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The Challenge of Hegemony

China, especially the Yangtze Valley, in the same manner as it did with Manchukuo, excluding Britain from its pro‹table trade with China. In 1937, Japan restricted foreign shipping on the Yangtze, eliminating British competition. In 1938, the Japanese Diet approved a bill creating a North China Development Company, with the goal of establishing monopolies in transportation, communications, electricity, and mining (Lee 1973, 121–22). Second, as part of Tokyo’s attempt to make north China an exclusive domain, Japan moved to incorporate China into its expanding Yen bloc. Japan unsuccessfully sought to do this by replacing the Chinese currency (the fapi) with the Federal Reserve Bank notes. In response, Britain’s foreign secretary (Viscount Halifax) advocated a 10 million pound loan to the Chinese currency stabilization fund (Lowe 1977, 58–62). Third, Japan’s ultimate objective was autonomy and economic self-suf‹ciency. Japan’s leaders defended the concept of the new order, referring in particular to the growth of powerful economic blocs in the world, such as those associated with the British Empire, the United States and Latin America, and Russia.7 Monopolization of this sphere would pro- vide the resources and the markets necessary for Japan to build the indus- trial strength it needed to confront the Soviet Union and the Anglo- American states (Beasley 1987). After 1937, the Greater East Asia Co-prosperity Sphere, stretching from Manchuria to the Dutch East Indies, would grant Japan control over the region’s tin, oil, rubber, baux- ite, and other strategic raw materials.


Britain viewed Germany, like Japan, as an imperial challenger seeking to create a closed self-suf‹cient sphere in central and eastern Europe. Such a sphere would block Britain’s future access to the region and strengthen Germany’s position when it turned westward. Similar to Japan’s, Ger- many’s foreign economic policy evolved from a policy of autarky and self- suf‹ciency to one of forceful expansion known as Lebensraum, or the acquisition of greater living space in eastern Europe.

By 1931, Germany sought to create a self-suf‹cient sphere in southern and eastern Europe (Stambrook 1972; Boyce 1987). Germany’s Chancel- lor Heinrich Brüning proposed the Austro-German customs union accord of March 1931, reviving the German dream of Mitteleuropa and taking the ‹rst step toward Anschluss with Austria.8 Free traders fretted that such a sphere would block Britain’s future access to central and eastern Europe. As one author notes, “Such an extension would automatically open the

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