Tyranny Today – Episode 3

In this Article, Tomasz delves into the complexities of Putin’s invasion of Ukraine and shines a light on the insidious presence of tyranny in today’s world. Through his analysis, Tomasz uncovers the troubling spread of authoritarianism in countries such as China, Taiwan, Iran, Turkey, Hungary, North Korea, and beyond, revealing the urgent need for vigilance and action against this growing threat.

This article is the transcript of a podcast done regularly by Tomasz Nadrowski. Listen to Tyranny Today. Please excuse any transcript errors in this article.

Welcome to Tyranny today. We are recording this on April 12th, 2023, and the world has just become a more dangerous place. And guess what? I’m not referring here to climate change or even the continued scourge of automatic rifles, pop, pop, pop, pop, popping up on the streets of this country. I’m talking about the French president who under the influence of Xi Jinping’s, undeniable charm in Beijing.

Did a lot on his flight back into Paris to undermine Ukraine’s security and by extension European security. Quite what got into his head is yet to be properly analyzed, but Macomb clearly in grasped by the splash of luxury is stowed upon him in the PRC lifestyle against the US European Alliance in terms that even char the gold would’ve found somewhat questionable given the circumstances.

1958 concept of equidistance in relations between the US and the USSR goes down in history as one of the last glorious moments of, but the USSR was not at that time. Waging a hot war in Europe as Putin is right now, and nor were the US allies in the Pacific, directly threatened by communist power there, however, brittle deceased fire in the Korean peninsula was, and however desperate Chinese attempts were to land forces on Taiwan’s offshore islands, one of which was successfully defended by my late father-in-law, Emmanuel McComb, by stating in an interview with political last week that Europe should not get dragged into a US-China confrontation about Taiwan.

He said The great risk Europe faces is that it gets caught up in prices that are not ours, which prevents it from building its strategic autonomy. The question Europeans need to answer is it in to accelerate on Taiwan. No. The worst thing could be to think that we, European must become followers on the.

All right, so at a time where some Republicans are raising the question over whether the US should continue its commitment to Ukraine, giving our obligations in the Western Pacific, this was deeply unconstructed. The reaction in the US was predictable. We’ve been saving your European masses for over a year, and you are not supporting us in the.

Except that for most French people, the DBUs front lane is far away. It just doesn’t matter. Even if Putin marches into Warsaw and Helsinki, it’s still not, who cares? We can keep our cheese and our mustard, but even McClue is correct. In the 19th century concert of superpowers between Paris, Berlin, and Moscow is more Plat.

Vivi Washington. He seems to underappreciate the centrality of Taiwan for top end technology for intelligence gathering in China, for his security of Japan, South Korea, and the Philippines for the control of the Pacific. Not to mention the

human rights for 24 million free people, 95% of which have no intention whatsoever to live in a Chinese concentration camp from Marco Rubio in Florida to Wall Street Journal. The reactions were skating, not least because as soon as Macron’s plane left, the Chinese Aerospace People’s Liberation Army staged another round of hostile maneuvers aimed at Taiwan and Japan.

Albert Huk, the German Christian Democrat mp and a former head of the Bundes Tax Foreign Affairs Committee, tweeted that Macron had managed to turn his China trip into A P R Q FU Xi and a foreign policy disaster for Europe and. Comment has weakened American resolve to continue supporting Ukraine, France as little to offer to Val Zelensky.

So the risk is now that Putin will be the last man standing and laughing at the naivete of the useful idiot from Eliza and some kind of European damage control. Polish Prime Minister is now flying to Washington. Last week I spoke about how Russia’s most reliable ally is. China is projecting its power and what it means for the idea of containment, which has been gaining currency in Washington, in Tokyo, in Canberra, and to a lesser extent in some European capitals, though maybe not Bahrain.

There is good article in this week’s Economist about the tools of containment at Washington’s disposal. But I still think it’s useful to first focus on what is to be contained in the first place so far. I presented two weapons of China’s outreach. It’s diplomatic expansion, both in its bilateral and its multilateral collar, and its debt expansion.

Alongside that workaround, which is another term, forever, deeper dependency of middle income countries on Beijing, something clearly underestimated by the US and American allies until Russia’s invasion of Ukraine. Today I will focus on two other weapons that are screaming for containment, even though the toolkit may be el.

