The 2020s mark the end of China's rapid rise, transitioning the global order from globalization to intense security competition between rival blocs, with potentially dangerous implications as China, a peaking power, faces internal and external pressures.
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Thank you very much. It's really a great
honor to be here. We're often told that
we're living in an Asian century that's
going to revolve around a forever rising
China. But I think when the history
books about the 2020s are written,
they're going to say that this was the
decade that China's epic rise finally
came to an end. And that changed
everything. It's what took us fully from
a postcold war globalized happy
international order to one of much more
intense security competition among rival
blocks. So I realize that's not the
conventional wisdom. So I'm going to
develop that in three key points. The
first is that China's rise is not just
slowing down. It's not just ending. It's
actually starting to reverse.
The second point is that uh the China
hangover is here and what I mean by that
is many countries tied their economic
wagons to China. They got rich selling
into the China market. They became
dependent on Chinese loans. But now the
slowdown in China's economy which lifted
up so many economies around the world is
going to drag more of them back down.
And already countries are starting to
point the finger at China which is
putting China in a much more difficult
geopolitical situation. at the same time
that its economy is slowing.
And then the third and final point I'll
make is I don't think China's going to
react particularly well to these
pressures. It's a classic peaking power,
meaning that it was once rising, but now
it's facing slowing growth and greater
geopolitical push back. And what we've
seen from past peaking powers in history
is that they don't just mellow out and
dial back their ambitions. They tend to
crack down on disscent at home and then
expand aggressively abroad. And I think
there's already evidence that
unfortunately China is starting to inch
its way down this ugly historical path.
So I'll get to all that fun wonderful
story in a little bit. Uh but first this
idea that China's rise is reversing. I
mean that literally. So this is China's
economy compared to that of the United
States. And you can see that China is
actually shrinking relative to the
United States. And this is using Chinese
government data. which we know
exaggerates the size as well as the
speed of China's GDP growth.
When these are the different growth
estimates for China, the red line is
what the Chinese government says the
Chinese economy is growing at. The other
lines are based on objectively
measurable data. Things like how much
electricity is being used at night that
you can see from outer space. If you use
those other estimates, then China's
economy is actually at least 20% smaller
than the graph I showed you before. And
when you dial down into other metrics,
you see a similar story. So this is
productivity. This is what you really
need to grow an economy. To grow an
economy, you can either add more workers
or you can spend more money or ideally
you can become more productive by
producing more at lower cost. And you
can see that with really the exception
of the 2021 that the reopening from zero
COVID productivity growth in China has
been negative for over a decade which
means that China is becoming less
efficient over time. And you see this
also reflected in the so-called capital
output ratios. So this is how much
capital or money do you have to spend to
produce every unit of GDP growth. You
can see that in recent years those has
skyrocketed which means that China is
spending more and more to produce less
and less and the natural outcome of this
is a huge explosion in debt. So in
recent years China has gone from you
know about an average developing country
level of debt similar to India to above
and beyond even the American fat cats in
terms of its debt with no end in sight.
If any of you have been traveling to
China recently, as I imagine some of you
have been, um, you know, a lot of people
come back and say there's a palpable
malaise in Chinese society that didn't
used to exist before. And you're seeing
that in public opinion surveys. So for
the first time really in more than a
generation, you're having more and more
Chinese citizens saying that their lives
are getting worse yearbyear.
You see this reflected in the so-called
lying flat generation. A lot of the
youth who can't find jobs commensurate
with their education level. You see it
in the capital flight, the wealthy who
are trying to get their kids and their
money out of the country as quickly as
possible. A whole host of indicators
suggest that all is not right with
China's economy. And you know, I think a
lot of people have been saying this this
slowdown in China's economy was entirely
predictable. A lot of people think that
the rise of China was the normal thing
that China would just rise forever.
that's just what it does and that anyone
who argues that it's going to slow down
doesn't know what they're talking about.
But in retrospect, we now know that
China's rise was the exceptional event.
It was the weird thing that usually does
not happen in the international system.
