Cornerman Haymaker

In The Ring - September 9th, 2022

Sep 09, 2022

Today’s Haymaker is once again a change of pace written by the Haymaker’s creative colleague and student of history par excellence, Mark Joseph Mongilutz. Because of its retrospectives on past military conflicts, particularly of a seaborne nature, it has great relevance to what is arguably the greatest risk facing global investors: China’s potential invasion of Taiwan. In fact, the only greater risk I can think of is all-out nuclear war. Of course, a Chinese invasion could, in fact, precipitate that ultimate nightmare scenario.

In our August 29th Making Hay Monday, I went so far as to recommend Taiwan Semiconductor (TSM) on the basis that an attack by the Mainland on the island once known as Formosa was unlikely. Obviously, if I’m wrong about that, TSM’s stock price will be obliterated. However, that same fate would await almost every risk asset (like stocks) on the Planet Earth, admittedly to a lesser degree in most cases. My point is that should China decide to take an even greater risk than Putin did by foolishly invading Ukraine, a small position in TSM will be the least of your worries.

In his article, Mark makes a persuasive case for why China might defer any overt military aggression. Considering how downbeat geopolitical and economic conditions are around the world right now, it’s nice to have an upbeat opinion to ponder for a change.

Take it away, Mark…

To learn more about Evergreen Gavekal, where the Haymaker himself serves as Co-CIO, click below.

Private Wealth Management

Censuses, Strategies & Seafaring Catastrophes - Mark Joseph Mongilutz

Image: BritishBattles.com (Painting of the Spanish Armada)

Drones, Again

Much of the developed world seems a little on edge these days, and tensions heating up in the Taiwan Strait aren’t helping matters. Something about Putin’s actions last winter have even gentle first-world intellectuals (and their pseudointellectual cohorts) speaking in weirdly trigger-happy tones.

You might recall our drone piece of a few months past. In it, Dave, Louis Gave, and I examined drone warfare in the context of Russia’s invasion of Ukraine. I am touching on the topic here because, odd though it may seem, the Taiwanese military recently shot down a (civilian?) Chinese drone. Why? It was apparently a warning, or a message… or message that China should consider itself warned.

So, what role will drones play in the possible-but-not-certain Chinese invasion (or attempted invasion; see below) of Taiwan? If I’m right, not as much of one as the Ukraine situation might suggest. They will certainly play a role, but in the grand scheme, China’s military triangulations and Taiwan’s survival instincts may well see the two sides thinking and acting in ways more brutal and existential than current drone technology can satisfy. Again, I can offer you only speculation on that topic, one of several I will cover.

“... on their stomachs.”

Fifteen years ago, an episode of The Daily Show w/ Jon Stewart aired in which, on the topic of Chinese ascendance, Stewart asked his guest Rob Gifford, “When they become our overlords… will they be benevolent?” - He went on to mention Taiwan’s ostensible apprehension at the idea of Chinese military ambitions, which is relevant to this piece, but more relevant is what I took to be Stewart’s logic: China is big and populous, which means they pose not just a regional military threat, but one of inevitable global conquest.

It’s a common conception of world affairs: population = might. They win who have more weapon-wielding soldiers and weapon-making workers.

What a great, great many disregard is that weapon-wielding soldiers need also to be fed – not to mention trained, sheltered, paid, and treated to morale-boosting pageantry from time to time. Consider the famous complaint/observation by Napoleon that “Armies march on their stomachs.” For every Marlborough, Caesar, Hannibal, Cromwell, and Patton, there are mostly unremembered logisticians ensuring the battles those geniuses sought to wage could be waged with at least partially nourished warriors possessing adequate strength to march for days, carry a shield, swing a sword, or raise a rifle.

Within that framework, we will look at present-day China more closely. But let’s first segue to late-16th century Europe, where a world power, after over 50 years of naval dominance, would meet its match. Not on the vast expanse of an endless ocean, but in the confines of a narrow channel.

Sixteenth-Century Spain - A Nautical Megapower

If Spain started the 16th century hungry, it saw that hunger morph into gluttony over the ensuing years, eventually succumbing to a sense of invincibility. Spain would ultimately end the century in decent-but-diminished shape - wounded and a bit more measured than she had been. Perhaps once again a bit hungry, at least more so than she needed to be.

