Readying for a War of the Elephants?

Don Brash was Reserve Bank Governor from 1988 to 2002, and National Party Leader from 2003 to 2006

That was the headline on an excellent article by Audrey Young in yesterday’s Weekend Herald – except that there was no question-mark at the end of the headline.

In the article, she quoted the views of a number of experts on China, mainly American and Australian, and all of them saw the real possibility of war between China and the US within the next few years. Perhaps because I am myself a graduate of the Australian National University, I was particularly struck by the following passage in the article:

Hugh White, influential emeritus professor at the Australian National University, warned 10 years ago that Australia showed no signs of understanding that as China grew it was unlikely to remain content with the US being the natural leader of the region.

Among the options, he said the US could give up its primacy and share power with China as an equal, or stay and compete headlong for primacy – and it had done the latter with the endorsement of Australia.

White now sees the risk of war as ‘very high’, he told the Australia China Relations Institute at the University of Technology Sydney last month…. “if neither side backs off, then the chances of war are very real”.

Audrey Young’s article brought to mind the scariest book I have ever read: Destined for war: Can America and China escape Thucydides’s Trap? by Graham Allison, a Harvard University professor of History. Thucydides was a Greek historian of the fifth century BC who wrote about the challenge which rising Power Athens posed to the established Power of the region, Sparta. War eventually broke out, and both were substantially destroyed.

The first chapter of the book (published four years ago now) recounts China’s quite extraordinary economic growth over the last four decades, growth which has lifted literally hundreds of millions of people out of poverty and made China the main trading partner of well over 100 countries, including New Zealand of course.

But the thrust of the book is about how often war is the result when a rising Power challenges an established Power. The author looks back over the last 500 years and identifies 16 situations where a rising Power challenged an established Power: war was the result in 12 of those cases. Drawing an analogy with the present situation between the US – the established Power – and China – the rising Power, he identifies several entirely plausible scenarios which could trigger conflict between these two great Powers.

We are clearly in a very dangerous situation.

The US has been the dominant world Power for many years, arguably since the end of the First World War, and largely unchallenged since the collapse of the Soviet Union three decades ago. Almost exactly two centuries ago, when James Monroe was President, the US asserted the right to have a dominant role throughout the Americas, North and South, in what became known as the Monroe Doctrine. Today it feels threatened by the rise of China and that is hardly surprising: from Washington, it looks as if President Xi Jinping is asserting the Xi Doctrine, the right to have a dominant role throughout at least East Asia.

Using a so-called Purchasing Power Parity exchange rate, China’s economy is already roughly the same size as America’s, and that despite the fact that on a per capita basis China is still relatively very much poorer than the US. If China were to achieve living standards just half those of the US, its economy would be more than double the size of America’s. It isn’t hard to see why the US feels threatened by that.

China too feels threatened, and I have no doubt that from Beijing that threat looks very real. The US has tens of thousands of troops stationed in South Korea, in Japan (including the island of Okinawa) and in Guam. It insists on its right to sail aircraft carriers and other naval vessels through the South China Sea, not far from the Chinese coast. China sees moves to deny Chinese companies like Huawei access to American-made components as a deliberate attempt to impede the growth of China. It sees American Presidents make a bilateral trade deficit into a reason for imposing tariffs on Chinese exports to the US.

And in the background there is what must feel to the Chinese like a total lack of understanding of history. But that history is highly relevant. For many centuries before there was anything resembling an advanced civilization where the US now stands, China was an advanced civilization responsible for the invention of gunpowder, paper, printing and the compass.

At almost exactly the same time as Columbus was crossing the Atlantic, the Chinese sailed ships several times bigger than the Santa Maria from China to the east coast of Africa – but on returning to China, the fleet was destroyed on the instructions of the emperor because, in the emperor’s view, China had no need for a navy. Historically, and quite unlike several of the European Powers, China was never an expansionist military Power.

No doubt this explains the humiliation which China endured in the 19th century at the hands of various European Powers, starting with the Opium War between China and the United Kingdom in 1840-42 when Britain was angered when China tried to enforce its ban on the importation of opium.

The humiliation continued in the 20th century at the hands of Japan, starting when the Treaty of Versailles at the end of the First World War handed German-occupied China to Japan; and of course continued through the brutal war between China and Japan which ended only with the defeat of Japan in 1945.

