Mohamed El-Erian's warning informs the show this week. We examine the strengthening dollar with Marcus Ashworth. Tim Culpan discusses the ever-simmering tensions between the U.S. and China over Taiwan. Admiral James Stavridis gives his views on whether Taiwan will be a flashpoint this year. The former Supreme Allied Commander also discusses NATO expansion and introduces us to his new book 'To Risk It All: Nine Conflicts and the Crucible of Decision'.
Welcome to Bloomberg Opinion. I'm Vanny Quinn. This week, the younger forces in Taiwan, the sub forty generation, they are very, very willing to take out bounds. They really want to. They gunn into Tim Culpan on whether Taiwan would be willing and able to defend itself should it be necessary. Later, we'll speak with Admiral James Defrida's former Suprema Line commander of NATO on NATO expansion. First, though, the strengthening dollar raises the specter of what I call little fires everywhere, because if you're in a developing country right now, the last thing you need is disorderly depreciation of your currencs against the dollar at the time when energy prices are higher, food prices are higher, and the global economy slowing down. That's muhammadl Arian on the dangerous ripple effects of a strengthening US dollar. I spoke with Marcus Ashworth. Marcus, we're seeing a little bit of a pause now, but since the start of the year, the broad dollar index has appreciated around seven year over year. We heard the mohammadel Arean bytes. Are we looking at bigger fragilities to come well? It's unusual to see emerging markets joined by a lot of the very large developed markets in all at the same time facing a very unpleasant circumstances with very weak currencies, accelerating the need to have to raise interest rates not only to combat inflation but support their currencies because unfortunately this time around, because it's all important energy inflation, they really don't want to weak currency, even if they're export lead like say Japan or the Union, are this compounds itself or weaker currency. So it's all about the strong dollar because the feathers raising rates so much more aggressively, um and that then there's the added value of that reserve haven currency or the dollar. So all the sort of everything that wants a perfect storm, except perhaps we see the dollar having a bit of a ead at last. Well, where should we look for for agilities, because right now it seems like there is social geopolitical instability in so many places. I'm thinking of places like Sri Lanka, Pakistan, but obviously other places around the world as well, even China thinking w about So yes, there is a lot of other problems around the world, and I certainly think that encourages people to rush into dollars, particularly now they can get to yield as the bond markets have verted clearly with their feet. We have yet to see a food crisis, but it's clearly coming, which will put a lot of pressures, particularly on place like Egypt and North Africa, but it will spill over into a lot of other emerging markets. We're seeing clearly Turkey under pressure again the last few days. They're all bubbling away, and the stresses and strength of the system are xacci betted by the strength of dollar, and buttons are starting to PLoP off the super aggressive bed also with drawing liquidity. And the one thing which has kept the world vibe through the pandemic and gross crisis is equality of super amounts of dollars, right, And how much of the responsibility is on the FED, because obviously it has to look after its own economy, and there's huge inflation relative to what we're used to here in the United States, so the FED has to worry about that. But at the same time, Jenny Yellen used to always talk about feedback loops, so if there are problems in other countries in the world, that's going to eventually feed back to the United States as well. Yeah, it's just going to be a second order effect, or possibly more than that, until the US economy starts to feel weakness because it's exports falling away or there is a complete drop off demand. Only then will we see perhaps be used as a bit of an excuse per Fed. At the moment, that seems to be very little pressure on them internally. To think of the rest of the world, I do think that having Yellen and the Treasury is important. Perhaps you could argue it's too close for comfort since she's just stepped away from the FED, but equally it can be very useful because she knows everyone. They all talked to each other. There's no doubt about it. In the Bank, I think that takes a very careful look at what the said, doesn't likewise your insential bank on the back of Japan. So I'm sure they'll they'll be getting the incoming please stop the hiking rates so quickly. But whether they listen or not, as you quite rightly summarized, I don't think they can't then, yeah, exactly, And then can we count on the rest of the world to progress with things like structural reforms that might actually help their economies. That's gonna be difficult for them too if they can't even service their external debt, right. I think that's which we're thinking on lots of different ways. I mean, yes, someone that will have to not necessarily the time frame they want to do it in, but some of them will absolutely have to do some more aggressive and they already are to be fair, but it's a dilever for everyone to be able to try and keep inflation down and avoid recession. Marcus, you sound a little less worried than somebody like muhammadel Arian. I don't want to over characterize what he's doing, but is he maybe exaggerating a little bit? Yes, I think there's a problem in the world, and I'm not sure they're going to get any any times. Seeing but there are certain things which you know, if