First come China’s trade and currency policies, and then the final pillar. That is the technological dominance. And yes, I mean, China’s dominance. Okay. China’s trade and currency with commodity producers and with others. During Xi’s visit to Moscow last month, Vladimir Putin pledged to adopt the Remin B for payments between Russia and countries of Asia, Africa, and Latin America, quote unquote in a bit two place the.

A friend of mine who is a dedicated botanist was orgasmic and sent me a note saying A new world is coming. What is it? Moscow is already increasing using the Remin B for its swelling trade with China and embracing it in its central banking reserves to reduce the exposure to the toxic American assets.

However, Even if we look at Russia’s trade relations with China where Russia registered last year, that is during the year of high commodity prices, a 38% current account surplus with the prc. Less than 10% of that trade is settled in the Remin. B. Less than 10% of trade between Russia and China is settled in the Rambi.

Moses still settled in the us. Now, however, that the 60 per barrel cap has been imposed by the EU on Russia’s crude oil sales. The monetary reserves of ci, the central bank have been plummeting, and only in January or February, they fell by about 30 billion. So even if the data don’t support it, not even the trade relationship between the two dictatorships, we constantly hear about the looming threat of the rem.

Following the mite of China’s trade account, which is undeni, and there are two sides to this argument, and they’re not necessarily equivalent. One relates to the gradual loss of the importance of the dollar, which is a fact, and the other is about the forthcoming dominance of the Remin B, or a Renmin B based proxy, which for now is a mirage.

The dollars proportion of global Reserves has indeed sunken from 72% in the turn of a century to 59%. Now, as central banks increasingly diversify their investment funds and discard currency, banks, and the renminbi. As mentioned last week, swap lines have been opened by the Chinese central bank, b o c, to support some of the more vulnerable economic players such as a.

But Argentina uses the Remin B to exchange it into the dollar and does service its US dollar denominated credit. So access to Remin B is not about growing a remin. B based reserves, which represent only some 5% of the world’s total, and a third of which are held by Russia, but about capacity to exchange it into other currencies.

And indeed such was the role of the dollar during the heavy decades of the petrol dollar prior to the US fracking Revolut. The Saudis and Remi Radis would accumulate a surplus of US dollar through their sales of crude oil, and every time the oil prize rose, they would sell some of the dollar surplus in exchange for other currencies.

Most notably the Euro. Hence the observed weakening of the US dollar during such episodes and an extended character of those oil price spikes denominated in US dollar. Now, the Saudi government announced that it’ll start invoicing some oil experts to China and re. So the cheerleaders for Sergei Lava’s New World Order are infusing.

But in his landmark visit to Riyad last December, XP suggested that China and the Arab Gulf Nations should use the Shanghai Petroleum and National Gas Exchange as a platform preparing out Remin B settlement of oil and gas trades should but didn’t. But it does help the ever friendly friends. Just did its first liquid natural gas sale in Remin B.

And Brazil has embraced the currency for some of its trade with China, but for those who have been in the market for longer, this isn’t the first time that the petro dollar has been pushed aside, and the greenback hasn’t really suffered from those episodes. Back in 1990s, Kadafi Libya demanded and God Amen.

In European currencies, as did. And ironically, the only new petro currency to emerge recently has been the DIAM of the United Arab Emirates, because if you own it, you can actually spend it on something in sh Abu Dhabi or Dubai. India is using Dham to settle some oil transactions with Russia bypassing your sanctions.

But here’s the trick. For the past 25 years has been packed to the US dollar, which is another way to say that the petrol dollar is there to stay. And despite xi’s of virtues in. Is now to be seen despite the Chinese currency making inroads in global trade. Currently, it only accounts for 2.7% of global market, while the US dollars share is 41%, say about 20 times more.

Still, Chinese Communist Party has spent a year studying Russia’s experience to prepare for worse case scenarios, including setting up a cross border interbank payment system now as C I P S for. Since there are few facts supporting the coming of Remin B dominance, there’s always propaganda and among uninformed public around the world, Beijing has been spreading dollar panic.

There is an expectation that somehow at the Brick Summit, later this year, a new magic currency will be hatched to be used by the members of the block. Giving the blocks dominance by China, you know, 16 trillion G D B economy compared to seven and a half trillion for the other four members of bricks. It is likely that some kind of mode of exchange would be largely based on the Remin B, but as much as Mr.

