Dubious Historical Parallels – The 5:5:3 Treaty

When the US dropped restrictions on China’s semis industry last year, some commentators fretted that this move was akin to the US embargoing oil shipments to Japan in 1941, the precipitating spark that led to Pearl Harbor and war between the two countries. Semiconductors are the “new oil”, right? The analogy occurred to us, but we thought better of it. That was a spark in an already highly contentious situation amidst a world that was already at war. We think a better parallel is with the Washington Naval Treaty of 1922 or as we were taught in grade school the 5:5:3 Treaty.

To be clear, we love history but we are not great fans of dubious historic examples held up as roadmaps for the future. Do not get us started on the subject of the Thucydides Trap. History is not destiny, but sometimes it can a useful way to think through current problems. Including problems like China-US contention over semiconductors.

The Washington Naval Treaty sprang out of Allied countries’ attempts to maintain a balance of power in the aftermath of World War One, in particular limiting the arms race around naval power, especially battleships. The Treaty set a limit on the tonnage of warships each country could build, specifically limiting the ratio of tonnage among the great naval powers of the day – the British Empire, the United States and Japan. For every 5 tons the British built, the US could build 5 tons and Japan could build three tons. In the very limited sense of those few inter-war years, the treaty was successful and led to a meaningful slowing in the building of battleships. However, in a broader sense, the treaty greatly antagonized Japan. This was a country that in just a few short years had emerged as a major industrial power with ambitions to be seen as a leader on the world stage. The fact that Japan was allocated a smaller share than the UK and the US was taken as a great insult, and became something of a rallying cry for the rising nationalists and ultra-nationalists, especially around the military.

In our belabored analogy for today, substitute China for Japan, and Technology for naval power. (Although we should probably talk about China’s naval growth too, but that is beyond our scope today.) Remember this was a treaty among nations who had just won a war as allies. They had vast differences, but their interests and economies were aligned in many ways. Now the recent US sanctions were not a negotiated treaty, but in many sense the impact has been very similar. In China, many (most?) people see the US restrictions as a move intended to humiliate China and limit its aspirations in the global economy. And it has absolutely spurred a strong patriotic effort with the government doling out massive support to the domestic industry. As much as China’s and the US’s economies are intertwined, with many common interests, these restrictions mark a major divergence in those.

Ultimately, Japan just walked away from the treaty after a decade of rising militarism. China is just moving to make do and outmaneuver the restrictions.

The irony in all this is that the the Treaty ended up not mattering much. When war started the number of battleships each side mattered little, aircraft carriers had become the critical weapons systems. Those had been included in the treaty but were seen as much less important at the time and from what we can tell none of the signatories ever maxed out their quota for construction of carriers under the treaty terms. Everyone got inflamed about battleships, but they did not really matter that much in the war. (For naval historians out there, please bear with our oversimplification on the subject.)

Hopefully, this analogy falls flat and the US and China never get into a shooting war. But as the two countries compete on a growing number of fronts, we think it is worth keeping the dubious results of the Washington Treaty in mind. Conflict in the future will involve advanced process semiconductors, but there are many other new technologies out there which will likely matter far more.

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