Evans-Pritchard: China-Japan Rearmament is Keynesian Stimulus, If It Doesn't Go Horribly Wrong

An "IF" in capital letters, but even if it does go wrong and things come to a head between China and Japan, it will still be a great Keynesian stimulus for the US and Europe, whose economies have been suffering "long malaise".

Ambrose Evans-Pritchard, on-again-off-again Keynesian (I think it's "on" now, since the Great Recession induced by the Lehman collapse), says Japan is ready for a fight if necessary; at the same time he seems to think that mishap is not necessarily by China or Japan but by the United States, and fear the cascading effect outside the parties directly involved, as he cites the Agadir crisis in 1911.

With the flip-flopping president who are surrounded by advisors whose expertise (if that) is only in the US domestic politics, the probability of the mishap is rather significant, I'm afraid, no matter how much Japan's PM Shinzo Abe tries to flatter the US president.

(The latest example of flattery is Abe's mimicking President Obama in using teleprompters for the first time to deliver his speech at a hastily scheduled press conference on December 14, 2013, probably just to show off his brand-new toy...image from Yasumi Iwakami)

From The Telegraph (11/26/2013; emphasis is mine), by Ambrose Evans-Pritchard:

China-Japan rearmament is Keynesian stimulus, if it doesn't go horribly wrong

Asia is on the cusp of a full-blown arms race. The escalating clash between China and almost all its neighbours in the Pacific has reached a threshold. All other economic issues at this point are becoming secondary.

Beijing's implicit threat to shoot down any aircraft that fails to adhere to its new air control zone in the East China Sea is a watershed moment for the world. The issue cannot easily be finessed. Other countries either comply, or they don't comply. Somebody has to back down.

The gravity of the latest dispute should by now be obvious even to those who don't pay attention the Pacific Rim, the most dangerous geostrategic fault line in the world.

Japan’s foreign minister, Fumio Kishida, accused China of “profoundly dangerous acts that unilaterally change the status quo”.

The US defence secretary Chuck Hagel called it “a destabilising attempt to alter the status quo in the region” and warned that the US would defy the order. The Pentagon has since stated that US pilots will not switch on their transponders to comply, and will defend themselves if attacked. Think about this for a moment.

Mr Hagel asserted categorically that Washington will stand behind its alliance with Japan, the anchor of American security in Asia. “The United States reaffirms its long-standing policy that Article V of the US Japan Mutual Defense Treaty applies to the Senkaku Islands,” he said.

Whether China fully believes this another matter, of course. The Senkaku islands offer a perfect opportunity for Beijing to test the resolve of the Obama Administration since it is far from clear to the war-weary American people why they should risk conflict in Asia over these uninhabited rocks near Taiwan, and since it also far from clear whether President Obama's Asian Pivot is much more than a rhetorical flourish.

Besides, Beijing has just watched the US throw its long-time ally Saudi Arabia under a bus over Iran. It has watched Moscow score an alleged victory over Washington in Syria. You and I may think it is an error to infer too much US weakness from these incidents, but that is irrelevant. Beijing seems to be drawing its own conclusions.

Even if the immediate crisis can be defused, we are clearly sliding into a new Cold War. While it is dangerous, it could have paradoxical and powerful side effects. Rearmament lifted the world economy out of slump in the late 1930s, working as a form of concerted Keynesian fiscal stimulus. It could do so again.

The parallels are not exact. They never are. But an Asian arms race would almost certainly tackle some of the underlying causes of the long malaise in the Western economies. It would soak up much of the Asian "savings glut" and the excess industrial capacity in China, and would help to narrow the perennial East-West trade gap.

This would be an answer of sorts to the West's "secular stagnation" – to use the term of former US treasury secretary Larry Summers – or the liquidity trap as others call it. But be careful what you wish for.

