“Igitur qui desiderat pacem, praeparet bellum.”

(“Therefore, let him who desires peace, prepare for war.”)

      De Re Militari
      Flavius Vegitius Renatus
      4^th Century AD

For those who remember or have studied the Cold War, the Cuban Missile Crisis stands a key moment in time.  It came out of nowhere, after a long confrontation between the US and Russia since the 1940s.  And it risked all out direct war between the two, at a time when the two sides were engaged in proxy wars across the globe.  It followed closely on the heels of the Berlin Crisis of 1961, where Russia demanded the Allies leave Berlin, as well as the construction of the Berlin Wall in late 1961, shutting the border between East and West Berlin.  It also followed a series of confrontations in the Middle East, Latin America, Africa, and Asia, where the US and Russia vied for influence.  In 1962, Fidel Castro requested that the Soviet Union place nuclear missiles in Cuba in response to the failed Bay of Pigs invasion in 1961.  Nikita Krushchev agreed, given the US deployments of nuclear missiles in Italy and Turkey the prior year.  In July, 1962 construction began on missile silos and other facilities in Cuba.  Rumors of the construction of these facilities swirled for months, which the Kennedy Administration denied.  Finally, in October, a U2 pilot photographed the SS-4 and SS-5 ballistic missile facilities, both completed and under construction.  With these photographs and Cuba only 90 miles from the Florida coast, the Kennedy Administration could no longer deny the rumors and needed to act.  On October 22, 1962, the US declared a “Naval Quarantine” on Cuba to prevent delivery of additional missiles and the needed equipment for the uncompleted silos under construction.  The US would permit non-missile related deliveries of materials.  This technically avoided a blockade and a state of war with Cuba.  After a tense standoff, the Soviet Union agreed to remove its missiles in Cuba in exchange for the US removing its missiles in Turkey and agreeing not to invade Cuba.  While the Cuban Missile Crisis ended peacefully, there existed no guarantee at the time, given the shooting wars that continued to occur around the world.  And, for several days, the world held its breath, unsure as to whether a nuclear war would ensue.

Telescoping to today, another crisis appears brewing, this time between the US and China, as their global rivalry heats up.  This potential crisis swirls around China’s annexation of various Islands and Reefs, claimed by other countries, as well as the construction of military bases in the South China Sea.

Furthermore, China continues to encroach on the recognized international waters of The Philippines.   China’s “fishing fleet”, which answers to the Chinese Government and China’s Navy, effectively set up a blockade of waters in the internationally recognized Philippines Exclusive Economic Zone (EEZ), denying Philippine fishermen access to their waters.  This latter encroachment continues to create a domestic political crisis, as President Duterte refuses, to date, to confront China on this or ask for outside assistance.  The Duterte Administration in The Philippines continues to follow the path of the Kennedy Administration, refusing to act until it possesses no choice.

While numerous pundits predicted the Biden Administration would take a more conciliatory response to China, similar to the Obama Administration, these hopes appear buried.  The Administration, after reviewing the data from the Trump Administration, realized that to protect US interests around the globe, it needed to continue the policies put in place over the prior 4 years.  For those hoping for a change, the reality of the global rivalry with China left the US no choice.  Thus, the US continues to pursue policies around the world that buttress its interests, including formalization of the Quad Four and continuing Freedom of Navigation operations.  In addition, for those watching the tariff front and the budding economic rivalry between the two countries, tariffs with China remain in place and future tariffs which will force up the price of goods from China and other countries continue to find a place at the table.  These include concepts such as Forced Labor Tariffs and Carbon Tariffs.  For those familiar with the concept of the DIME (Diplomatic, Informational, Military, Economic) as applied to policy, all these actions appear consistent with putting in place an overall strategy to address the Cold War with China.

However, historically, Cold Wars and Strategic Rivalries between countries typically do not stop at Cold Wars.  They include Hot Wars, whether through Proxy Wars in third countries or direct confrontations.   With the US having a disadvantaged military position in Asia today, including extended supply lines and difficult logistics, a direct confrontation with China today in the Pacific would not necessarily produce a positive outcome.  And, while the US continues to move to solve this issue through creating new alliances, redirecting military resources, and developing new military technologies, this will not create a short term solution, but one over several years.  In the meantime, the US will need to rely upon Diplomatic and Economic means to bring other countries to align with its interest in containing China.