Putin would love his trade to be invoiced in Remin B or its proxy, new Delhi will never sign up to a system that will submit them to Beijing’s. Tick cut and the Russian Indian trade will continue being invoiced in. Rubs and rues. But despite the fact that the Remin B represents only 5% of reserves in less than 3% of trade invoicing, the concerns of creeping septor fruits should not be dismissed offhand.

And in any case, any idea of containment has to factor in worst case scenarios. In the Reason Paper by Bar Dream, the author of Exorbitant Privilege and several other scholars, we learned that contrary to conventional wisdom, lack of capital, account open. May not fully prevent the Remin B from playing a stronger role as an international and reserve currency.

After all the paper notes, a 200 billion worth of offshore Remin B market has already emerged, and the currency is being used in invoicing and settling China’s foreign trade payments and a global network of clearing and payments. Now, a common response to such observations is the reiny cannot develop as an international reserve currency without full liberalization of China’s capital.

This view is based on the assumption that countries will not hold permanently reserves if they cannot easily purchase and sell them on international markets. It is supported by the history of the rise of the pound sterling, and then the dollar as leading international currencies in the 19th and 20th century, both of which were traded on deep and liquid markets.

The authors argue that internationalization of the m b may unfold in a very different. Historically, currencies first acquired role in trade, invoicing and settlement before also assuming a reserve currency status. The share of REB in total reserves may increase in the future along with invoicing and settlement in the currency.

In the view of the authors, China has established a global network of clearing and payments, such as that is now possible to undertake cross border transactions in rein B in a wide variety of different jurisdictions. One issue I have of this line of argument, The MK is already playing a larger role in reserves than in trade invoicing, which is somewhat surprising, but it also undermines the argument presented by I Icon Green and others.

Besides, as the authors admit, the ability to accumulate Remin B Denominate reserves is not the same as willingness to hold them. For the latter offshore Remin B markets and central bank swap lines are key swap lines. Engender confidence that the REM B can be obtained from the Chinese central bank while the offshore market reassures central Bank reserve managers and other investors that they can convert this remin being to dollars at a stable and predictable rate.

For now, many of these swap lines are among the tools by Chinese policy banks to help the deeply indebted sovereign partners to work around debt payments, as I mentioned. The swap lines may be short term, but they’re rolled over to keep the relationship alive. Even so, they’re not permanent swap lines like those of the US Fed, and they’re used sparingly by the counterparties despite Modelling 550 billion.

Mongolia, Argentina and Cambodia are important users of those swap lines as the percentage of their G D P and as mentioned before, the REM b may in fact be used to exchange it into other currencies, especially if the country has trouble raising funds on the global dollar credit market. But that’s exactly where the geopolitical leverage hits this sore point.

The US Fed known for saving the world’s liquidity problems in times of crisis, as in 2008 and again during the outbreak of the Wuhan virus in 2020, or even to a lesser extent during the height of the bank panic last month. It does not use swap political tool. Contrary to conspiracy theories around the world, the fad is not really a branch of the Balian US government.

So the fact that dollar liquidity is facilitated by the fad and its deals with, say, European Central Bank or Australia, South Korea, Taiwan, the uk, Switzerland, Canada, or Japan means very little politically, not so with Argentina, Pakistan, or even turkeys over reliance on swap plants from. So just to repeat, the US fad is notionally independent and will not just take political guidance from the US government branches, except that the global situation today may call precisely for that.

And secondly, in the emerging markets, everyone in his pet Iana already thinks that America’s nefarious central bank is ruling the world. So it just might for the Remin B to be internationalized China Central Bank, P B O. Must enable foreign countries to sell REB for dollars when they wish. But so far, only 200 billion worth of REBs available in such accounts worldwide.

Or one eighth of the monetary mass issued by the Central bank. Compare it with 14 trillion of US dollars floating globally, which is almost three times as much as the US monetary base. And remember that in order to exchange a pile of Remin B, it is China to have to hold dollar reserves in order for other countries to willingly hold those remin B reserves.

