S&F Hero: Poland’s Grand Strategy: Response to Pence’s Fourteen Points. Part 1
Warszawa (photo: Piotr Dudek)
The core text “Fourteen Points of Vice-President Pence” was originally published in Polish on the eve of Mike Pence’s visit to Poland in September 2019. This version (the first English translation) contains recommended Polish responses to the implied US perceptions and strategic demands (in italic – below) in this new era of great power competition in Eurasia. Therefore, the following responses may be a harbinger of Poland’s Grand Strategy in this new international environment.
1.The total freedom of navigation in the World Ocean as the maritime highway of strategic flows, commanded by the US Navy, is to be preserved. But subject to the acceptance of American global leadership, which ensured peace, development and economic growth in the world over the last several decades and which has created a global interconnectedness of the world economy. Freedom to use World Ocean routes will also depend on acceptance of institutional governance, rules of the game, and a model of world development accepted by Washington.
A few words of explanation:
– It’s a fact that the United States commands the waves of the World Ocean and from this, there is an implied expectation that the freedom of strategic flows will depend on the acceptance of the current global financial system, where the US dollar remains the currency of exchange (including for the growing system of capital flows in Asia), and the Fed will remain a bank of “last resort” by providing the machinery of the global markets with liquidity, that is, the US dollar, in exchange for maintaining the US control of global capital flows, including control over the huge surpluses and savings being accumulated in rapidly-growing Asia (cut long story short – Asia’s massive savings are a key trophy in the current US-China competition). And being able to cheaply relocate these savings (the fruits of labour of a rapidly-growing Asia), to the American economy, which traditionally has the facility of obtaining cheap capital for its own development. Losing this ability would end the King dollar system and US exorbitant privilege of attracting cheap capital from the world and process it through its economy.
– The status of the world reserve currency depends on:
a) military dominance;
b) technological advantage in military matters and in the domain of the frontier technologies, which open new economic cycles;
c) a sensible legal system, where foreigners and their money are treated in the same way as citizens of the issuing country, thanks to which they are ready to buy bonds of the reserve currency of the world and invest in assets (real estate, factories, infrastructure, raw materials, startups, technologies) located and developed in the issuer’s country;
d) a reliable global financial center, where anyone can sell and buy, borrow or lend to someone by financing transactions (e.g. on raw materials) or investments (e.g. in new technologies), or bonds;
e) maritime controls (currently maritime, maybe at some point land-based in the Eurasian continental landmass) of global communication lines (for the bulk of strategic flows) by the currency issuer, through which physical communication lines make strategic flows. That there will be elementary confidence in the daily stability of global trade and exchange. And that the savers in such shares and bonds associated with the reserve currency have confidence that along those communication lines in the event of any crisis they will be accessed by the allied military, military support, weapons, basic commodities, energy resources or food.
Observation of the recent strange behavior of financial markets (i.e. deviating from the norm of America and its bonds as a safe haven) together with a huge (and growing) US deficit and debt indicates that the outcome of the US-China struggle for global primacy is increasingly uncertain. At the same time, Americans – in order to win, apart from reshuffling the global economy’s supply chain (the famous decoupling), will probably have to cut off China from the dollar in trade in goods, raw materials and investments. That’s what Americans suggest in informal conversations, now. This is also beginning to be wondered about in controlled leaks to the media. It will be a moment of truth for both great powers and the rest of world. And will result in the escalation of competition over Eurasia and over global economic system.
Poland’s interests in this context:
-The current state of affairs was in line with the main interests of Poland. Such a global order would be optimal, it also gave the world and Poland development over the past few decades, gave access to global markets and the opportunity to participate in international ventures. The freedom of strategic flows has enabled the development of our economy, linking it to Western Europe and the Atlantic, and has simply increased the comfort of our individual lives. This world order also supported the US political leverage as the offshore balancer in CEE and the strongest power in our challenging geopolitical location, especially in view of Russia’s returning imperial ambitions, east of Poland.
Wishful thinking and best motivated desires cannot, however, replace the real view and sober understanding of the structural change that is taking place in the world. The problem is that the spectacular rise of China and all of Asia, their weight in the global economy and the global division of tasks and the division of labor as well as the impact on strategic flows structurally undermines the American led liberal world order. As in our lives, structural forces and tensions are stronger than human will, best intentions, and even great leaders.
– People from Asia like to repeat that the situation is returning to normalcy disrupted for 200 years after around 1820, when the West as a result of the industrial revolution achieved global primacy. There is no doubt that the role of the West is relatively weakening, and the Atlantic is giving way to the Pacific as the world’s communication hub for strategic flows and the center of gravity of world economy.
