Charles W. King

Increasing attention is being paid to how the People’s Republic of China is seeking to influence foreign governments. An Australian MP, Sam Dastyari, recently resigned due to a number of pro-China statements he had made and his relationship with a Chinese businessman. The presence of Chinese money in the war chests of American political candidates has been contentious since the 1990s. China also exerts increasing influence in Western academia, through both funding and public criticism. The National Endowment for Democracy has termed this influence ‘Sharp Power’. Distinct from the attractive nature of soft power and the military power projection of hard power, sharp power is described as manipulation and pressure in the public and political spheres.

While exercising sharp power is new for the People’s Republic of China and the Chinese Communist Party, the United States and others have been the target of sharp power before. Sharp power itself is not a new idea, it was a staple of the great power politics that existed throughout the nineteenth century, and was an important tool during the Cold War. One of the hallmarks of Chinese sharp power in recent years has been its ability to influence the academic discussion surrounding china. The Chinese government is funding Confucius Institutes all over the western world to teach the mandarin, and increasingly as budgets are getting tighter academic institutions are letting them set their own curriculum and programs. The spontaneous stick to the Confucius Institutes’ intentional carrot is the intense public criticism academics face for slights (real or perceived) against the “feelings of the Chinese people” for things like using maps that do not reflect the Chinese position. Influencing academic discourse is a classic method for government influence of a population. Frequently it involves censorship as governments attempt to manipulate their own population; but as international travel became easier—particularly in Europe—it became an important part of great power competition. While the Soviet K.G.B. was probably most proud of the high level agents it was able to insert into British political institutions, it cannot have been dissatisfied with influence the Marxist method of historical analysis continues to have in British academia.

The fear of losing funding is also a large proportion of Chinese sharp power. In the past three decades China has begun to spend huge sums of money not only on Western consumer goods, but on investments abroad. Xi Jinping’s Belt and Road infrastructure investments are just a small part of what China is spending abroad today. China recently founded the Asia Development Bank and is constructing a large military base in Djibouti. This is not dissimilar to the financial influence exerted during much of the Cold War. Egypt’s Nasser famously played the United States and the Soviet Union against each to see who would give him more patronage. More frequently the U.S. and U.S.S.R. used their financial support of governments to get them implement policies they favored, be they control economies or allowing market access. The trick was always to get the client state to a position where they could not function without the foreign funding, and then impose dictates upon them.

Chinese sharp power deserves the attention of Western policy-makers and counter-intelligence experts. It is a new approach for the Chinese, fueled by recent Chinese economic prosperity; it is not an altogether new approach for influencing foreign powers. The West can look to its own playbook from the Cold War and those of the nineteenth century great powers for how sharp power was used, and how it was countered.

Charles W. King

The recent ban on Initial Coin Offerings (ICOs) of new cryptocurrencies by the People’s Republic of China and the possible closure of all cryptocurrency exchanges in the country are being heralded as a success by some cryptocurrency advocates. They believe that the ban demonstrates how crypto-currencies like BitCoin disrupt traditional government issued currencies like the Yuan and Dollar. For a portion of the cryptocurrency community the most important feature of these new mediums of exchange is not their security, but their inability to be observed or regulated. The nature of the technology that underpins all cryptocurrencies, the blockchain, makes important kinds of government intervention difficult or impossible: taxation, seigniorage, and monetary control.

The distributed nature of the block chain and fact that cryptocurrencies are only observable during digital transfer makes it difficult for the IRS or any other tax collecting agency to know whom has what for the purposes of taxation. In addition the fact that cryptocurrencies can also be transferred physically on something as innocuous as a keychain make them similar in the eyes of governments to Bearer Bonds and Krugerrands, two now defunct mediums of exchanged deeply associated with terrorism, money laundering, tax fraud, and Apartheid.

Cryptocurrencies by their nature make government seigniorage and monetary control impossible. The minting of new units of crypto-currency is controlled by an algorithm and the ability of users to perform complex mathematical computations. When a new unit is created it is owned by the computer that completed the computation, a profit for the user, at the cost of computing power. Traditional seigniorage means the issuing government makes a profit of the difference between the cost of minting and the face value, for cryptocurrencies ‘miners’ receive the seignorage. This also means that governments have no control over the number of units in circulation, and are therefore unable to increase or decrease the monetary supply. This is a key feature of some cryptocurrency advocates who oppose on principle the very existence of Central Banks and their role in regulating economies. The rate of inflation in cryptocurrencies is controlled solely by the mining algorithm, how much computer power is dedicated to mining a given currency, and how much users are willing to pay for a unit. This obviates methods of economic intervention that have been key for government's recovery efforts from the Great Depression, the Stagflation of the 1970s, and the 2008 Financial Crisis.