I don't wish to become entangled in debate over whether other states impose such ADIZ identification zones beyond their territorial waters, as asserted by Beijing. It is political infantilism to see and judge such disputes through a moral prism, as if our Hobbesian world conforms to codes of right and wrong. What we are dealing with is a great power collision of epochal proportions.

The Asian arms race is young, but clearly under way already. China has launched its first stealth drone, known as Sharp Sword. It developing indigenous aircraft carriers. Its “Two-Ocean-Strategy” implies a fleet of five or six carrier battle groups.

Japan is already rearming. It is building a de facto marine force. It has launched its largest warship since WW2, an 800-foot long DDH-class helicopter carrier, an aircraft carrier in all but name. Tokyo is developing its own version of the Pentagon's Advanced Research Projects Agency. Spending on warships and aircraft will jump by 23pc this year.

When I visited the spanking new buildings of the Japanese defence ministry in Tokyo in March, it already seemed like another world from the run-down digs of the old Self-Defence Force that I had visited six years earlier.

You could feel the emergence of a new military power, pacifist still in name only. The message that came through loud and clear from talking to officials is that Japan is ready for a fight if necessary, and is convinced that it can sink or shoot down any force sent by China into Japan's waters and airspace – whether to close in on the Senkaku/Diaoyu islands, or to ratchet up pressure against Okinawa.

I was shown detailed maps tracing movements of Chinese DDG warships and Yuan-class submarines that left me deeply alarmed over where this is going. Japanese officials said Chinese naval officers on patrol were not responding to normal signals.

"What we don't know is whether Chinese officers follow any international code of conduct? Do they understand what is banned and not banned? Does the Communist Party control their own military?" said one defence planner.

"Two thousand years ago under the Han Dynasty, the emperor put his right hand on the wheel of his chariot and told his general that everything inside the borders was the domain of the emperor, and everything outside was left to the commander. That has plagued China throughout its history, and it is the delicate issue we now face," he said.

There is no red telephone between Tokyo and Beijing to defuse a crisis if it erupts, nothing comparable to the Washington-Moscow "hotline" during the Cold War.

While the US and China were able to calm the waters after an American military jet collided with a Chinese fighter in 2002 – killing the Chinese pilot – it is unlikely that any such mishap between China and Japan could be contained at this stage.

Today's escalating spat has echoes of the Agadir crisis in 1911, the stand-off between Wilhelmine Germany and the Franco-British Entente in the final years before the First World War.

In case you have forgotten, Kaiser Wilhelm sent the warship Panther to Morocco in 1911 to prevent French annexation. The Kaiser picked his moment well. The French were violating earlier accords.

Yet his real purpose was to probe and weaken Britain's entente with France (not a formal alliance) by picking on an issue where London had little natural sympathy for French actions.

The Agadir Crisis backfired against the Kaiser. The Entente did not break. But that is hardly a reassuring episode. The chain of events that followed were catastrophic.

France felt emboldened by British backing, with ripple effects through the Franco-Russian alliance. Russia then felt more able to push its luck when the Serbian crisis hit in 1914. Agadir fed an overwhelming sense of fury in Germany, a feeling that Britain had become an enemy.

America is now having to walk the same sort of tightrope that Britain had to walk – and walked badly – from Agadir to Sarajevo. One misjudgement by either side in the East China Sea could change our world entirely. If you are not concerned, perhaps you should be.

"Mr Hagel asserted categorically that Washington will stand behind its alliance with Japan, the anchor of American security in Asia."

Well, ever since Evans-Pritchard wrote this article (11/26/2013), the US has been busy pleasing Beijing while throwing Japan under the bus (here and here). The US State Department's deputy spokesperson even said the US was happy to see changes in South Korea, which announced it would now allow airlines to file flight plans with Chinese authorities over the disputed territories.

Meanwhile Prime Minister Abe is busy meeting and speaking with the heads of the ASEAN nations in an effort to form a united front against China, whom they perceive as encroaching on the neutral or international (and disputed) space.

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