So increased popularity of Remin B does not undermine the US holdings percent. And it is also true that the advent of wholesale bank to bank Central Bank digital currencies could theoretically accelerate diversification by making it easier for non-American central banks to deal directly with each other in their own curr.

But the dollar still dominates the debt markets and the volume of dollar health overseas has actually soared this century. For example, global investors wanted to grab the green bag during this recent crisis that I referred to and the fad just simple launched daily SWAP program with other central banks.

This enhanced use of dollar swap lines does in fact strengthen the Global Dollar system and its powerful network effects. So in the midterm, I’m not losing my sleep over the Remin B looming domin. I stick to the view expressed here earlier that only countries with current account deficit vis-a-vis China have some incentive to accumulate the REM B, but to displace the dollar commodity flows would have to be redden denominated into something else.

And here the problem is that the likes of Saudi Arabia’s, Australia, Russia, or Brazil, all part excellence commodity exporters run a current and account surplus with China and have little use for all that REM B unless like Russia, their objective is to become China’s. Which is something that Moscow’s idea ideologues obsessed by Avica refused to see.

Okay, now the fourth pillar of China’s expansions, and that is technological dominance. A lot has been said about semiconductors and indeed in this space, the US and its allies in particular Taiwan, the Netherlands, Japan, but also Germany and South Korea still have an edge, but a situation is diametrically different.

In the case of new electrification in transportation, storage and power. The western capital markets, and let’s face it, Western governments with few exceptions have failed to incentivize and protect their key sectors. First, solar industry, wind power, permanent magnet manufacturing, and electric vehicles.

The value chains are deeply dependent on mining and then processing over a range of critical materials. And the statistics are now encouraging. In fact, China controls 75% of global lithium refining a similar proportion of cobalt, refining nearly 80% of all battery cell production, 70% of ODE production, 90% of anode production worldwide for batteries, as well as 78% of production, most of which is lithium based.

And over 70% of battery separator production, which is made of poly. The West Response. China’s dominance in electrification technologies has been tortures. The US passed, uh, inflation Reduction Act last August, and the European Union passed, uh, critical Raw Material Act last month. C R M A. The trick lies in the implementation of such moves in the European case.

We do not yet have clear guidelines as we are awaiting a list of, uh, strategic projects observing. As for the US ira, the final form of so-called Section 30 D of the bill was delayed since last December and was to be unveiled recent. This is where this $7,500 credit for each electric vehicle is uh, hidden, and the amount is available only and only if 40% of the value from critical materials has been sourced and or processed, either domestically or by America’s great partners.

So partners with a free trade. This mandated proportion would increase to 80% by 2027. As it’s often the case with ambitious policy projects in this country. Though lobbies hired by car makers have been frantically working towards watering down the local content rules imposed by this bill. They have good reasons to be concerned.

Ford, for example, recently designed a technology tie up to. C a t l company, contemporary Amex technology, Chinese company, and Tesla announced a similar deal only a week later. As a result, Tesla is now so overdependent on Chinese components that its vehicles should all be repainted with. And Ford even teamed up with China’s hu Cobalt from the John Province and Brazilian minor Volla in Indonesia seeking nickel supplies needed to produce 2 million electric vehicles a year.

So, uh, let just, uh, roll back a little bit. Who are the c a T. Contemporary Amex technology, a company based in Ninga in northeast Fuji on the coastline central southern coast, north China. This is today the largest battery maker in the world. It has been long posited by the Chinese government, with domestic manufacturers of electric cars prevented from sourcing Korean or Japanese batteries, and according to estimates by Center for Strategic International Studies.

C s I s Between 2009 and 2017, China’s cumulative state spending on the EV sector totaled 60 billion in subsidies. And then annual, uh, state support even doubled between 2018 and 22 and one to 66 billion. As a result, this company, C A T L controls half of China’s and as much as 40% of global ev.

Completely dominates the supply of inexpensive l fp batteries, which are made of lithium iron and phosphate, whose recyclability is questioned by European regulators. And in recent years, C A T L has also moved upstream to mining, securing mining rights in place like Siwan jk, but also Democratic Republic of Congo, Bolivia, and in fact’s growth in China.

Discount Model three sold in the US and elsewhere. All much to using products from this Ang loving company, c a tl. It’s not clear how Tesla’s plans went down in the White House where Tesla’s management held IRA related discussions two weeks ago. Elon Musk is promptly scheduled to visit China’s new premier lead C this month.

