When did America’s Century of Humiliation begin?

I’ve just returned from a long weekend in Osaka. It used to be the business and political capital of Japan. But the people there have a terribly casual drawling dialect and stand on the wrong side of escalators. So the Emperor moved the centre of Japan to respectable Tokyo 150 years ago. Ironic given Tokyo used to be a swamp.

Apparently the same is true of Sydney and Melbourne. The gold rush initially made Melbourne the commercial centre of Australia. But the Victorians lost their commercial crown around the same time the gold standard was abandoned by Nixon. Then the bankers took over the Australian economy from their base in Sydney. Amazing what fiat money can do for you.

The world is full of such reversals of fortune. The Prussians used to dominate Germany. Now most of the original Prussians find themselves inside Polish borders. A country which is dominating GDP per capita growth stats lately.

This after being ridiculed by the Germans as poor for decades. And the West Germans still pay fiscal transfers to support what’s left of Prussia inside East Germany because it’s an economic basket case.

How confusing change makes the world.

Former German Chancellor Angela Merkel probably knows the Prussian story well because she grew up in East Germany, but got her political backing from the rest of the country. But she didn’t know that China once dominated the globe. Here’s her own account of how she found out:

[China’s President Xi] spoke frequently about the history of humanity over the last two thousand years, and emphasized that in eighteen of those twenty centuries, China had been the economic and cultural center of the world. China had only fallen behind in the early nineteenth century, he told me. When I heard that, I asked my economic and fiscal advisor Lars-Hendrik Roller, to check these statements against the available economic data. He confirmed Xi’s portrayal.

It must’ve been quite a surprise. To someone who knows nothing about history.

I can only imagine how it infuriated the Chinese when she showed her ignorance.

No wonder Merkel hitched German energy and industrial policy to reliable Russian pacifism. It combined an East German’s deluded perception of history with a West German politician’s faith in capitalism.

Trump’s warnings about Russia using its gas-pipelines to wield power over Europe were laughed at by everyone at the UN. The very body that was set up to worry about that sort of thing. No wonder they were caught out by the invasion of Ukraine. It’s not like it happened before, as recently as 2014…

The Japanese must’ve known what was coming better than anyone. Reliance on US oil combined with “geopolitical differences” was what led to Pearl Harbour. I wonder if their delegation to the UN was laughing at Trump’s UN speech or not.

And if you’ve got a problem with what caused those “geopolitical differences,” consider that Japan was only trying to emulate Western empires’ behaviour. The very worst combination of it.

The lack of politician’s historical knowledge explains how governments are currently missing the linchpin of Chinese foreign policy: opium.

Did you know we’re in the Third Opium War?

Merkel didn’t know China dominated the West because Germans like to start their history rather late in the game. My country of birth only became a country in 1871.

China’s lead over the West ended with the “century of humiliation” kicked off by the first opium war in 1839. Back then, the West wanted Chinese silk, tea and porcelain. But the Chinese didn’t want to buy any inferior Western goods. They demanded to be paid in real money – silver.

The Brits came up with a solution to the trade imbalance: get the Chinese addicted to opium from British India. It worked. A little too well.

When the Chinese tried to stop the opium trade because it was destroying their civilisation, the Brits sent in the Royal Navy to keep the ports open. The Chinese discovered why their boats are called “junk”. And Hong Kong became British.

Today, the Chinese are giving the West a taste of their own medicine, literally. Chinese synthetic opiates like fentanyl are tearing civil society apart in the same ways opium did to China 200 years ago. I suspect it’s just as deliberate a policy. Trump does too. He launched his trade war on China with fentanyl smuggling as the excuse.

How the worm turns!

The US is responding in the same ways China did during the first Opium Wars – isolationism and trade restrictions. Perhaps Trump’s trade war tariffs will mark the starting point of America’s Century of Humiliation.

But our political leaders probably don’t even recognise the symbolism or irony of the Third Opium War we’re in.

With leaders like these, who needs enemies?

Perhaps I’m asking a little too much. After all, the EU’s foreign minister doesn’t even know that China and Russia won the Second World War. She was shocked when Russia claimed victory:

Russia was addressing China: “We fought the Second World War, we won the Second World War, we won the Nazis” And I was like, “Okay, that is something new.”

But then you can see, if you know history, then it raises a lot of question marks in your head.

But, you know, I can tell you, nowadays, people don’t really read and remember history that much, which is that, you know, you can see that they buy these narratives.

Just in case a politician is reading this, the Russians and Chinese did indeed win World War II. And they have been celebrating their victory with jointly attended military parades rather regularly since. Just ask former Victorian Premier Dan Andrews about it.

But these days, Russia and China’s former allies have sided with their former enemies. Enemies who are shocked to learn that China and Russia were allies in World War II.

It’s straight out of Nineteen-Eighty-Four!

Speaking of which, the Islamists of Afghanistan are back on our side too. Heck some Western governments are negotiating migration deals with them…

They’re not the only ones back in vogue. In Europe, far right parties now lead polls in all the major economies. The next crop of EU leaders are likely to be chosen by fierce eurosceptics.

Back in Australia, only the politicians were surprised to discover how badly the economy is performing. We’ve experienced the lowest increase in real per capita household disposable income among major English-speaking nations over the past decade.

This after the first two-year per capita economic decline in 40 years. And a GDP per capita decline in eight of the ten full quarters of the Albanese government.

So much for the Lucky Country…

Our record run of uninterrupted growth ended up requiring an absurd amount of immigration to sustain the mirage. Now everyone is upset about that. But nobody is allowed to say so.

The green energy transition is another poignant example of how the world can change. Last year 80% of our global energy came from fossil fuels. In 1990, it was…80%.

Hmmm….

But my point is that radical change really does happen. The only exception is of course when politicians try to make it happen. Then we get stuck in stasis.

But most of the time empires fall, economic fortunes reverse, and shit happens.

What fascinates me is when this is both highly predictable, but also stringently denied. Demographics, for example, are baked into the cake. But you can’t say anything about what that means for the future.

US Vice-president JD Vance is warning that demographic change means the UK could become the first “truly Islamist country that will get a nuclear weapon.” The UK government denied this and then appointed a Muslim Home Secretary.

The flaws of the energy transition were laid bare in great detail long before they began popping up. This was basic physics and maths. How much money did ASX200 companies waste on projects that were never viable? Even today, many governments cling to absurd targets.

Speaking of which, everyone acknowledges the unsustainable extent of our welfare promises. Even politicians are admitting it. But who proposes cuts? Who votes for them?

The dangers of government debt have been proven countless times. But which democracy is able to reverse course without a kick from the IMF or central bank?

The ways in which governments do end up dealing with their impossible debt loads are also predictable, if you know your history. But nobody expected inflation in 2021 to deal with COVID debts.

Indeed, holding a large chunk of government bonds in your portfolio remained the cookie cutter advice as both stocks and bonds crashed together in 2022.

The point of all this is that extraordinary changes have always happened. And will continue to happen. They are predictable because of the ignorance of those making the decisions.

Nobody wants to know what’s going to happen if it doesn’t suit them. You’ve probably tried to warn younger people about the lessons history taught you. What did you get for your trouble? You were probably told, “It’s just history”.

Given the polarisation of political views and growing political violence, it’s become downright dangerous to point out the past or the present. My advice? Let your portfolio do the talking about the future instead. Profit from the change you can see by being aware of history.

You and I both know the world will change radically in coming years. Especially with the clueless in charge. But I’ll bet only one of us has radically changed our portfolio to prepare for this.