From the moment of Cortes’ conquest of the Aztecs in 1521, the 16th century was to be Spain’s. The gamble (see below) its recently combined royal houses had made in funding the cartographic exploration mission by Christopher Columbus some 30 years prior, in 1492, had inadvertently rendered the Atlantic Ocean a Spanish highway. This maritime monopoly made the New World Spain’s ATM and rendered that Iberian kingdom the envy of Western Europe.

Had Jon Stewart been hosting Tis’ A Showe of One’s Dailies in 1587 England, he might have concluded that an existential conflict with Spain a year later was unwinnable. After all, placing aside their navy, Spain was, with a population of well over 8 million to England’s ~2.5, more populous. Case closed, right? They had more people in their land, why bother with the war at all? Not to mention, Spain belonged to the larger (if looser) Catholic network of Papally endorsed kingdoms. England, courtesy of the divorce-inclined Henry VIII some decades earlier, did not.

But in 1588, when King Philip II decided a re-Catholicizing of the heretical England could wait no more, his so-called Spanish Armada, though seemingly irresistible as a maritime force, would fare rather poorly. What prevailed were smaller ships built by a less wealthy kingdom, which stood largely (though not entirely) alone in the face of Papal disapproval. English ingenuity, a daring-but-achievable strategy, and a few fireships (kind of a cheap shot, in fact) saw the beauty of the Armada’s crescent-shaped formation shatter into tactical incoherence.

In fact, the fireships, which were initially more effective against the Armada than English cannon, might present us with a feasible model for a way drones could be used in modern warfare. Particularly, as a casualty-free method of disrupting large-scale movements of men and materiel. Again, it’s in the cheap-shot category of warfare, but will the Taiwanese care? Will anyone? Maybe the Chinese.*

*Remember – if the underdog has this technology, so does the big dog. And on the canine analogies, sometimes it is the size of the fight in the dog - other times it’s how many fireships (read: drones) that dog can deploy in order to screw up the crescent shape formation of an enemy fleet.

Long-range fire, a storm, and inadequate provisions within the Armada (the Spanish surely thought they’d be breakfasting in England) did the rest. The Armada failed. Spain, despite its larger population, failed. Numbers were not enough. They were not a deciding factor. They weren’t really a factor at all. It turns out, battles still need to be won. If a census were enough to determine a war’s outcome before ever it was fought, the Union could have spared itself a lot of trouble during the first two years of the American Civil War, a war in which population did factor heavily, but could have been far less a factor had the North’s generals pursued wiser strategic goals from early on.

(Note: Humanity being what it is, the English elected to launch a revenge armada of their own the following year, 1589, in hopes of punishing the Spanish. It also failed, perhaps because armadas are overrated. True in 1589, possibly true in 2022 – China might bear that in mind.)

Did Spain Recover?

She recovered, yes, but her geopolitical career, once effectively uncontested, was now sharing the stage with a more agile, inventive, and motivated competitor. Yes, they were less populous, but the difference had to do with how well they deployed what they could. The English would go on to become “Mistress of the Seas”, while Spain… is nice to visit in the spring, I’d imagine.

Much is made of the significance of the Battle of Trafalgar (1805), as England’s victory over France and (yes) Spain was instrumental to the ultimate defeat of Napoleon some 200+ years after the Spanish Armada was routed, but had things gone differently in 1588… who’s to say? There would doubtless have been a good deal of homegrown resistance on part of many Englishmen who would have no interest in living under the reign of a hostile King Philip. But would English settlers have safely made their way to North America (New England) some 30 years later? And if not, for whom would present-day Patriots fans root for? The New Castile Conquistadors? (Apparently there was a San Diego ABA team known as the Conquistadors in the 1970s).

A Chinese Armada?

So what of it? Can China threaten any major Western power with a modern-day Armada the way Spain threatened England over 400 years past? I mean, they have a lot of people. That translates into military strength, bar none, right?

As it happens, no. Not always. At some point, huge numbers of citizens become a liability. They are not all exportable as soldiers. From a sheer expense standpoint, they are not all trainable. And materially, they are not all equippable. Given a miserable set of governing and political values, they might all be expendable, but expendability does not necessarily amount to good soldiering (regardless of what Stallone would have you believe).

But what of its ships? They have those, right? Can they be formed into a crescent shape?

