To Engage China, or Balance It? Lessons From a Failed Grand Strategic Exercise


How should a great power manage a rival with an authoritarian government, a state-directed capitalist economy, strong mercantilist tendencies and a “leader for life” that exploited a “cult of personality?” To make matters more difficult, this country’s government dominates society through an all-pervasive party structure that stresses nationalism and argues that only the party can reverse recent slights and return the nation to its rightful place in the sun. This might sound like modern-day China, but in fact it is 1930s Germany.

Early in the decade, Britain was a great power intent on maintaining the status quo. The Foreign Office observed: “We have got all that we want, perhaps more. Our sole object is to keep what we have and live in peace.” Japan, Italy, and Germany, though, were starting to pose troubling security problems. With resource limitations constraining their options, British policymakers in early 1934 decided to focus on Germany as the nation of primary concern and accordingly embraced a grand strategy that combined engagement and balancing. (For a fuller account, see my book Grand Strategy.)

I should note that this article uses present-day terminology, which is not necessarily the same as that used in the 1930s. For example, it was not until the 1980s that the term “grand strategy” began to be used to describe the coordinated diplomatic, military, and economic policies the British government adopted in the 1930s; one of the first to use the term was Paul Kennedy. Similarly, in the 1930s, the terms “conciliation” and “rearmament” were used rather than “engagement” and “balancing.”

The British grand strategy of the 1930s has become popularly known as “appeasement” and has been much studied. This analysis can be divided into three distinct waves. The first wave, the orthodox interpretation, began when emotions were running high in 1940 with Guilty Men, written under the pseudonym Cato. As the book’s title suggests, this wave focused on the personal failings of individual policymakers. The second wave, the revisionist approach, arose in the mid-1960s with the release of official classified U.K. Cabinet documents and focused on the decision-making process and the underlying strategic logic. In the 1990s, the counter-revisionist wave began arguing that the appeasement concept was sound but poorly implemented.

This article draws mainly on the second and third waves to offer three lessons from Britain’s grand strategy in the 1930s that, arguably, adherents to each school of thought would agree with. First, combining engagement and balancing risks incoherence; second, engagement, if undertaken, needs careful consideration to avoid an “own goal;” and third, alliances are significant and should not be overlooked in crafting nuanced grand strategies to counter adversaries.

Today, many studying how to handle the rise of China propose some version of a grand strategy that similarly blends engagement and balancing. Indeed, the China debate now seems to be moving on to arguing about how much weight to attach to each strand. In this discussion, however, we should remember that Britain has been here before us.

Britain’s Grand Strategy

The pre-1965 orthodox interpretation of appeasement held that senior British politicians and policymakers were “vain, naif and ignorant” and thus underestimated Nazism, refused to educate the public to Hitler’s expansionist ambitions, and failed to increase defense spending as soon as they should have. The “treasonous” appeasement of Adolf Hitler at Munich in 1938, then, simply reflected that the British government was led by knaves whose “ineptness and incapacity, [displayed] almost criminal negligence in their appointed tasks of protecting the national security. There was no strategy, merely “old fools.”

With the release of the Cabinet papers and greater distance from the trauma of World War II, however, new historical research revealed that the British government did actually have a grand strategy and that it was quite sophisticated — even if a dismal failure. Moreover, it revealed that many diverse and complex factors influenced the government’s choice of this grand strategy and how it was implemented. This revisionism shifted an ultimately sterile debate about the perceived personal failings of the “guilty men” toward trying to understand why the grand strategy had failed. With the blame game abandoned, it became possible to formulate insights that could inform future grand strategies. Let us now do just that.

In Britain’s twin-track grand strategy, the engagement strand assumed Germany’s leadership was not monolithic, rather comprising four distinct power centers: the officer class of the armed forces led by Field Marshal Werner von Bloomberg; the economic policy bureaucrats, bankers, and business heads (especially those from the heavy industries in the Rhineland and Ruhr); the Nazi party; and the SS, led by Heinrich Himmler. The British government believed that within these power centers there was a struggle underway between moderates and extremists that could be usefully exploited. Both sides were vying to influence Adolf Hitler, who was thought to be a moderate, at least compared to perceived extremists like Joseph Goebbels, Joachim von Ribbentrop and Himmler. Accordingly, Prime Minister Neville Chamberlain wanted Britain to “do all in its power to encourage the moderates.”