– In 2019, the United States (but not Europe yet despite bold verbal statements from prominent European leaders) is fighting to maintain its leadership role. At the moment we are dealing with a structural war between the US and China over who is going to control strategic flows in the following domains:
a) The trade war since 2018,
b) The technological war (from the beginning of 2019),
c) The war over socio-political narratives (from autumn 2018),
d) The war over the principles (freedom) of exchanging thoughts and people (knowledge, students, scientists, etc. – the first symptoms can be seen)
e) The currency war (it is starting slowly), which can quickly turn into a war for controlling capital, in particular of Asian trading economies (the first symptoms on the horizon).
f) Sometimes it seems that the only thing missing is a hot kinetic war for Western Pacific communication lines that provide all these capital, investment and commodity shifts with a physical path to their implementation like the arteries provide blood to the heart (through the brain’s decisions).
– The structural change in the global order is indeed huge. Even 10 years ago, most of the US trade deficit concerned relations with the allied countries where the US military was stationed, all located in Rimland Eurasia – Saudi Arabia, Japan, Germany and South Korea. Decades of domination by the US as an issuer of the world’s reserve currency have created – it seems – the perfect machine serving the core of the world economy, i.e. the United States of America. American allies have reinvested trading surpluses in US bonds and in US assets, thanks to which America had access to very cheap capital. So, Americans could spend on new technologies and new technology cycles by controlling the global financial and capital system. Most importantly, they could afford powerful and modern armed forces capable to globally project power, ensuring global order that enabled the freedom of strategic flows.
– Currently, China is responsible for a large part of the US deficit, and US troops are not stationed in China. Obviously, Beijing is not dependent on the Americans for security. So, they may one day not want to invest surpluses in bonds or investments in the US. On the other hand, Beijing’s prosperity depends on the availability of geostrategic corridors through which strategic flows feed China’s growing economy. That is why China no longer wants to maintain the world order in which Americans control these key places and can, in the event of further escalation, close it to Chinese strategic flows. This is where the Chinese bastion strategy in the South China Sea and A2AD access systems comes into play (and which will be discussed later).
-The United States has also been pursuing quite offensive if not aggressive policy of using the dollar to implement geopolitical goals for several years. A case study is the 2014 fine on French bank BNP Paribas for a transaction with Sudan carried out in the dollar, where the Americans regarded the fact that transactions had been made using the dollar as justification for their jurisdiction over the transaction!
In doing so, they broke the warning to the dominant naval power from the Crowe Memorandum of the early 20th century, about which we wrote at Strategy&Future in the S&F-Hero text on 5G.
-Thus, they show that they want dominance over global transactions if American national security is threatened – obviously as interpreted by Washington. A similar impression was also made by FATCA case in 2010. The snag is that if someone refused the demand to submit the case to American jurisdiction, then they could be cut off from the SWIFT system, from transactions in dollars and in general from the dollar. Which – as I wrote earlier – is the fluid of the global finance machinery, necessary to buy, for example, the necessary raw materials on global markets.
-For international banks, this would effectively mean the need to close their offices. Because it is the Fed and the American banks that supply various markets with liquidity, i.e. the US dollar, through various mechanisms. For this reason, it is most likely that the Russians have reduced their USD reserves from 60% to 20% since the BNP Paribas case study.
New York (photo: Pixabay)
Dreaming of a different system, independent of the dollar and American policy, many producers of raw materials think like the Russians (although they do not admit it publicly), because they are stuck with a US policy which is increasingly unpredictable making it not only inconvenient, but for some countries an unbearable burden dependency.
Especially so as Americans are becoming more and more independent of hydrocarbons imported from abroad and may therefore be tempted to impose frictions on the strategic flows of energy resources around Eurasia, the more they become independent and insensitive to disruptions of strategic flows to their own economy.
-The period of new administration policy under President Trump changed indeed the presumption of freedom of strategic flows. Restrictions on them have appeared. Freedom and division of labor in the global economy in the global economy have been shaken, and a major rearranging of the global supply chain has begun. Frictions like those destroy agency and deprive self-control of those who import raw materials by paying for them in the dollar.
-China buys raw materials primarily in Africa, the Middle East, Australia and Indonesia, Russia, Central Asia, as well as in the USA. In principle, Beijing has to pay for them in dollars, because that’s the only way to buy raw materials on the global market – to grow and further satisfy the ominous mechanism – Mackinder’s Going Concern – the internal interdependence of the needs of the growing economy and the consumption of over a billion people.
