Geopolitical Update : Enemies of the West seize the moment – Coming Perfect Storm

By Christian Takushi, Independent Macro Economist. 6 June 2020 (public release 48 hrs delayed and truncated).

Our latest research puts current events in a broader strategic perspective. While Western leaders are fully occupied with jump-starting their contracted economies and the world watches the social unrest in the United States of America, rising powers are seizing the moment they have waited for years.

Beijing, Moscow, Ankara, Teheran and Pyongyang – along many groups – are emboldened by a weakened West and becoming more assertive towards their neighbours and the West as a whole.

“We have overestimated the West ..” 

From Uruguay to Costa Rica and from Uganda to Indonesia – leaders and scholars across the developing and emerging world are surprised (some actually shocked) at the overall poor handling of the Covid-19 pandemic by the so called Advanced Nations of the West. Not in their most optimistic dreams did nationalist leaders in Russia, China or Turkey believe that the West would be so unprepared, divided and disorganised in its response. They had not imagined the US economy could be so fragile. Although one nation among the G7 stands out positively – Germany, the West as a whole has not looked this vulnerable in a generation.

The enemies of the West are realising in 2020 that the West was not as superior as they had long believed.

Q1 2020 is likely to be seen as a watershed moment in global geopolitical-political-military history. It is likely to mark the shake-up of the “superior image” the world has had of Europe and by extension of North America for several centuries.

Since March 2020 government leaders, security advisers and scholars outside of the Developed World are seeing the state of the West with a clarity they seldom had before. It is one of the main subjects of discussion in security circles. These observers see Europe and America sitting in multiple traps and the West’s decline poised to accelerate:

• Societies in Europe and America are divided and polarised. A house divided against itself cannot stand! Observers see democracy in the West fading away, possibly dying.
• Most Developed Economies are over-indebted beyond repair and doubling down on the same deflationary Monetary Policies that got them here. Who buys their new debt? Their own central banks with “printed” money and those institutional investors that are forced to buy it: insurances, banks, pensions etc. Thus, Western economies are digging themselves deeper in their Liquidity Trap.
• After losing its moral supremacy, the West has also lost its economic credibility. An over-indebted West is now “openly” printing money to finance Deficit Spending. Exactly what it taught developing economies never to do lest they risk becoming “failed Socialist experiments” or worse.As a result, scholars and policy makers in emerging nations are now viewing the much “celebrated” Wealth Creation of the past two decades with renewed suspicion. The gigantic money printing by big central banks artificially boosted the bubble in new millionaires, unicorns, real estate, stock and bond markets. Reason why G7 central banks are printing yet more money for fear that the GDP contraction would translate into a devastating asset price contraction. The West thus is entrapped in a gigantic bubble of its own making. These observers are asking “Is this worth emulating?”

• Having shifted most of her Production and Supply Chain to China for short term economic rents (cheaper consumer products and massive accounting profits at big firms – real economic profits were small), the West sits in the Supply Chain Trap. China is kind of “parading” the West and showing to the world how easily Europe and North America can be constrained in what they can do.US President Donald Trump talks tough, but his response to China’s power grab in Hong Kong is cosmetic and “shy”. Washington can’t take directly on Chinese President Xi Jinping. That is, because despite the improvements since 2017, the USA depends on China. Key US giants are mere marketing machines that produce in China or other nations that can’t afford to upset China. China’s power reaches even deep into the US backyard. Not long ago Washington wanted to rally the Lima Group to intervene in Venezuela, but Beijing convinced Brazil and Peru not to get involved. UK Prime Minister Boris Johnson has also de facto bowed down to China over Hong Kong.Such is the weakness of Western governments versus China, that only their nations’ parliamentary leaders are coordinating the West’s response to China’s hegemonic expansion. Leaders without executive power are now voicing their outrage at Beijing’s aggressive moves on several fronts. The Western Parliamentary Alliance to contain China is an embarrassing oxymoron in itself.(Much of the current US stance is likely to change though if President Trump sees himself as losing in November – see below)
• With fast ageing demographics and ever more dysfunctional democracies, the West sits in a Demographic Trap. The underestimated factor Religion additionally reinforces these convergence of trends.

The remarkable irony of historic proportions in 2020 is that fiscally sound emerging nations are using their reserves to prop up their economies (text book like), while G7 nations are simply printing more paper money in huge amounts, because they have no reserves after living beyond their means for decades. The EU’s “free movement of persons” is foremost a source of cheaper labor force. Rather than lowering citizens’ expectations, Europe and North America are living beyond their means and simply printing money and taking on more debt.

For political and military experts around the world the time has come to advance their nation’s geopolitical interests more assertively – and that is beginning to show ..

Seizing the moment 

All over the world assertive nations and hegemonic groups like the Taliban have ratcheted up their aggressive moves against neighbouring nations and old enemies. I want to mention here a few examples that are being really underestimated by analysts and investors.

• In the Middle East Russia and Turkey are gaining influence over Libya with military force. After thrusting Libya into chaos, the West left it “unprotected”, although Libya is the last religious-political piece in the geopolitical Middle East puzzle that lays the ground for the next two wars there.
• Russia recently stepped up its cyber warfare on the US Homeland and has also begun to proactively intercept US bombers well within international airspace.
• Right after warning at least seven Western nations not to launch investigations on the Covid-19 pandemic origins, China took aggressive actions against India, Japan, Taiwan and Hong Kong. It is truly remarkable how self confident China is to overtly exact influence on so many fronts simultaneously. Many Western governments are outraged about China in private, but it is their own “naive & ill-advised” acts of weakness that have emboldened Beijing. We can only assume EU officials are “naive” and somewhat ignorant of North-East Asian cultures, otherwise we’d have to imply a deliberate intent to submit Europe to Chinese influence – something we deem rather unlikely.

