As France and Germany became entangled in Russia in the years leading up to World War I, Britain devised plans for a financial weapon that could cripple an adversary at the start of a conflict.
France and Germany have attempted to use the financial entanglement for strategic peacetime purposes, only to see these plans backfire in wartime; at the same time, Britain tried to muster all the financial and economic tools in its arsenal for a splendid strike.
London, like Paris and Berlin, knew that World War I, the culmination of a century-long great power rivalry, would commit troops to the front lines as well as high finance in the world’s largest capital markets. Britain was the financial capital of the world and the guardian of the world’s largest navy, maintained to protect the world’s largest merchant fleet.
In the ten years leading up to World War I, officers from the Admiralty’s Naval Intelligence Department planned to wage “an economic war of unprecedented magnitude” against Germany, the upstart challenger of the Great -Brittany. The aim was to stifle the German economy as soon as the war broke out. The plans included efforts to halt all British transactions and halt all trade with Germany in the hopes of crippling Berlin and forcing a quick surrender, as Nicholas Lambert explains in Planning for Armageddon.
These officers believed that the peacetime characteristics of Anglo-German financial rivalry, such as cross-border trade and asset transactions, could be turned into weapons at the start of the war.
But when war came in August 1914, the strategy failed. The British War Office, the Foreign Office and the Board of Trade opposed the main efforts of the strategy. The British homeland was far from immune from the potential consequences of financial weapons; any sanctions regime would also lead to a slowdown in the UK economy.
The Admiralty had devised detailed plans for Financial Armageddon. British officials have pulled out. The focus shifted to the Western Front and the trenches of the shooting war.
Dreams of a quick, bloodless financial victory by severing unsavory capital ties have never faded. Today, some US strategists are predicting what would amount to a new Financial Armageddon – a drastic program of sanctions, capital restrictions and asset seizures – to punish China if its People’s Liberation Army invaded Taiwan, a result of more and more likely.
For the first time in the history of the People’s Republic of China, Beijing’s capabilities likely match its long-standing intentions to “reunify” Taiwan. Xi Jinping revealed weaker tolerance for the ambiguous status quo between the two shores; He sees Taiwan as a “hidden danger” threatening “national rejuvenation” and has, more than any other Chinese leader since 1949, shown his willingness to stake the legitimacy of the Chinese Communist Party on the Taiwan question.
In a Council on Foreign Relations report, Robert Blackwill and Philip Zelikow propose that the United States implement crushing economic sanctions if Taiwan is invaded. “First, the United States would freeze all assets held by China, or its citizens, in the United States. Then, “the United States would cut off and strictly control all trade or dollar transactions with China.” Other strategists propose similar sanctions.
However, American planners who rely on financial weapons must take into account Britain’s failure to execute her “Planned Armageddon.” Despite efforts to build the perfect economic weapon, British officials deemed the risk of backfire too great.
The consequences of a sanctions program like those proposed by Blackwill and Zelikow are immense. China holds $ 1.1 trillion in U.S. sovereign debt while U.S. investors hold $ 1.1 trillion in Chinese stocks and bonds. Larry Summers called this scale of interdependence a “balance of financial terror,” in other words, deterrence through mutual dependence.
Many believe that such interdependence could discourage war. In reality, financial interdependence could make a war of marksmanship more likely by sacrificing the viability of alternatives. Interdependence does not negate war; he denies the art of economic governance.
If Beijing precipitates a fourth Taiwan Strait Crisis, fear of financial Armageddon could leave the President two options: do nothing or initiate military measures in the hope that such a conflict may remain limited.
Counterintuitively, the immense scale of American and Chinese interdependence increases the chances that a confrontation will end in a shooting war.
In the frantic fog of a Taiwanese contingency, an American president may view the military option as the path of least resistance. This is certainly the best-prepared option, played by the president’s wealthiest department. It was also the choice of history; the United States turned to its military to resolve the first three crises in the Taiwan Strait. The strategy is often the product of a historical analogy, so the military option can also be seen as the default plan for the Fourth Taiwan Strait Crisis.
The goal of American strategists, concerned with Taiwan’s survival, must be to delicately unravel some of the most complex features of capital’s interdependence, vital for the dissemination of a financial “doomsday machine”. By decreasing the scale of interdependence and reducing the risk of backfire, US policymakers can restore the feasibility of financial weapons as a usable tool, thus preventing an invasion of Taiwan.
[This is part two of a two-part series on the perils of capital dependence in great power rivalry. Part one was published earlier.]
Christopher Vassallo (@) is a contributing writer for the National interest and a young fellow from the China and the Pacific program of the Center for the National Interest. He is a former Schwarzman Fellow and a research fellow at the Asia Society and the Harvard Belfer Center.