-It seems that by taking up the fight against China for domination with the simultaneous decoupling program of the value chain in a globalised economy and the slogan “America First” Americans will not want to give China liquidity – that is, dollars.
-Beijing can raise dollars:
a) by selling goods and services to the Americans (hence the trade deficit, which Trump wants to reduce hence divorcing the Chinese and US economies),
b) by investing in US bonds, repaid in dollars, but this would strengthen (at least to some extent) a geopolitical rival.
c) by raising dollar investments in Chinese ventures and global capital companies operating on Wall Street and other Western stock exchanges. There are signals of proposals for new regulations in the US, which are supposed to curb this, restricting access to capital for Chinese companies and enterprises.
Thus, leaders in Beijing are in a precarious situation. They have already understood that Americans want to stop China and that Americans will therefore resort to pressure instruments (use leverage) to enforce obedience and Beijing’s acceptance of a set place in the global division of labor, which means getting rid of the ambition to change to a higher place in the value chain and by doing so – giving up the dream of the further rise of China as a great power.
So, Beijing must have a strategy. It cannot be only the “wishful thinking” that this problem will somehow expire by miracle. The key question about the future of Eurasia and its stability is: what kind of strategy is that? We’ll be monitoring this closely at Strategy&Future.
-Perhaps the answer should be sought in the Belt and Road Initiative, bilateral commodity trade agreements in Eurasia and Africa outside the dollar. And in the Chinese ongoing divorce with US banks. That is why China is internationalising the yuan and opening up the bond market. This may explain why China has opened an oil exchange (main world commodity – by far), too.
-Trump’s policy of escalating too quickly leads to the need to internationalise the yuan, even if Beijing and the world are not ready for it. However, it is highly far from certain whether this will succeed. The key issue, especially, will be how the massive Asian capital is going to react.
This is why the fight for the future of Hong Kong is so important. This is a place where capital generated and invested in Asia accumulates. On a different scale, of course, Hong Kong is what the city of Gdańsk used to be for the former Polish-Lithuanian Commonwealth.
At least in the current phase of competition: for the confidence of Asian markets and investments. Hence the ongoing American media coverage of what is happening on the streets of Hong Kong and hence the important perceptive impact of what is happening there on the public opinion of other democratic but globally trading countries, for example Germany, whose governments and business circles could (without these turbulent events and without public reaction) cooperate more fully and eagerly with China, and much more vigorously would invest and trust the new economic system that is gradually emerging in Asia with China’s main role.
-It is not certain whether the Americans will cope successfully with maintaining the current order and restoring the status quo ante. Poland has virtually no significant impact on the final result of the global game with China.
-The Americans must find internal and external strength and must (in many domains) compete for leadership. It will be very difficult. Let me emphasise: the outcome of the competition is uncertain and the future of Eurasia and the global order unknown. Sometimes I have the impression that in Poland leaders have already determined that the Americans have won. This is not the case.
Warsaw (photo: Jacek Bartosiak)
2. Countries that challenge the domination of the United States in the World Ocean, including its littoral waters in Eurasia (China in the western Pacific and the Arctic, Russia in the Baltic, the Black Sea, the Mediterranean and also in the Arctic, Iran in the Strait of Hormuz), i.e. where the most important strategic flows traverse, enabling the functioning of the global economy, thanks to their own anti-access capabilities (A2AD), try to limit others (if necessary, also the US Navy) the possibility of maneuverability on the sea communication lines and the availability of these lines, they become the adversaries of the USA. US allies should choose, who they side with.
-Poland has a much easier situation here than others. Paradoxically, this is due to our own underdevelopment in relation to leading trading countries and leading first tier economies. We are simply not significantly connected with the economic power of China – just like other US allies: Germany, France, Saudi Arabia, Australia, Japan, South Korea and others. In a perfect world Poland could choose what we call at Strategy&Future a “strategic flexibility posture”, but it is not possible anymore. All in all, choosing to stick closely with the US costs us not so much, for the time being – of course. Infrastructure and technology issues related to this decision will be discussed in subsequent parts.
-The level of possible pain concerns the connection with the German economy, which trades with China, and our role in the supply chain of the German economy as a springboard for Polish products into the global market. These sectors of the Polish economy must be vigilant.
-It is comforting in a way and at the same time facilitates our current choice (to side with America) that if the Americans were to lose the competition for Eurasia, Beijing is anyway building a new supercontinent with Mackinder’s communication and economic system of increased connectivity and the new global supply chain with Beijing in its center (as ancient Rome used to be in Europe) and would forgive us the current choice, understanding the reasons. Then it won’t be a problem. There will be other problems. But this one will fall by the wayside.