you look at the underlying strength of the labor market and economies in Europe, US and the UK in particular, they're pretty strong. China is able to do an awful lot of things which other economies can't presount so much control. You know that the world is going to suffer a correction because it's over stimulated. Left that stimus in too long, and it's got a horrible hangover. Should we call a combinems and logistic situations chuck in a war? But we will get through this, and I do think the dollar strength is overdone and it will probably carry on a bit longer. But you know, the point is there for a reason, and until the world gets a better place, that is going to stay in the place. Today, the Treasury is now talking a lot about friends shorings or confining global supply chains to friendly networks. Don't quite know who these friends are yet, but it must be pretty difficult for partners or people who thought they were partners to hear this. Many of them are not democracies. Are we headed towards a system where many other countries are locked out of the US and dollar system and don't have enough reserves to pay for what they need to import. Well, we know whose friends are because they're the ones who've got currency swaps through the pandemic and before that, the global financial crisis. Yes, it is a weapon. Do they use it cleverly? Absolutely? Do I applaud what they're doing, Yes? I do. Actually, I think this is the leverage they have, and if you're without the dollar system, then that's a conscious decision, And as far as I can say that, the Treasury and the particularly oh fact of handling things in a very smart way, and they are understanding what they're doing with Russia. They're not being completely blanketly banning everything. They've done it in a very superstated and clever way. I think it's so wonderful forul Marcus Ashworth. Are you willing to get involved militarily to defend Taiwan if it comes to that, you are? That's the commendment we made President Biden this week. Well, gaff or no gaff. Taiwan's democracy is facing a hostile chai now and a policy of strategic ambiguity on whether US forces would defend Taiwan against China in the event of an invasion. Tim Coultan lives in Taipei. I asked him how Russia's invasion of Ukraine and the subsequent global response might have changed China's calculus on Taiwan, if at all. Yeah, this saber rattling has been going on for twenty years. I've lived in Taiwan half my life. It's something that's always been persistent. It's had peaks and troughs. Back in the early two thousands, when a more pro Taiwan independence president came in, and he was in eight years, there's definitely a lot more of it. Then we had a president for eight years who was a bit more sympathetic to Beijing, and so things died down. Now we have a president again who's much more kind of democratically focused, leans towards the taiwan centric view of Taiwan. So again it raises again. But we also have a much more confident China, especially under Shi Jimping, who's really pushing the genera a lot more. So we now see this push towards basically making the world understand Beijing's view of Taiwan and the China Taiwan relationship. And I think the thing that I believe a lot of people might be mistaking is that there is heightened tension versus a higher cadence of statements from Beijing. So Beijing will take pretty much any opportunity to press its point on Taiwan, that being that Taiwan is an inalienable part of China. Um you know, factually speaking, whether or not you believe that you know, the PRC under the c SP has never actually ruled Taiwan and the r o C, which was kind of defeated and kicked out of mainland China now sits in Taiwan. But there's definitely that viewpoint from Beijing that Taiwan should be part of the PRC, and of course in Taiwan the view is very much the opposite. But what we're really seeing in the last few years is weekly press conferences from the Foreign Ministry, and China also has a Taiwan Affairs Office which deals specifically with Taiwan issues. They will always keep pressing the point, and then of course whenever US officials talked to Chinese officials, they'll keep reminding them, hey, you know, don't make the mistake of supporting Taiwan independence. You know, you need to be reminded that Taiwan is ours. You'd be making a grave mistake helping Taiwan independence forces. So there's definitely an increase intention, But I think the thing that we're seeing a lot is also just an increase in the cadence at which Beijing will remind the world of its world view and its view on Taiwan. And it's important not to conflate the two, although both definitely exist. Will China actually do anything concrete about making what it perceives as its ownership of Taiwan anymore practical. Will the taiwan his army have to defend Taiwan's democracy? That is such a difficult question. You've got the CIA trying to work that at. You've got US, uh UK, Australian, Japanese intelligence agencies and defense horses trying to work that out. I don't think so. Um, you know, I might be wrong. I hope, I hope I'm not wrong. I don't think that we will see China try to invade Taiwan. I think the most likely scenario might be maybe more akin to what Russia did with parts of Ukraine, such as Crimera or even Dombus regions. They might try to take an outlying island. Taiwan is not just one island. There's multiple islands. There's the main island of Taiwan, but there's some outlying islands Pungu, which is kind of close to Taiwan. There's another island of Ginman, which is very very close to China's like one mile off the coast of China. There's a couple of smaller islands. There's also some basically deserted islands which a couple of countries are claimed Japan and