Britain’s intention was to strengthen the moderates’ position by working with them to address their concerns about the Treaty of Versailles and offering tempting political and economic policy incentives. The hope was that in due course, the more bellicose extremists would be expelled from the government. The political incentives included helping correct perceived failings in the peace treaty: Britain acquiesced to Germany’s remilitarization of the Rhineland and its annexation of Austria and the Sudetenland. The economic incentives built on the strong connections between the major financial and business institutions in Britain and Germany. British government departments actively supported the growth of commercial interactions and business relationships to help tip the domestic balance of German political power in favor of moderate groups. As part of this, the government granted an increasing volume of export credits to firms involved in commerce with Germany right up to late August 1939, immediately before the war started.

Aiding this effort was the unusually close working relationship between each nation’s banking representatives. The governor of the Bank of England held that there were sensible financial figures behind the new Nazi regime who could steer Hitler towards less militaristic policies. One of the key assumed moderates targeted was Hjalmar Schacht, who served during various points in the 1930s as president of the Reichsbank and minister of economics. Schacht told the British that economic concessions bolstered him and the other moderates within the power struggle. In mid-1937, the British also began cultivating Herman Goring, an important Nazi Party figure. Equally surprising in retrospect was that the British also approached Field Marshal von Blomberg, commander-in-chief of the armed forces and minister of war from 1935 to 1938, who was, in reality, strongly committed to German expansionism.

In the grand strategy’s second strand, Britain sought to balance against Germany, mainly by re-equipping and expanding the British armed forces to more effectively deter any German adventurism. The Navy would contribute with a strengthened capability to interdict merchant shipping, foreshadowing a repeat of the World War I blockade of Germany. The Royal Air Force would develop the capability to destroy military-industrial targets, while the Army was to concentrate on home defense while keeping up imperial policing across the Middle East and the Afghan border.

The two-pronged strategy led to some premature satisfaction about Britain’s apparent cleverness. At the Nov. 20, 1938, cabinet meeting, Chamberlain remarked: “In our foreign policy we were doing our best to drive two horses abreast, conciliation and rearmament. It was a very nice art to keep these two steeds in step.”

Lessons for China Grand Strategy

History records, though, that this grand strategy was a failure, leading to precisely what it was meant to avoid: loss of empire and Britain’s relegation to a second-class power. Worse, the Defence Requirements Sub-Committee in 1935 had correctly identified 1939 as the year of maximum danger. From Britain’s accurately predicted misfortune, we may draw some cautions for modern-day grand strategic challenges.

First, a grand strategy that combines engagement and balancing is inherently incoherent. Engagement stresses cooperating with another nation for the common good whereas balancing involves threatening another nation with war to make it cease unwanted actions.

Germany used its good economic and financial relationship with Britain to help finance its rapid military buildup. The 1931 Standstill Agreement begun during the Great Depression was renewed annually, aiding German bank solvency and providing crucial lines of credit. Moreover, merchandise trade with Britain furnished the international currency necessary to pay for essential food and raw material imports. As was recognized at the time, this all facilitated German rearmament. In 1936, Reginald McKenna, chairman of Midland Bank and a member of Parliament, campaigned against economic concessions to Germany on these grounds. The Foreign Office countered that this economic and financial interaction “strengthened the peace party,” helping “reasonable people in Germany to exert their influence.”

