Ukraine 2.0

Luc Brunet - 03 August 2022

The events taking place in Taiwan right now call for a number of comments, related to many aspects, from military to sociology, and of course economy.Let's start with the social side of it.

Virtual drama - shall WW3 start on-line?

Yesterday, with Pelosi flying (or not flying) to Taiwan, a record was set in the number of people tracking flights to the FR24 application, with a total of almost 3 million people tracking her flight or part of it.

Millions of people expecting to see the flight disappear from the screen, signaling the start of WW3. So much emotion to virtually participate to history with a small h! Can you imagine people watching Pearl-Harbor burning or Archduke Franz Ferdinand being blown-up in Sarajevo? Living world events on-line from your seat or bed is so exciting, isn't it? But the real world is less exciting! Believing that the Chinese would shoot Pelosi plane was outright naive, as it would not bring anything to China, outside of creating a martyr for "democracy".

Why Ukraine 2.0?

The title of this letter may be surprising, but many common aspects in the two issues can be found.

In both cases, the US and the "west" have been the ones making things worst, not listening to what Russia or China asked for. Both Russia and China never wanted to start a war, but have been pushed to it step by step over the years, when the US and NATO, ignoring all the warnings of many experts (calling them complotist is a nice way to ignore them), developed policies considered as unacceptable by Moscow and Beijing. In both cases, the US encouraged both Ukraine and Taiwan to act against the interests of Russia and China.

The red-line was defined in both cases, and what triggered the reaction of Russia was the suspected (and then clearly announced) refusal of Ukraine to implement the Minsk agreement, that is today referred to as a "tool to win time" by ex-president Poroshenko. Winning time for what, of course for building up a strong army.

Pelosi trip this week is the red-line for Beijing. Of course, the US and the EU are now claiming that they indeed love the "One China" policy and respect it, but the buzz around Pelosi visit is too big to go back. The Taiwan leadership, that supported the visit, is now completely toasted as far as relationship with Beijing is concerned. They are confirmed traitors. By the way, we all use the term "Pelosi visit", but let's be reasonable. She did not fly on a private jet, but on an army plane and a Government plane. This is a "US official visit", full stop. At anytime, Biden or army leaders could have killed that visit if they wanted to. Although they officially claimed that the visit was "risky and unnecessary", they allowed it.

The Ukraine conflict did push Russia in the arms of China and of other non US-friendly countries like Iran, initially slowly after 2014, but more radically after 2022. What is happening now shall push China in the arms of Russia.

What shall happen now?

As usual, no crystal ball available, but some hints.

China did not, as expected, shoot Pelosi plane, and did not try risky interception maneuvers. The plane landed safely, and some already claim that China "blinked". This is I believe a very risky diagnostic.

Some also say that China shall attack Taiwan as soon as Pelosi (the Pink Panther if you look at her dressing style in Taiwan) leaves. We shall know that soon, but I would be very surprised because:

- such a large military intervention requires a lot of logistics preparation, and several weeks or rather months would be required

- China has not been involved in a war since many years, and the level of self-confidence to start one is on my views lower than for Russian in February. Russia has been at war in 2008 in Georgia (rapid and small scale, but it counts anyway), and more importantly over the past years in Syria, bringing a solid experience and confidence in its capacities and, no less important, awareness of its limits.

On the other side, the amount of equipment that was sent close to Taiwan is quite large, and we can expect it to stay around, exercising. Until it is time to confront the Taiwanese army. No earlier than autumn this year on my views.

But China is already starting the war on the economy level, just like Russia did.

- China has the capacity to strangle the Taiwanese economy and they already announced several measures in that direction. We should expect many more, bringing the island to economic and social collapse, in the hope that full reunification can be achieved without military intervention.

- China shall make "unfriendly countries", the term used now by Russia, pay the price for the provocation this week by Pink Panther. A few examples:

. limit the export that are critical for the west, like rare earth products

. ask the west to pay exports "a la Russe", in other terms pay in Yuan in a Chinese bank. Russia has now good expertise on how to organize that and shall be able to help the Chinese to set-up similar schemes. This would allow China to avoid the accumulation of US$, and would also contribute to terminate the reserve status of the dollar

. accelerate the selling of its state reserves labeled in US$, with the same results

. of course all actions against the dollar may bring big losses on China's reserves, but the pain is sustainable if it can avoid WW3

. finally, China can bring full support to Russia to escape sanctions applied after February 24th, and possibly bring some level of military support in Ukraine. Even if not really necessary on a military viewpoint, it would have a great psychological impact

For the many readers from the IT world, the above has a large impact on the IT markets. The expected developments, even if limited to the economy level, mean that the production of processors and IT components in Taiwan may be severely impacted over a long period of time, and possibly completely stopped over that period.

Pink Panther just landed

The arrogance and abyssal incompetence of western leaders shall lead their countries to disaster: little or no energy from Russia and little or no electronics and key components from China. All this could have been avoided by reasonable and competent leaders, who could have started negotiating with Russia on European security in 2021 and with China on Taiwan reunifications last winter.

With Ukraine, the US shot themselves in the foot and the EU in the head. With Taiwan, the US shot a second bullet, this one in the head.

Finally, you may remember one of my articles on Ukraine early 2022, where I wrote that I was not much concerned with a nuclear escalation. I still believe that for Ukraine, but I am more concerned with Taiwan.

The reason is simple. Ground military escalation needs preparation and is limited in its scope and psychological impact. Big losses like today on the Ukrainian side are not always reported and rather hidden. Even with a ground confrontation between NATO and Russia, the risk of the use of nukes should be very limited.

In the case of Taiwan, and if the Chinese army starts a military action on the island, the US could decide to send one or two of its carriers close to Taiwan. The risk is then for a carrier to be sunk by China. Psychologically, the loss of such a ship has a very strong impact on the populations and on the military leadership (we saw that when Ukraine sunk the Moskva). The risk of nuclear escalation would then be real.