Taiwan and China and a few others claim a set of islands kind of in the South China Sea. It wouldn't be surprising if China tries to take one of those islands just to kind of show that they can, and that might be an to kind of rattle the cage of the Americans and the Japanese and other allies and like minded nations of Taiwan. But a full on invasion of Taiwan, I think is unlikely. But we shouldn't necessarily think of Beijing's leadership is acting rationally anymore than we think of Vladimir Putin as acting rationally in trying to take Ukraine. Rationalism doesn't play into it. It's more nationalism. And there's the question of capabilities as well. I mean, it would have to be a sea war. Taiwan has an army, but how prepared is it. What kind of tactics have they been learning? Is there the willingness in Taiwan among the electorate to have Taiwan go to war with China if it came to that. Yeah, So I think one of the most important things that I think the world needs to understand is Taiwan doesn't want a war. Taiwan has not been bracing for war or preparing for war. It is the case that China has over a thousand missiles pointed at Taiwan. Taiwan does not have the reverse, So it would be Taiwan is the fender as Ukraine is the defender against Russia. There is a lot of debate, both within Taiwan and globally about whether or not Taiwan is doing enough, whether or not they take it seriously enough. I think Ukraine definitely solidifies in Taiwanese people's minds that it is a real possibility. There is much stronger moves towards civil defense now. Washington, including Pentagon, State and White House have criticized Taiwan for not taking it seriously enough, for not spending enough money, for not spending the right kind of money, and that is a valid criticism. I think it could definitely be said that Taiwan has probably not been doing enough. But there is a problem within Taiwan. It's a domestic political problem, and that is that the older generations in Taiwan, who think of themselves as more Chinese are really not as keen to defend a independent Taiwan as they might be seen as defending the Republic of China, which you know, technically is the name of Taiwan. The younger forces in Taiwan, the younger electorate at the sub forty generation, and even the sub thirty generation, including a group of people like call the Sunflower generation because they helped defend Taiwan's democracy by storming the legislature many years ago. They are very very willing to take up arms. They they really want to. They're gunning too. I have people come to me constantly messaging me and talking and saying, hey, we want to learn how to use weapons. We want to go into the jungle and learn how to fire rifles and learn combat training and stuff like that. They're really really looking at Ukraine and going we want to be like that. We really respect what Ukraine is doing and we want to learn that. But that is the under forty generation. The over forty generation is probably less keen to take up arms, and so Taiwan, I think, is a little bit of a divided country in that respect. And I think what we'll see going forward is that time is not on Beijing side in terms of the Taiwanese people seeing their self identity and willing to learn civil defense and taking up their own arms and defending a against any possible invasion. Tim Coulpan, There, don't forget to get in touch. All thoughts and opinions very welcome. I'm at Vanney Quinn on Twitter or email v Quinn at Bloomberg dot net and Bloomberg Opinion is also available as a podcast on Apple, Spotify and wherever you get your podcasts. Admiral James de Vitas is a former Supreme Ally Commander of NATO's Ally Command operations. His new book has just hit bookstores. It's called To Risk at All, Nine Conflicts and the Crucible of Decision. In it, he analyzes how to make good decisions in moments of intense crisis. Admiral Stavidas, I want to talk about NATO expansion and the war in Ukraine, obviously, but first the book I have to ask why nine Decisions? Is it a reference to Dante and his nine Circles of hell Um? You know that was very much in my mind and the idea that we have found ourselves, I think in this kind of dark forest as Dante did before he was escorted, if you will, into the inferno. But we have to remember the optivism of of Ganti's uh divine comedy, which is that eventually we escaped the inferno, we get to purgatory, and we get to Paradis. It's an extra ordinarily optimistic framework for somebody who's been through so much. Explained to us how you picked these nine particular bottle decisions. Well, first and foremost, of course, I'm a sailor, I'm a naval officer, and so you know right about what you actually know about. So I picked nine different sailors from history, and Bonnie, you'll know also that another subtle reference here is the Cato nine Gales, which is applied to sailors when they have misbehaved. And so um in the course of these nine decisions, to see some that come out very well and some that come out very badly. M it would have been easy to pick, you know, nine spectacular decisions. I think more realistically, you want a book that helps a reader understand what are the tools that you're she needs to make decisions under extreme pressure using the examples in the book. One of the conclusions that's applicable to everyday civilian life, and in fact is probably the conclusion. It's the only thing that matters is to slow time down when you're in a moment like that. How do you get to that spot where you can do that? You first and foremost, you you study others, You look at history, You try and understand how people can make those decisions. Number Two, you practice, and what I mean by that is deliberately place yourself mentally in a situation of extreme