I experienced similar issue, but not ready to call it overpowered. It seems that AI is set to harass aggressive player and tends to overlook peaceful ones. However, even with tribute offer (that should carry more weight, I agree) I could not get everyone to see my way. There is always one, at least, who won't budge and who you have to conquer, risking further provocation of other powers.
Maybe if simple passage of time didn't affect diplomacy so much, would be nicer.
However, consider this. Making your economy strong and your cities abundant, you also present power. Kind of strategy you employed was actually how some of the feudal nations gained power (wasn't it the case with Hanseatic League?).
Anyhow, considering how diplomacy is messy and meaningless in most of the games (even in CIV you can play AI to your advantage), I found Reign's diplomacy quite refreshing. I made it a king without need to crush each and every nation, some needed persuading by force, others just intimidation or good diplomacy. I really cherish the different experience this game offers...
cheers
Ranko
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