It should hardly be surprising that the Chinese government finds it easy to instill in the Chinese people a determination not to be humiliated by the United States in the 21st century.

This then is an extremely dangerous situation: the United States feels its century-long dominance is being threatened; China is determined not to endure a third century of humiliation.

New Zealand is caught in the middle of this tension.

Traditionally of course we have been closely allied to the US: we were allies in the First World War and in the Second – indeed, we owe it to the US Navy that we were not invaded in the Second World War. We sent troops to fight alongside US troops in Korea, in Vietnam and in Afghanistan. We were a member of SEATO and of ANZUS. We are a member of the Five Eyes alliance. We share a strong commitment to democratic governance and liberal values. Many of our citizens have visited the US on holiday or on business.

China is less well known to most New Zealanders, though in recent years an increasing number of New Zealanders have visited China on business or as tourists. And China is now our most important trading partner – by far our largest export market and our largest source of imports. This enormous and fast-growing trade has been of great benefit to us, and no doubt of some benefit to China as well.

Despite our rather disgraceful record of discrimination against Chinese immigrants many decades ago, we appear to retain a surprisingly cordial relationship with China – surprising given that early history and our obviously close relationship to the US.

There are no doubt various reasons for that, but the relationship is probably helped by the fact that we are demonstrably not a military threat to anybody and have worked hard to maintain a cordial diplomatic relationship. We may also be helped by a residue of goodwill going back to Rewi Alley’s relationship with the leadership of the Chinese Communist Party. New Zealanders of this generation will be largely unaware of Rewi Alley, but he lived for 60 years in China. In 2011, he was named one of the top four “foreign friends of China” during the 90th anniversary of the Communist Party.

On almost the same day that the agreement between Australia, the US and the UK to help Australia acquire a number of nuclear-powered submarines was announced – an announcement explicitly designed to “enhance security in the Indo-Pacific”, or in plain English push back against China’s rising power – China announced its intention to seek membership of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership trade alliance. This trade alliance arose initially from a bilateral deal between New Zealand and Singapore, with both countries committed to building a much larger group of countries strongly committed to open trade. In time, the Obama Administration saw it as an opportunity to create a very large trading group, with strong rules, as a counter-weight to China – or potentially a group which China could be invited to join but only on condition that it signed up to the same “rules of the game”. Initially, 12 countries were members, including the US.

But of course because President Obama had been in favour of the deal, then called simply the Trans-Pacific Partnership, President Trump was determined to pull the US out of it. To the surprise of many observers, the deal survived with relatively minor changes, changing from the TPP to the CPTPP. In January this year, the United Kingdom asked to join. And now China has asked to join.

New Zealand plays a special role in the CPTPP not only because it was one of the original instigators of the deal but also because it is formally the so-called Depositary of the agreement.

That gives it no authority about who can join the deal, and joining requires the unanimous agreement of all 11 existing member states. Any one member could veto China’s admission to the group. Personally, I would be strongly in favour of both the United Kingdom and China joining, and the US too if it could be persuaded to reverse Trump’s decision to withdraw.

Like the mid-19th century English advocates of free trade, I believe that countries which trade freely with each other are less likely to go to war. And certainly erecting barriers to trade can greatly increase the risk of war, which we should have learnt from looking at the factors which drove Japanese aggression in the first half of last century.

Could New Zealand play any kind of mediator role between China and the US? Highly unlikely I agree, but not totally impossible, particularly at the moment when we are the Chair of APEC, to which both China and the US belong. The fact that we can’t threaten any country with our miniscule military forces is, in this context, an advantage. We are merely the grass that would be trampled if the elephants were ever to fight.

Disclosure: I lived for five years in Washington DC; for a decade ran an investment bank partly owned by one of America’s largest banks; have been the guest of the State Department on a goodwill tour of the US; and have visited the US almost every year over the last six decades, most recently in January 2020. I have visited China 15 times since my first visit there in 1986, meeting with Chinese leaders in both government and central bank. My last visit was in January 2019. I have been chairman of the New Zealand subsidiary of the Industrial and Commercial Bank of China for the last eight years.

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