Hopefully no tax credits for these guys, and yet the treasury Department has been trying to find a way to accommodate some of the proposals from car makers. Senate Energy Committee Chair Joe Manchin once Virginia has been scathing in his criticism of car makers foray, accusing them of undermining national security and energy dependence.

Much of the problem relies on effective policy. Chinese companies, which are referred to in the bill as foreign entities of concern are known to avoid US import hurdles by trans shipping products through third countries and scheme known in a number of sectors ranging from seafood to solar panel. Face of between those who stand for national security interest and the US corporates is not the only fault line running through the IRA’s implementation guidelines.

Criticism by labor unions is not specific to those foreign entities of concern that is Chinese entities, but targets any production outside the US that would qualify for the credits. The left wing of the Democratic party poses any new trade deals that would allow producers from Japan or from the EU to benefit from the i n credit.

There is an advocacy group called Securing America’s Future Energy, safe for Short, and they held a conference in Washington last week. The spokesperson was quite critical of China’s large scale mining labor and environmental arbitrage, not only domestically, but also in other countries such as Indonesia, and according to safe end users addiction to low cost components as undermined US national security in a report called a global Race to the.

Safe urges the US to work together with the EU and Japan and agree to exclusively source minerals produced with high standards. So SAFE suggested that, for example, US regulators should undertake visits to sites, mining sites to certify the minerals supplied into products purchased by Americans. This is a system that would copy a similar arrangement in place set up by food safety.

So finally a week before Easter, we received the clarification from the US Treasury Department about the content rules for those federal EV tax credit. Much to Joe Manchin’s displeasure. The clarification excludes China, but highlights the role of suppliers in countries with free trade agreements. And now this term does not refer exclusively to fully fledged FDAs, which include Australia, Canada, Chile, South Korea, and instead includes newly negotiated critical minerals.

Agree. The inclusion of this formulation is a direct result of recent agreements signed between US and Japan, and it’ll also very likely open the IRA benefits to America’s allies in Europe where negotiations have been ongoing since last fall. The US administration’s decision reflects the realization that this Joe mentioned style ultra protectionism would significantly slow down the development of decarbonized value chains in the country.

And at long last, there’s also some action. During her week long tour of Africa, he was Vice President Kamala Harris. Met with Tanzania and President Sam Hasan, who is often credited to reviving the country’s mining industry. Following the further mercurial approach of her predecessor, the White House said that the arrangement for a nickel project struck within the framework of the partnership for global infrastructure and investment.

P G I. Which is a 600 billion package adopted last year by G seven countries in a bit to China’s influence in developing countries. The blueprint involves development of processing facilities in Africa where labor costs are a fraction of China’s, and the Tanzania Mine Agreement follows a memorandum of understanding sign last year by the US with the Democratic Republic of the and with Zambia to help them establish new supply chains for electric vehicle batter.

And support their industrial, environmental, and skill development. And guess what? Strong support for such national security Initiative came in the meantime from an unlikely source in his annual letter to shareholders. JP Morgan’s, c e o Jamie Diamond, explicitly referred to critical minerals saying China using subsidies and it’s economic muscle to dominate batteries.

Rare earths semiconductors, or electric vehicle. Include eventually in peril national security. By disrupting our access to these products and materials, we cannot seed these important resources and capabilities to another country. Jamie Diamond’s comment raises the question that we lose from site when we focus exclusively on semiconductors, and the question is, who is really containing whom here?

The international system set up since 1945 and expanded post 1991, was to help oil, the channels for the good flows of the global economy. In particular, one factor that is capital post 1991 corporate. That is what is good for the corporations, good for the country, undermine some of the tenants of the arrangement.

Governments desisted from trying to reshape the economy, especially after the establishment of WTO and China’s accession to WTO until, of course, tens of billions of government subsidies by Beijing broke all the rules and propelled their otherwise unprofitable companies to rule various sectors of the economy.

Leftist to tell you that, paying attention to this is some kind of yellow peril, my. And indeed we should be careful not to go down that route. I remember back in 1980s the Ludicrous Japan bashing. It was a fantastic experience to put your Sony Walkman into your pocket and hear music on the go. National security implications from this.

