‘For the last few decades Americans, Europeans, and Japanese have been pouring foreign exchange into the PRC,’ says Col Newsham.

 

Alexandria, Virginia, US: In this edition of “Indo-Pacific: Behind the Headlines” we speak with Col Grant Newsham (Retd). Col Newsham has unusually deep and broad experience in the Indo-Pacific. He was the first US Marine Liaison Officer to the Japan Ground Self-Defense Force and was instrumental in developing Japan’s amphibious capability.

He also served as the reserve G2 (intelligence) and G5 (plans and policy) at Marine Forces Pacific and was the US Marine Attaché, US Embassy Tokyo. He is also a former US Foreign Service Officer specializing in insurgency, counter-insurgency, and commercial matters.

Additionally, Col Newsham is an attorney with experience in international trade and public international law and was, for over a decade, an executive director at Morgan Stanley Japan. He spent 2019 in Taiwan as a MOFA-sponsored Taiwan Fellow researching options for improving Taiwan’s defense and is currently Senior Research Fellow for the Japan Forum for Strategic Studies in Tokyo and the Center for Security Policy in Washington, D.C. At the recent Indian Ministry of Defence, Department of Defence Procurement, GCTC conference on Defence and Security, Col Newsham spoke about China’s economic warfare.  Here he discusses it further.

Q: Is China’s currency a vulnerability for Beijing?

A: We hear about the Chinese economic juggernaut, but you rarely hear about one main, if not THE main vulnerability. The Chinese currency is not freely convertible. And nobody much wants it.

Meanwhile, for all the things the CCP does overseas or wants to buy from overseas, it has to pay in “convertible currency”—or in other words, money that somebody wants. So, you see the problem for Beijing? Choke off that supply of foreign exchange and the Chinese economy (and the CCP) starts to look a lot less successful than is claimed.

But currently, that’s not a problem for the CCP. For the last few decades ,Americans, Europeans, and Japanese have been pouring foreign exchange into the PRC—maybe a few hundred billion worth in US$ a year? So, they’ve been funding the country that seeks to dominate—if not destroy —them.

Currency remains a potentially fatal weakness for the PRC, however. And it’s  really the only lever the Americans have left—if someday they are smart enough to use it. Will that happen? I doubt it. The US has practically cornered the market on Quislings, and Japan and the Europeans aren’t far behind.

Q: What is the importance of “decoupling from China” and what are the impediments?

A: Why would any sane person invest in a country where your investment and your business are entirely at the whim of a ruthless capricious dictatorship? You cannot have a contract predictably enforced in China, and the law is exactly what Xi Jinping and the Chinese Communist Party say it is. And don’t forget that the CCP objective is to replace foreign companies with Chinese ones. In other words, put the foreigners out of business as soon as possible.

Westerners (and others) seem to go insane at the prospect of selling one of something to every person in China. You’d think some smart lawyers would make a bundle bringing shareholder lawsuits.

The impediments to decoupling? No greater than when US business decoupled millions of Americans from their jobs and lives over the last 30 years. When the elites/Wall Street says we can’t decouple from China—well they sure as hell decoupled from America, from places like Youngstown, Ohio, Pittsburgh, Pennsylvania and a thousand other places.

They gutted towns and neighbourhoods the same as if they’d walked down the streets with a flamethrower and tossed C-4 into every building—and then left a bundle of heroin on every corner for the survivors.

These people did it with such ease and heartlessness. And now are saying they can’t decouple from China? That only makes sense to someone with an Ivy League education. The excuses sound like either pure laziness or the excuses for staying in an abusive relationship.

You don’t have to be all that old to remember when the China market didn’t matter—and the world was still a decent and prosperous enough place. It can be once again—without China.

The billions we pour into China along with manufacturing and technology help the Chinese Communist Party paper over the huge problems they have. And how can we expect to defeat China (or not be defeated by China) if we keep funding them?

Q: Please explain the idea for an “Economic Article 5”, akin to NATO’s Article 5 in which an attack on one is considered an attack on all, and can trigger a common response?

A: I didn’t coin the phrase. But it’s commonsensical that if the other side has a weapon (in this case economic levers) that it is using against you and your friends, well, you might want to help out your friends (and vice versa). And if you don’t do something about it, don’t expect to prevail against the enemy—and don’t expect to have any friends either.

Also, it usually wouldn’t take a lot of money. We could buy all the Australian wine with what we spend on one day of Medicaid fraud—and with enough left over to buy Australia’s barley harvest too.

