a section entitled “Perfidious Albion” which perhaps should more properly include “and Inscrutable Orientals” in its heading. There is no doubt that the shallow Cameron, aided by sidekick Alexander and his internationalist mate Clegg (now in the USA) refuse to recognise the impact of history on today’s world and decisions necessary to continue without conflict. Whilst we have been involved from the outset in two global confrontations, we only survived each because the USA rather reluctantly intervened on our side. This past weekend I walked the battlefields and cemeteries of Flanders and saw the appalling consequences of conflict where tens of thousands were slaughtered for no gain.

With the evidence of actions by our immediate past, present and probable future politicians, I cannot see the UK looking west. Those inhabiting the offices of power here (including our Civil Service) have been educated in a system that clearly pushed and continues to push the virtues of the EU against our long term allies and commonwealth and as a consequence they are now programmed to believe there is no credible life outside that body. The exposure to possible Chinese defaults on credit arrangements is now so dangerous to the UK’s finances (70% of our GDP!) that we will continue to meekly tread whatever path China and the EU demands whether we are in or out of the EU.

No longer can we be assured of a key role as Perfidious Albion, just as we have much less influence in the UN. There are many examples all round the globe of perfidy and many nations are far more adept at it than our lightweight changelings still stuck in the belief we have an Empire!

While other readers were more sceptical of Chinese/UK alignment.

Our strategic interests are aligned with the US. To a large extent we are integrated with their military and industrial world.

Where do you think Trident or the F35 come from? We are not ever going to align ourselves with China.

To take but one example, China is already trying to take over the whole of the South China Sea and sooner or later they will have to be challenged by force.

There is a strategic disorientation at the heart of your proposition.

The main problem is lack of UK and European political leadership.

This is a fair point – our “special relationship” with the US has often involved UK purchases of American arms. But that doesn’t mean it must always be so – the Eurofighter is an obvious example. And China has big ambitions in the arms trade… more on that next week.

I also don’t see why China’s aggressive island building project in the South China Sea must lead to a challenge of force by the UK, especially when you consider the amount of leverage China has in the financial and political space (as I described last week).

The last letter I’ll share today details a more insidious kind of leverage China may have over us:

I thought I would toss this into the ring:

There is real competition these days, especially from British Telecommunications viewpoint, but BT still supplies 90% of the backbone (or ‘backhaul’) network for broadband and telephone. Major bits of equipment used in this was and still is, supplied by Huawei a Chinese manufacturer. This kit was supposed to have been vetted by BT expert engineers for hidden malicious software but with the sophistication of modern hardware and software I doubt they would find anything, no matter how expert.

Can we be sure that in the event of hostilities China could / would send the instruction to switch the lot off? Goodbye telecoms, goodbye national grid, etc etc.

More to come…

Boaz Shoshan
Editor, Southbank Investment Research

Category: Geopolitics

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