-At the same time, we have no significant relations with Russia and we do not want anything from Moscow, so we will stand on the side of the US and opt for maintaining the freedom of strategic flows in the marginal seas of the Atlantic including the Baltic and the Black Seas.
This costs us nothing economically, and is actually in line with the perennial grand strategy of Poland, which can be summarised briefly as “maximum containment of Russia”.
It’s just a matter of how to play it and never to take excessive risks. Hence the need for renewed in-depth analysis of our entry into the war in 1939, our attitude towards the Kaliningrad enclave, the NATO Eastern flank, the nuclear deterrence, the presence of the US on the NATO Eastern flank and the credibility of the US power projection and US willingness to deliver on its promise to guarantee the security order in this part of Europe.
This is not in the public debate, we do not realize it (most of us), we are even subconsciously afraid of it or even courting the idea, but Poland has a huge (including military) impact on the situation on NATO’s Eastern flank and – more broadly – on the whole Baltic-Black Sea Intermarium project and on all countries in the east, as well as on Russia. I emphasize that we should not be afraid to pursue our own policy towards Russia, including the policy with a broader maneuver. And this is the place where our strategic focus should be: the Baltic-Black Sea Intermarium and ensuring that the Russians do not benefit from structural tensions and the shift of world order. And they indeed can: make an agreement with Western Europe or the Americans, which is a sought-after option in the Kremlin and sometimes you get the impression that it is in the air. Russia may simply become indispensable for Western powers to cut off strategic flows from China. Note in that respect the recent Macron’s interview for “The Economist”.
Considering Poland’s support for US policy and US political position in Europe and Eurasia, we should expect from the Americans:
a) A clear explanation of why US combat units are not permanently stationed in adequate numbers (for deterrence by punishment, not deterrence by denial) in the Baltic States on the forward defensive positions cutting the Russian approaches to the Baltic capitals. Even small (but not minimal) but combat ready forces would signal a real strategic conventional deterrent, and the Russians would think twice before attacking Americans. Unlike Poles or even Germans or French, who, moreover, may not even fight, because it is not their world order that will fall, but the American one. In Berlin and Paris, it may seem to some that the change in world order is anyway inevitable, which would affect military decisions on the ground. It usually happens this way.
b) A clear presentation to our politicians and military of the credible operational plans to deal with the Kaliningrad Oblast (and anti-access systems in the Oblast). Without these plans, the promises of the Americans to help us and in particular to help the Baltic States are unreliable and US lacks sufficient credibility that is the real currency in the international affairs.
c) Clear communication in an official and important speech, e.g. by President Trump at Piłsudski Square in Warsaw, that US extended nuclear deterrence posture applies also to new members on the NATO Eastern flank. The Americans should moreover present in detail the so-called “escalation ladder” control in the event of a threat of Russia using nuclear weapons for de-escalation purposes. Without it, neither Poland nor the Baltic States are at the same risk as the United States in the event of war, and this will be played upon by the Russians. This in itself is very risky for Poland, as a country may become a main victim of this situation being a center of gravity of the NATO Eastern flank. This is what we call in Warsaw – “the potential decoupling of interests between US and Poland resulting from uneven risk the partners take on” and this needs to be addressed by Washington now – prior to any crisis in the region – in order to preserve strategic stability.
d)Poland needs to finalize with US the Nuclear Sharing issue in NATO. Polish Air Force having access to NATO Nuclear Sharing assets would largely complicate Russians the nuclear de-escalation options by creating strategic ambiguity and massively raising the deterrence threshold.
e) US policy towards Ukraine and Belarus should be coordinated with Warsaw. In particular, the security and investment matters should be consulted. Both those countries are the vital national and security interests for Poland and that expectation should be expressly communicated to Washington in this new era of the competition across Eurasia where all actors including Poland adjust their policies pressured by growing security threats and economic challenges. Poland is a pivot connecting western Europe with both Belarus and Ukraine. If tested, no aid or power projection can reach Belarus or Ukraine without consent from Warsaw.
f) In the event of a conflict with China, the Americans – in decoupling the value chain – should be asked to create business and regulatory conditions so as to transfer part of the value chain to their Eurasian allies such as Poland, so that we do not suffer from turmoil stemming from breaking globalized system apart and so that Poland could take up a higher place in the international division of labor. This was done with splendid effects in the past to Japan, South Korea and West Germany. This way wealthier Poland will also consolidate US political position as our ally in the pivotal place in Europe and Eurasia.
I will continue in Part 2.
Autor
Jacek Bartosiak
CEO and Founder of Strategy&Future, author of bestselling books.
Strategy&Future
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