As Aaron Friedberg has shown, Western engagement with China has permitted rapid economic growth, lifting hundreds of millions out of poverty but also allowing the Chinese Communist Party to build a large, well-equipped military. To take one example, Chinese economic growth fueled by foreign investment and merchandise trade provided the financial basis for large-scale state investment in national dredging capabilities beginning in the tenth Five Year Plan (2001 to 2005). By 2010 China had the world’s largest dredging capacity and was able to undertake the massive land reclamation involved in building the six new islands in the South China Sea. Ironically, the new South China Sea island military bases are partially a result of Western engagement. It’s clear that balancing against China militarily conflicts, to some extent, with efforts to engage with it economically.

Second, Britain’s engagement strand rested on a badly flawed understanding both of individual German leaders and of how the leadership group functioned. Rather than persuading German leadership to make choices that furthered British interests, U.K. leaders were instead manipulated by their targets to advance German rearmament. In retrospect, supporting the Nazi Party’s grip on German society was a major error. Rather than trying to gain favor with German leaders by helping them advance their domestic agendas, it might have been more advantageous to make Nazi rule more difficult.

Considering current circumstances, Friedberg suggests that given the Chinese Communist Party’s use of political warfare against other states, reciprocating is in order. He argues that the party has many internal shortcomings, observing that “the United States and its allies should seek to highlight [these] rather than ignoring them out of a misplaced sense of decorum or in a futile attempt at reassurance.” Friedberg’s critique has merit in that there is one big issue about which Beijing obsesses. Joseph Fewsmith notes that: “China is the only great power that worries about its legitimacy on a daily basis.” As Kerry Brown points out, Chinese leaders work “in a very restricted space, where their margin for error is low. No one pretends that Chinese people have deep loyalty to the Communist Party.”

Third, Britain’s grand strategy deliberately discounted the usefulness of allies, even giving Czechoslovakia away. This fitted a diplomatic culture that favored making deals rather than alliances. Reinforcing this tendency, Britain also worried that ringing Germany with allied nations would be seen by German leaders as threatening, undermining the engagement strand. Such alliances would have given Britain valuable additional military power and forward military bases that might have helped in containing Germany, but British politicians and some senior military leaders saw this as unhelpfully provocative.

Alliances have traditionally been an American strength, but this may now be changing. For decades, American presidents have considered themselves the leaders of the free world, but President Donald Trump seems to be positioning himself as the chief critic of the free world. More serious are the president’s purposeful attacks on, and active undermining of, allied democratic governments while praising authoritarian ones. Like 1930s Britain, modern America may be giving up on alliances in favor of doubling down on deals.

While Britain’s grand strategy failed spectacularly, today’s grand strategy for China does not have to. History is not destiny. Rather than trying in vain to blend engagement and balancing, the West can explore other alternatives. For instance, an approach based on complex interdependence acknowledges that multiple formal and informal channels connect societies and that interstate relationships consist of many issues. In each issue area, states have different sensitivities and vulnerabilities that can be purposefully exploited to obtain the objectives sought. Such bargaining manipulates asymmetric interdependencies between the involved parties, and therefore may not yield mutual benefits — both sides may well incur costs. Issues — not power — are purposefully used by states to drive change. Taking such an approach with economic development, for instance, might be the basis for an alternative, less problematic, China grand strategy.

On the other hand, if the current approach is to be maintained, policymakers should carefully consider the manner in which engagement is undertaken. Western engagement should help the Chinese people but try to avoid strengthening party rule, which will not be easy. For example, some large information technology companies, in their quest for larger markets, are already helping the party monitor and control its people. Finally, the West must reflect on the place of alliances in its grand strategy. To be most effective, alliances need to be integrated within a grand strategy rather than left in an uncertain limbo where some support them and others do not.

There is much to consider from the British experience when thinking about how best to manage China’s rise. Incorporating insights from Britain’s earlier failure might well enhance the West’s current grand strategy or, instead, point to the need for better alternatives. All our futures — including China’s — depend on getting our grand strategy right, and in such endeavors history can be a useful guide indeed.


Dr. Peter Layton is a Visiting Fellow at the Griffith Asia Institute, Griffith University. A retired RAAF Group Captain, Peter has extensive experience in force structure development and taught national security strategy at the US National Defense University. He has a PhD in grand strategy and is the author of the book Grand Strategy.

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