China’s navy is sizable but, as Peter Zeihan likes to remind, that navy does not possess great range. Most of its warships are limited to operating within hundreds of miles of the mainland, which could be bad news for Taiwan, but means coastal Californians can rest easy. Because the other fallacy in equating numerous heads with strong militaries is that transporting those heads (and their greedy stomachs) anywhere is energy-intensive, which is to say costly. Keeping them where they’re deployed can be sustained for a time, but homesickness and deployment fatigue are universal** phenomena in the world of military operations. And getting them back is (incredibly) exactly as costly as getting them there.

**Perhaps not homesickness in the case of North Korea.

Were things radically different, and the United States shared a landbridge with mainland China, we would need to evaluate the situation more cautiously, but even then, warfare is pricey and the stomachs don’t go away in that scenario. Russia’s invasion of Ukraine does enjoy a key advantage over China’s potential invasion of Taiwan in this respect, as they can simply walk across the border without noticing so much as a minor climate difference, but the war’s expense has nevertheless been considerable. But yes, strolling across a shared border is far simpler than staging a nautical invasion. Bonaparte*** couldn’t achieve it in the early 19th century, Philip II couldn’t achieve it in the late 16th.

***Land-based conflicts have their complications, with uncooperative terrain and hostile climates being chief among them. Napoleon marched his troops to a massive defeat on Russian soil in 1812. It was a cost he could little afford, and one for which he would continue paying until mortality relieved him of his debts.

Gambles

In warfare, it’s often a dice roll. Even the surest of things can prove uncertain with a single unfavorable, unexpected, or uncanny development. Sometimes you’re the U.S. taking out Iraq’s conventional forces in 1990-1; sometimes you’re the Romans at Cannae (that one hurt); sometimes you’re an armada, the naval symbol of a martially capable and prosperous kingdom, until you find yourself shattered against English courage, luck and, yes, fireships.

Some knowledgeable souls with whom I’ve spoken see the odds in China’s favor if they go after Taiwan. And I can see why. But remember, it’s not 1.2 billion against 24 million; it’s whatever military power China can afford to sustainably field, feed, equip and re-equip against a homecourt advantage. Even poorly funded insurgencies can make an occupation difficult; imagine one with First-World backing. Taiwan could be an Iraq ‘91 or it could be a Thermopylae 480 BC, the place and date where and on which the Persian Empire’s numerical might was, at least temporarily, made moot against a small band of ravine-flanked Spartans and many of their Greek allies.

But that’s Taiwan.

I know of few who like China’s odds outside its immediate theater. Even a proximate enemy as populationally small as Australia (about the same as Taiwan, at 25 million) could give the Chinese a good fight at sea, and that’s not counting the unquestioned support they would receive from worldwide allies. The English might even scrounge up a fleet to help out…

China does not have 1.2 billion warriors; they have 1.2 billion stomachs.

Hypotheticals

Look into any major military upset or blunder and you will find that historians of both the academic and armchair variety have “What if’d?” it 400 ways from Wednesday. The Persians at Guagamela, the British at Yorktown, the Confederacy at Gettysburg, and, yes, the Spanish in the English Channel. Reverse the outcomes on some of those and our present-day world looks quite different.

We just can’t say what Taiwan will do in the face of Chinese incursion. What we can say is that if it were just a numbers game, the conversation would never have manifested in the first place. Taiwan would have surrendered once the census was complete.

The Chinese are good students of history - perhaps Xi doesn’t want to become a second coming of King Philip II, or Xerxes for that matter. Maybe from the mainland, on particularly bad days, Taiwan does look a little like a Thermopylae. Maybe the idea of an insurgency, especially a Western-backed insurgency, is unappealing to a nation saddled with various domestic crises, even one so populous. After all, the army you can nominally field is not always one and the same with the army you can ultimately send into battle, across a strait or otherwise.

That’ll do for this one. Visit us Monday where Dave will have another round of market/economic analyses, stock picks, and probably a quote or two from fellow thinkers every bit as informed as he is.

-MJM

Publication Note: I drafted an early version of this piece several weeks ago and would learn of Queen Elizabeth II’s passing while finalizing the material. It should be acknowledged that the courage displayed by England’s first Queen Elizabeth as the Armada came within sight of her kingdom was comparable to the unmatchable character and dignity its second Queen Elizabeth embodied throughout the extraordinary duration of her long reign.