The Chinese is government is understandably concerned about the increasing prevalence of mediums of exchange beyond its control, like BitCoin and other cryptocurrencies. That the strict regulation of the Yuan incentivizes their use is another important issue. In the case of cryptocurrencies, the Chinese government and the Chinese Communist Party is remembering the events that began what is known as the “Century of Humiliation”. In 1839 the British Empire had not yet successfully smuggled a live tea plant out of China and was paying of millions of tons of silver to China annually for exported tea. To alleviate this trade imbalance the British sought to sell opium from the British Raj in China, where it was illegal. The British and Chinese fought two wars, 1839 to 1842 and 1856 to 1860, that transferred control of Hong Kong to the British, legalized opium, and gave the British and others the access to Chinese markets and exemption from internal tariffs. With the loss of these wars the Qing Dynasty was weakened in many ways, including the fact that the reversion of the balance of trade up-ended the Chinese economy, and foreign trader’s protections from imperial regulation would continue to extract wealth from the country. The inability to intervene in their own economy devastated the Qing.

Cryptocurrency advocates are correct to believe in the potential disruptive power of crypto-currency technology. The People’s Republic of China has made a decisive move against this disruption, but this should be understandable given some crypto-currency advocated see their invention as a method to dismantle the state and the history of China.

Charles W. King

The United States is the world’s leading exporter of arms, more than the next two largest exporters, Italy and Germany, combined. The United State exported more than a billion dollars’ worth of small arms in 2013 according to the Small Arms Survey, a non-governmental organization supported by a group of western nations. The export of arms, from pistols and rifles to military aircraft and advanced technical systems represent not just an economic boon for the United States that incentivizes the continued growth of its arms industry, but a strategic asset for its foreign policy. Just as the United States controls the export of advanced technologies that it does not want its rivals or pariah states to possess (particularly nuclear and missile technology), it uses arms export agreements to bolster its allies and as an incentive.

The two most famous American arms export schemes are Franklin D. Roosevelt’s Lend-Lease program during World War Two and the Iran-Contra Scandal that rocked the administration of Ronal Reagan. Between 1941 and 1945 the United States exported $667 billion in 2017 dollars to its allies under Lend-Lease. Iran-Contra circumvented American law to fund the right-wing Contra rebels in Nicaragua with the proceeds of arms sales to the Islamic Republic of Iran, primarily missiles and also illegal. While these two programs differ greatly in scope, publicity, and legality they were both intended to provide material support to allies—long standing or of convenience—engaged in conflicts the outcome of which the respective administration felt it had a vested interest in. Today the supplying of arms to belligerents is highly controversial, and when doing so policy-makers must weigh the potential benefits of tipping the scale in a conflict, with the fallout, both domestic and diplomatic, of doing so.

Attempting to decide the winner in conflicts is not the only way that the United States uses arms exports to affect geopolitics. Bolstering the capabilities of allies and even competitors during peacetime can also be of strategic value. Sometimes it is possible to provide support with a direct American military presence, as the deployment of the US Army to West Germany did during the Cold War, and American AWACS Radar and Tanker planes did to the intervention in Libya in 2011. This is not always the case. In 1979 it would not have been possible to deploy American troops to the border between the Soviet Union and the People’s Republic of China. After recognizing the Sino-Soviet split American administrations sought to improve the People’s Liberation Army’s ability to fight their Soviet counter-parts, particularly against Soviet tanks. Even with the normalization of diplomatic relations between the US and China in 1979, this was a complicated task to accomplish. Eventually, the Carter Administration received the legislative approval it needed to let the PLA manufacture American designed anti-armor weapons in China under license, direct sales would have been politically impossible.

There is a third strategic use for arms exports that the US actively engages in; incentive and subsidy. The US government subsidizes the Iron Dome missile shield deployed in Israel, much of the money transferred to Israel as military aid comes right back to the United States as payments to US defense companies. This is not only good for the defense sector, but it encourages firms to perform research and development on certain kinds of technologies, like Iron Dome, that the US government wants to encourage but may not have a direct use for at the time.

The United States will remain the world largest exporter of arms for the foreseeable future. Arms sales are an important sector of the American economy. Arms export deals influence manufacturing and the development of advanced electronics and other technologies. They also provide considerable, if controversial, strategic options for American foreign policy. While picking winners may be the most obvious use, policy-makers should remember the utility of enhancing the capabilities of nations with similar interests during peacetime as a preventative measure.

Further Reading

Irene Pavesi, "Trade Update 2016: Transfers and Transparency," Small Arms Survey, (Geneva, Switzerland: Small Arms Survey, 2016).