With The Philippines Administration under increasing pressure to reply to China, the opportunity for the US to re-engage with the country and use China’s encroachment on The Philippines sovereign waters to rally support in the region continues to rise.  And such an opportunity likely will arise sooner rather than later.  On August 30, 1951, the United States and The Philippines entered into “The Mutual Defense Treaty Between The United States and The Republic of the Philippines”.  Article IV of the Treaty states:

“Each Party recognizes that an armed attack in the Pacific Area on either of the Parties would be dangerous to its own peace and safety and declares that it would act to meet the common dangers in accordance with its constitutional processes.”

While the Treaty states it is a “Mutual” Defense Treaty, no one expects The Philippines to come to the aid of the US.  On the contrary, the true purpose, when enacted, was to create the legal framework for the US to come to The Philippines aid should it face any type of military threat or an attack on its territories.

This Treaty becomes relevant given recent actions by China.  In January, China passed a law authorizing its Coast Guard ships to fire on foreign vessels in international waters and disputed territorial waters.  The reason this appears to encompass international waters and other country’s waters stems from China’s claim of the whole of the South China Sea as its territorial waters.  This includes international waters and waters belonging to the Exclusive Economic Zones of other countries bordering the sea.  In addition, China imposed a fishing ban in the South China Sea from May 1 to August 16, including Philippines territorial waters.  Should China move to impose this ban by sinking Philippine fishing vessels, the situation could rapidly escalate, especially if The Philippines requested assistance from the United States under the Mutual Defense Treaty.  A confrontation between China and the US would ensue, with the US also calling on its allies to support its actions in defense of The Philippines, such as Japan.  Such a confrontation would see Chinese and US naval ships, at a minimum, confronting each other at short range.  This would look just like a repeat of The Cuban Missile Crisis.  And any miscalculation by either side could result in the vessels firing upon each other.  And should the Chinese military shoot missiles at the ships, either from the air or from the ground, such actions could result in a region wide conflagration.

While geopolitical events have not dominated the discourse politically or economically over the past 20 years, with the increasing moves by China to assert its role as a Great Power, by dictating terms in the Pacific and influencing events across the globe, events continue to bring this to the fore.  Whether through territorial actions in the South China Sea, economic actions to set the next round of global technology standards, cyber attacks to grab information and research, or capital investments to attempt to dominate industries on a global basis, China continues to move to enhance its Global Strategic Position at the expense of the United States, Europe, Japan, and other Developed Economies.  And with these countries and other countries, such as India, beginning to respond, The Contest for Global Dominance continues to heat up.  Lastly, with the South China Sea beginning to resemble the Cuban Missile Crisis, events may take on a life of their own.  Given all this, it appears The Great Game of Power is once more afoot, as nations compete to push their own interests ahead and dominate the spoils of the global system.  (Data from public sources coupled with Green Drake Advisors analysis.)

Bowled Over, Looking Good, Flattened, and Hold On To Your Tractor

Finally, we close with brief comments on Bowled Over, Looking Good, Flattened, and Hold On To Your Tractor.  First, packaged food manufacturers continue to face the reality of reopening.  With consumers flocking to restaurants and offices reopening, demand for goods at the supermarkets has begun to slow.  To offset this slowdown in revenue, food companies are implementing price increases.  This include significant rises in cereal prices as companies such as Kellogg, a major manufacturer of cereals, attempt to keep up their revenue growth.  Given the price increases the consumer faces in the grocery aisle, we see them Bowled Over.  Second, demand for Cosmetics appears to have bottomed as the economy reopens.  Women clearly have begun to make sure they appear appropriate as they return to work with Color demand up 7% year-over-year.  With Cosmetic demand beginning to rise, we see the consumer refocusing on Looking Good.  Third, consumers continue to return to the air, with airlines and hotels consistently discussing business accelerating.  While good for those with the travel bug, it may not turn out so well for RVs.  RV foot traffic at dealers stopped growing over the past few months as 2 year stacked data show just 1% growth in 2021 compared to comparable month in 2019, pre-pandemic.  With data showing a slowdown, we see the industry Flattened by the reopening.  And Fourth, farm equipment prices continue to soar, given the rise in grain prices and the plans by US farmers to plant more acres in 2021. Used tractor prices are up 20% – 25% according to MachineFinder.  Given this, we see farmers saying Hold On To Your Tractor.

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