With the West in multiple traps, China knows it can get more aggressive and tell Western capitals what to do … and get away with it most of the times. The West can only do temporary or tactical push backs and it will predictably try to appease China. Soon or later the next US administration is likely to join Europe in appeasing China. Oriental powers study the West extremely well, something we can’t say of Western powers.

We shall discuss Russia’s strategy and growing military options in a later research report.

Why China is seizing control of Hong Kong now

Beijing’s breaking of the Hong Kong Treaty and Britain’s near silent resignation speaks volumes. The moral & political weakness of the West is only augmented by her tremendous dependence on China. Thus, neither London nor Washington nor Berlin can really afford to stand up to China.

While many experts in Europe and North America hurl passionate critiques at China, we stick to our principles: chief among them, “every nation advances its geopolitical interests with all means at its disposal”. Rather than passing judgement, we want to understand in order to  make better predictions. Most political analysts are already passing judgement and it is not serving them well.

In our non-ideological analysis which balances West and Oriental rationales, we come to a different conclusion: Not only makes China’s behaviour absolute sense. China is acting very logically and even somewhat prudently. Why shouldn’t China take advantage of the West’s shortsighted greed, naivety and weakness? I think that the strategic advisors to President Xi Jinping are doing an outstanding job from China’s National Security standpoint. Sadly, I can’t say the same of the advisers in the West.

Why the Hong Kong power grab now? Back in March key EU administrations exchanged their intelligence, coming to the conclusion that the Covid-19 outbreak in China needed a thorough investigation. It followed 5 months of German discontent with China (following US-Sino trade talks). Beijing moved to “threaten” every single of those EU nations to “drop it” or face consequences. Some called it bullying, others blackmail. In reality, Beijing wanted to test the EU’s resolve. The EU gave in without standing up to Beijing – from a European perspective a historic mistake. Leaders across Asia were bewildered at Paris’ and Berlin’s show of weakness. Top EU leaders believed that their silence will be appreciated by Beijing with a magnanimous response – Wrong.

As any East Asian expert would have predicted, this was seen as a powerful sign of weakness in Beijing – An invitation. This latest European appeasement led Beijing’s strategists to their next brilliant idea. To raise the stakes with a show of force: A power grab of Hong Kong right before the Tiananmen Massacre Anniversary. Suffocating Freedom of Speech in Hong Kong would force EU nations to opt out or bow to China’s growing might!

Behind some valiant rhetoric, all Western capitals have signalled to Beijing “go ahead”. Most business leaders and investors simply want to go back to normalcy and underestimate what is unfolding, but Beijing has literally paraded and humiliated the West in a matter of three months and shown to Western capitals that it won’t tolerate any serious defiance of China. Washington’s measured resistance is tactical in nature, and not enough to turn the tide.

The West has passed the point of no-return

As we have said over the past 6 years, the West has passed the point of no return in its dependence on China. It now needs a minimum of 5 to 7 years to reverse that, but China is already using this “strategic window” to increase or even seize control over the West in key areas. The efforts by the Trump Administration are very likely to be only a tactical delay in a strategic shift, a kind of “period of grace“.

Many American strategists say we are dependant, but China doesn’t yet have the military power of Russia and they will never trust each other. That is a mistake. Beijing and Moscow don’t trust each other indeed, but they don’t need to. They are doing the “right” thing: they keep their well-deserved distrust for one another, but are intelligently focusing their limited resources in complementary roles versus the West. This is also what we see in our main military scenario for this decade. Let’s illustrate this strategic cooperation with one example: With China’s strategic submarines inferior still and cut off from direct fast access to the Pacific Ocean by Japan, Russia has successfully developed super-stealth nuclear submarines well able to attack and exterminate all major US and European cities from international waters – vastly undetected. Unlike her foes, Russia has already shifted her economy and military into crisis & war mode over the past five years.

There will be some tactical and momentary push backs, but the strategic course of China-West relations has been set for years to come. This scenario is solid (stochastically robust) and has a high probability in multiple simulations. Under heavy criticism in March, Beijing has managed to use the Covid-19 crisis to accelerate her drive to supremacy. China has played her cards very smartly and boldly. The EU has been once more outsmarted, while warnings in America went unheard. Following years of politicisation US intelligence and military agencies don’t trust each other.

2nd half 2020 – A surprise to weigh on US elections and financial markets (stocks, treasuries, gold, crypto etc.) 

The geopolitical rhetoric and military calculations of the past five weeks are lending support to a totally underestimated scenario:  A new major disruption in the 2nd half 2020 is likely.

Assertive nations had enjoyed President Trump’s permanent “stand down” orders to avoid any new war ..

To read the full research report you may contact c.takushi@geopoliticalresearch.com

By Christian Takushi MA UZH, Independent Macro Economist & Geopolitical Strategist. 6 June 2020 (public release delayed and truncated)

Disclaimer: None of our comments should be interpreted or construed as an investment recommendation

A distinct broad approach to geopolitical research

(a) All nations & groups advance their geostrategic interests with all the means at their disposal

(b) A balance between Western linear-logical and Oriental circular-historical-religious thinking is crucial given the rise of Oriental powers

(c) As a geopolitical analyst with an economic mindset Takushi does research with little regard for political ideology and conspiracy theories

(d) Independent time series data aggregation & propriety risk models

(e) Takushi only writes when his analysis deviates from Consensus