But I see them when corporate America from Apple to Blackstone, though not JP Morgan and some European leaders like Emmanuel Macomb sign off on. It will somehow protect their bottom line for just another quarter of earnings, and maybe one more quarter after this until theft. Technology, transfer, dumping and subsidized capacity flooding from China.

Its your business as our steel, aluminum, chemical, pharmaceutical, metal, refining solar industries have been, and our electric vehicles could be anytime soon. So bless Jamie Diamond for raising the specter of us being contained by Beijing’s technological manipul. Those among the Wall Street Commentary who still insists that there is no ideological golf between us and them should do some reading from the great leader himself.

Xi Jinping captured the side guys by channeling his inner, inner and the great Hellman’s term there to struggle XP says, and maintain determination. Seek progress through stability, actively achieve things, unite and dare to. This is a so-called 24 character statement. Why am I even quoting this driver?

Because the country’s foreign policy is, uh, at its core, a reflection of its system and its political culture, America of its soy, its violence, and its eternally unfinished. Democratic experiments tends to make many foreign policy mistakes, however well-intentioned, sometimes, often undermined by poor understanding of the outside world, and thus also casually.

Such is also the keys of other countries whose internal complexities projected outside. Despite all the makeup with all the dimples and warts, France has little to export beyond its self style. Secularism because is inherently incompatible with stupid. It’s either equality or liberty is everyone understands except.

British, on the other hand, invented mercantilism and later economic liberalism and tried to export both in a quick succession that nobody could follow except their trans-Atlantic cousins who simply took over the system and relegated the originators to the position of a sidekick. The Japanese trapped in their insular have endeavored to inject into other nations.

Their unique ability to organize collectives into well-oiled groups dedicated to specific aim. This experiment mostly failed outside Japan because Japan ness remains the most intricate internally complex form of intra social organization. Remember that the term the Japanese term, meaning human is actually composed of two characters, a man and among others to be human.

You are social unit at first, but not all societies are equal in their perfectness of internal organization and Chinese communists. What do they. When I was coming of age on the other side of the iron curtain, I recall how I s shattered each time. The former chairman of the C C P Huang stated on the radio that the World War is inevitable.

Later, he was sidelined by the cunning dia. Their system has remained in place a system based on a lie, and it does not matter if the lie consists of 24 characters. 204, you’re just two characters written with four strokes each. A lie is a lie. No relativism. And so Beijing exports to. Lies not only to us, to the Middle East, Africa or Latin America, tragically for Vladimir Putin, also to Russia, although he does not realize this yet.

In the last two weeks, I went through four pillars of Chinese expansionism that might need to be contained, showing how far we can be from achieving anything in this endeavor. I did not speak about the military aspect here, but referred to diplomacy, the debt. Current account and currency arrangements.

And finally, the strategic use of technological dominance by the Chinese state. Why did I leave out the military aspect? Well, when Greg and I started TER today, some 13 months ago, I was just back from Eastern Europe watching firsthand the spillover from Russia’s invasion. And Greg went there soon after and we discussed how to contribute in a small way to Ukraine’s resilience.

A year later, Russia’s goals seemed to be as wide ranging as they were back in December, 2021 when SI issued an ultimatum trying to push out the western democratic system all the way to the west of the other river, and thus reestablish Russians sphere of influence. Today, Xi Jinping invites to China, the rulers of Germany, Spain, France, and Italy, but not of Ukraine or po.

And this means that he broadly agrees with the Russian demands. A continued, even a frozen conflict in Europe is in Beijing’s interest. And so Macon’s useful idiot comment is extremely damaging for Ukraine and for Taiwan. And if it’s disastrous for Taiwan, is cataclysmic for Japan, the US South Korea, then the rest of us.

So at this time, I thought it was the right moment for me after a long break to return to Taiwan and to. This also means that there will be a gap in our weekly podcast of Tyranny Today. I may post something for our Japanese listeners while I’m there, but for English speakers we’re taking a short break.

Please watch out for an email from Greg as he will elect you. As always, that a new episode is available online. I hope to bring back some fresh observations and I honestly hope that there will not be as grim as the recent article in Foreign Affairs on this particular issue by John Pore and Matt Potting.

For all those who are in the Northern Hemisphere, enjoy the spring with cherry blossoms or even without them.