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Mongolia got its independence from China largely due the spillover effect of the Russian Civil War. More specifically, anti-Bolshevik warlord Ungern von Sternberg invaded Mongolia with the help of some Mongols but where then quickly ousted by their Bolshevik enemies. This chain of events is what made Mongolia the world's 2nd Communist nation.

However lots of things could have prevented Ungern von Sternberg from successfully filibustering Mongolia. If his plans were thwarted, it's unlikely the Russians would invade Mongolia without an anti-Bolshevik threat. For one thing the Russian Civil War was keeping people busy enough. For another, by the 1920s Lenin's government was more interested in cultivating an alliance with Sun Yat-sen's government.

However China's ability to defend their Mongolian claim is tenuous at best. It would be nearly certain that Japan would make a grab for Mongolia in the early 1930s after their 1931 invasion of Manchuria. A Japanese controlled Mongol-kuo would be the result. What impact would this have on world history? As it turns out, it could be huge.

IOTL Japan and the Soviet Union fought two battles, one at Lake Khansan , another much bigger campaign at Khalkin-Gol. Both conflicts broke out on the border between Japanese controlled Manchu-kuo and Soviet controlled Mongolia. The result of these defeats led the Japanese to conclude they should avoid war with the Soviets and direct their attention to the Anglo and Dutch colonies in Southeast Asia instead. The Soviets also felt sufficiently secure through these victories to sign a non-aggression treaty with the Japanese in early 1941, thus freeing Japan to act elsewhere.

However in TTL, with Japan controlling both Manchuria and Mongolia, these battles would never take place. There's a fair chance no conflict of large size between the two powers would break out in 1938-39. With the Mongolian buffer state eliminated, the Japanese would be in a highly favorable strategically position with a long border with the Soviets running parallel to the trans-Siberian railway. Irkutsky and the Lake Baikal region as well as Krasnoyarsk would be highly vulnerable.

Would the Soviets tolerate such a threat? Would the Japanese "Go North" faction be emboldened enough to make war with the Soviet Union? Who would make the first move? Would it be a limited war like Khalkin-Gol, or a massive attack? One thing is for sure, the regional dynamic would be much more volatile.
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