We saw what happened in 2017 when the Chinese attacked South Korea economically for allowing a US anti-missile system into the country. Seoul was hit hard—and yet the US administration did nothing. A lost opportunity to say the least.

Q: How important is Taiwan for Indo-Pacific security?

A: We use the word “crucial” a lot, but in Taiwan’s case it really is. If Taiwan comes under Chinese communist control, the so-called First Island Chain that hems in the Chinese military will be breached. The PLA will have easy access to the Pacific and beyond—and Japan will find itself outflanked and surrounded. And the blow to American credibility regionally and worldwide will be staggering.

Think of it: The US military couldn’t save Taiwan, nor could threats of US financial and economic sanctions, nor did US nuclear weapons deter anyone. Who exactly is going to trust American security guarantees—actual or implied? In short order, Asia will turn “red”—except for maybe Japan and Australia—and they’ll both be sceptical about US protection.

Q: As the US pulls out of Afghanistan, what do we need to know?

A: There hasn’t been any post-mortem. What have we learned? When General Joe Stillwell marched out of Burma in 1942, one step ahead of the Japanese, he said, “I claim we got a hell of a beating. We got run out of Burma and it is humiliating as hell. I think we ought to find out what caused it, go back and retake it.” We shouldn’t try to “retake” Afghanistan, but we should figure out what happened.

How could you have successive waves of Generals, and some Admirals who didn’t produce results but got upwards promotions—and no one seems to care? Other than retired General Donald Bolduc, who else is saying, “we really screwed up”? In spite of having all the support they could want—plenty of money and manpower, a supportive Congress and American public—and they couldn’t do it.

Nobody seems to care that we lost. I told a Marine General around 2010 who asked me how to keep the Taliban from resurging, that they ought to leave things up to the Captains and the Majors and most of their problems would be solved.

Look at the Generals who ran the show in Afghanistan and they all sport more medals than Marshal Zhukov. And these are the guys who are going to take on China and Russia? They’ve mostly ignored the Chinese threat and have been wishing away the Russian threat for the last two decades. It’s a little late to start paying attention. Maybe not too late, but it’s getting close. For some reason I think our enemies like their chances.

Afghanistan will always be Afghanistan.

Q: How does the withdrawal affect the US role in the region?

A: I’m more worried about the US role in the world. America’s adversaries will take note and push elsewhere. We saw the same thing happen after South Vietnam fell in 1975. Whenever America appears weak, confused, distracted, and at its own throat, only bad things happen. Consider how hard it was to roll back the Russians and their proxies. This time it will be much harder, if it’s even possible. Any nation that has been counting on the Americans to underwrite their protection must be sweating bullets right now. Or they soon will be. And more than a few of them just might drift away and hedge their bets.

Q: How does it affect China’s position in the region?

A: Hard to say. The Chinese are always pushing everywhere, looking for opportunity. They will see what’s to be had in Afghanistan—and guaranteed women’s rights, democratic government, and “no opium production” won’t be on their “to do” list. It will just be cash and, if necessary, force—either directly or via somebody else.

Keep in mind the Chinese bankrolled the Taliban in the 1990s, opposed US sanctions on the Taliban, and armed the Taliban against the US in the 2000s. Also, the Chinese fund the United Wa State Army in Burma and, according to some people, the insurgents in Assam in India.

That mix of money and force will get you a long way in Afghanistan. Combine China’s opportunity in Afghanistan with its deepening ties to Iran, and its relationship with the Pakistanis. and Beijing might like the looks of things.

And one notes that Afghanistan is not necessarily the “graveyard of empires”. As one fellow put it: “…actually Genghis Khan and Tamerlane turned Afghanistan into a graveyard of Afghans.” Look at Chinese treatment of the Uyghurs, and it’s not as if the CCP doesn’t have the temperament to play rough.

Q: Is the Japan-Taiwan security relationship changing?

A: Not yet. Some pro-Taiwan politicians in Japan are making statements pointing out that Taiwan’s defense is indeed Japan’s defense—and that Japan had better be ready to defend Taiwan along with the Americans. But I’ve not seen this translating into an improved Japan Self-Defense Force that is able to actually fight a war.

After 60 years of the Japan-US security treaty you’d think the Japanese would be farther along—and that US Generals and Admirals would have been pushing this as hard as possible. But with a few exceptions such as when Admiral Willard and his team were at USINDOPACOM and Generals Gregson and Stalder at MARFORPAC, you should probably refer to my earlier comments about Afghanistan and our ruling class.

 

Cleo Paskal is The Sunday Guardian Special Correspondent and a Non-Resident Senior Fellow for the Indo-Pacific at the Foundation for Defense of Democracies.