crisis and walk your way through it. And that is the kind of training that Navy seals do all the time before they go off. And the more you practice, the more you consciously think about what it would be like to be in that moment of crisis, the more prepared you'll be when that when that moment does come. Admiral watching Russia's war in Ukraine over the last three months now, and you know it's obviously going to go on for longer. What are the decisions that you have noticed that possibly the rest of us haven't seen. The small decisions, the medium decisions, the large decisions that have been made by everyday soldiers on the battlefield that you think are extraordinary. I'm going to start on the Russian side of the coin Banni and say that here we've seen terrible decisions, decisions that have led to war crimes. And I think that's really what's most striking to me is how the Russian mid grade officers, their generals all the way up to Vladimir Prutin, have allowed their troops to simply indiscriminately attack civilians, to break to loot. Um. These are armies you would expect, behaviors you would expect from an army in the ninth century. Um. This is a series of terrible decisions and there is no excuse for it. On the other hand, on the Ukrainian side, you see soldiers every game making very brave decisions in moments when they, as the title of the book is, to risk it all, when they are forced to risk it all, they're making the right decisions. Look at those Ukrainian marines who held out in the city of Marioko for months. Um, in their bravery, their courage, Um, you see a mirror image, one mirror dark and the other full of light. Admiral, what does it mean for someone like you who has been through so much training and so much effort, so much practice, so much studying of past battles and past wars. To see ports in Ukraine and even on the Russian side being completely blockaded and essentially becoming useless to the world, I mean that must be that must provoke a very emotional reaction, even in somebody as trained as you. It does indeed, and Um, you know we've faced this in history before. You may recall um in the nineteen eighties, Um, both the Iranians and at one point the Iraqis, particularly the Iranians, tried to close off the Straight of Hormuz from the shipment of oil tankers. And what did the West do? We started escorting those tankers in and out of the Arabian Gulf. I did that as a young officer on board a cruiser USS Valley Forge. And so I think it's time that the West looks at this again. This is war criminal behavior that you can't simply blockade ports. This is not appropriate under international law, and it's cutting off desperately needed grain supplies that's going to lead to further instability. I think it's time to consider humanitarian escorts in and out to keep the Ukrainian economy functioning. It Yet, he creates grain to the world's market. We're with Admiral and James Stavrida's former Supreme Allied Commander of NATO's Allied Command Operations. His new book has literally just hit the shelves. It's called to Risk at All Nine Conflicts and the Crucible of Decision. He analyzes what goes into making great decisions and maybe not so good decisions in moments of intense crisis. Want to turn our attention now to NATO and the question of expansion, Admiral, there is broad and bipartisans support in the US for Finland and Sweden joining NATO. Turkey obviously blocking it. Does Turkey have good arguments to make? No, they don't. And let's start with the qualities of these two nations as suite that Finland had commanded their troops in combat uh They they deployed alongside NATO troops in Afghanistan, They operated in the war over Libya. They were part of our efforts, NATO efforts to the Balkans. I know the quality of these troops very very well. Um there a professional, highly trained and technologically advanced. The Swedish Grippin Fighter, for example, is among the very best in the world. I guess if you can build a good Valvo sports car, you can build a fighter pilot plane as well. So um, they bring real military quality. Second, they have a history of fierce independence. The Fins of course bought the Soviets to a standstill and the Winter War um and then that that ethos I think will be a benefit to NATO. And third fire Glint Bonnie. Geographically, this gives us a northern flank in the Alliance and and more um more landscape if you will, in the high north in the Arctic. Both Sweden and Finland are Arctic nations, so um there are there is every reason to bring them into the Alliance. Turkey, on the other hand, has a series of bilateral annoyances I would category as the man is between they feel themselves in those two nations. It's not appropriate to hold up the these applications. I don't think Turkey will continue to do so well. It's a pretty bold step on the part of both Finland and Sweden to want to join NATO in the first place, But it does seem like a pretty broad accusation to suggest that those countries are places where quote representatives of terrorist organizations are concentrated. How strong of an argument at all is this on the part of Turkey. I don't see it as a strong argument in the least, And and Turkey has deployed that argument towards other NATO countries. The Turks off and say that one of the leaders of the google and movement, he happens to live in Pennsylvania in the United States, and they want him extraditeed. But they have not given us any reason to extradite him, and neither have given the Swede to defend the appropriate documentation that that would lead to an extradition. Um, it's more a new ant spend anything else. And I think Turkey is is in the wrong place on this one. You know, Turkey Admiral has suggested that it might consider leaving the Alliance if it's forced to accept Sweden and Finland. Would it follow through? I highly doubt it. Um. I have spent a lot of time in Turkey. My grandparents, by the way, we're born in Turkey in uh what is today is Mayor. They were born in the city of Smyrna in his Greeks. They were invited to leave, shall we say, in the nineteen twenties Um, so I know Turkey quite well, UM, and I will very quickly say Turkey has been a very positive force in the Alliance. They've deployed on every mission we've asked them to come on, and they've done extremely well militarily. I think they take pride day the Turkish nation take pride being part of NATO, and I don't think they will simply walk away from the alliance. What would NATO b if Turkey one of the founding members we should say left, Um. Actually Turkey and Greece came in in the first contra traditional members, so they're not true founding members. But your points extremely well taken. Um. I think the NATO Alliance would continue on and would continue to be very strong, but of course it would be diminished by the departure of any of the nations. Today we'd have thirty nations in NATO, many have joined and none have left. Let's hope Turkey does not begin that pattern. I think it would be bad for Turkey and bad for the alliance. I mean, it's a real matrix of relationships. As you said on Turkey's party, it does have to navigate some kind of relationship with Russia. Still presumably could it safely leave Vladimir Putin's orbits, even though Russia is a trading partner in ally and it needs Russia for food and energy imports in particular. I think they can, and I think they should, and um the rest of the Alliance would be very happy to be helpful to Turkey in at nexus of relationships. And let's say that many nations are going to have to make some tough decisions in the days ahead about their relationship with Labra Putent's Russia, and I say that specifically Vladimir Putin's Russia. The wheel of time will turn, and at some point in the future Russia may well be welcome back. But for the moment um, we all need to adjust our relationships. All close with this. People talk these days a lot about the great resignation or the next great procession. I think what we're going to see Vanni is a great rewiring. You're going to see energy, fuel, food, aquarian products. These are going to be rewired away from Russia in a way that will diminish them. Ultimately. We're getting insighted into details here, but there is a question of an arms deal and a refund that Turkey is looking for at one point four billion dollars. It was a deposit for an F thirty five order. What happens that is it fair for the US to hold onto that? Does Turkey have a point? I think on that one Turkey very much as a point. And again all of this fell out of the Turkish decision to purchase the S four hundred weapons system, since you said you wanted to go into detail a very high end air defense system, and that is what led to their expulsion. Not too strong a word from the Joint Strike Fighter program um, but we need to even as we follow all of those political paths, we need to be fair to a NATO partner and ally, and I think this is one where we can negotiate satisfactorily with Turkey, and I suspect the US and Turkey will do so. Real a quick word, if I may. On Taiwan, we obviously had the President answering a question about defending Taiwan this week that wasn't received well in Beijing. With our experience now regarding Ukraine, has the tactical thinking on Taiwan changed at all? Is offense something that could be done by proxy or its sanctions as it has been for the most part with Ukraine. I think that that is precisely what the administration is doing, and um I don't think it's a gap or a coincidence or miss speaking on the part of the President. I think that he is signaling that this administration is going to lean further forward. That means weapons systems that won't be more useful in defense of the island of Taiwan. It means more engagement diplomatically with the island of Taiwan. It enhancing economic relationships and doing so in a timely manner before we land in crisis. So it's not an all out, Hey, we're going to defend him as we wud a NATO. Ally, that's not what the President is trying to signal, But I believe he's signaling a forward leaning posture that would prepare and help the taiwan needs so that they can, like Ukrainians, be in a position to make the decision about their own future. If China were to do something soon. One of the possibilities that one of our other columnists, Tim Coulplan, has suggested is that it could take an outlying island. It could take one of the islands, just a mile or two off the China coast as a non civilian, what would your prognostication be. I think it's unlikely that President She would even take let's say King Boy or Matsu one of these islands that are very close to the Chinese coast. They don't really gain much by doing that, and they create a lot of instability, a lot of discussion. I think Presidents She would rather not have. As he heads into the the big Party Congress this fall, where he hopes to be and probably will be elected for a third five year term as a leader of China, I think we're in for a year of living quietly with China as this year unfold. Admiral James sta read us and once again the Admiral's book To Risk at All Nine Conflicts and The Clusible of Decision is just out in bookstores and online. We are now choosing to end all conversations not with you, though, please do get in touch. I'm at Vonnie Quinn on Twitter or email v Quinn at Bloomberg dot net. Bloomberg Opinion is also available as a podcast on Apple, Spotify and wherever you get your Podcasts were produced by Eric mollow Until Next Time on Bloomberg Opinion