And it was propelled by a few fleeting
circumstances, a few fleeting tailwinds
that have now become headwinds that are
dragging China back down. So I just want
to walk you through some of these. The
first of these tailwinds turned
headwinds is just basic security. For
much of the last 40 years, China has had
the most secure geopolitical position of
any time in its modern history. And
that's really important because China,
as you know, is in a very rough
neighborhood. It's surrounded by 19
countries, most of which are powerful or
unstable or both.
Trying to, you know, if you play the
geopolitical board game Risk, you know
that trying to hang on to the territory
of China is damn near impossible. And
that's what China has to do every single
day. And for big parts of its modern
history, uh, China failed to do this. So
for a hundred years, from the first
opium war in 1839
until the end of the Chinese civil war
in 1949, China just gets ripped apart by
imperialist powers, it collapses into
two of the worst civil wars in history.
And then even after the Chinese
Communist Party unifies the country in
1949, China almost immediately becomes
the chief enemy of the United States
because of the Korean War and the direct
fighting between the two countries. And
then 10 years later, China's alliance
with the Soviet Union falls apart. And
so by the 1960s, China is the top enemy
of both Cold War superpowers. And not
surprisingly, it's isolated and impoverished.
impoverished.
So, it's not till 1971 and the opening
to the United States that China starts
to get some reprieve from this
geopolitical vice because now it has a
superpower on its side and the Americans
actually warn the Soviet Union on
multiple occasions. Do not attack China
otherwise we're going to have a problem
with that. The Americans also fasttrack
China's entry into Western markets and
the timing of China's opening up is
perfect. So, China starts to join the
global economy right as this period that
we now call hyper globalization kicks
in. So, this is the period where in 30
years, you know, from the 1970s to the
early 2000s, world trade and investment
surges six plus fold. China both propels
and rides this wave to become what we
know of it today, which is this dominant
workshop of the world, a huge
manufacturing power and a rising economy.
economy.
The second factor that China really
needed for its rise was decent
government. So in 1976, Mao dies and
China's leaders basically say, "Let's
not do another cultural revolution." And
so they start to reward lower level
Chinese leaders for good economic
performance, not just blind loyalty to
the Chinese Communist Party.
uh the actually ironically the cultural
revolution itself so destroyed the state
planning apparatus that there just
weren't as many Chinese bureaucrats
running around telling the peasants what
they could and couldn't do and so the
Chinese people were partially freed from
that rigid state plan and they basically
formed quasi private markets and
industries and started trading and you
had this big boom of economic activity
and the Chinese Communist Party
eventually started to begrudgingly
accept that and then expand the range of
quasi private markets around in the
country. So, China had the right
policies to capitalize on its new
opportunities at the right time.
A third crucial factor was the greatest
demographic dividend in human history.
So, for a big part of the last 35 years,
China had anywhere between 10 to 15
workers available to support every
elderly retiree. That's two to three
times the global average. And it's the
unre repeatable result of China's very
peculiar population history. Basically
in the 50s and 60s, Mao inherits this
country that has been decimated by
decades of war and strife and he wants
to turn China into a superpower. And so
he the Chinese government starts to
incentivize Chinese families to have
lots of children and they do. And so the
population explodes by 80% in 30 years.
But then the Communist Party starts to
worry about overcrowding and in the late
1970s they implement the one child
policy. And so for much of the last 35
years, you've had this baby boom
generation in the prime of their working
lives. They had relatively few parents
to take care of because so many of them
had died in the in the civil wars and
the the famines. And they had relatively
few children to take care of because
they weren't allowed to have them. So
this population was absolutely primed
for economic productivity. Demographers
think this demographic bubble alone
explains at least 25% of China's rapid
growth over the last 35 years. And then
the final factor that China had going
for it that was really crucial for its
rise was abundant natural resources. So
up until fairly recently, China was
almost self-sufficient in just basic
things like water, food, energy
resources, and this made growth very
cheap because raw materials were cheap.
You could just set up a factory, plow
through the raw materials, uh, and grow
very quickly. So really from the early
1970s up until I would say the early
2010s, China had these four factors
working for it uh to varying degrees.
But now each of these assets are
becoming liabilities that are starting
to drag China down. And this is why we
shouldn't expect a major turnaround in
the Chinese economy anytime soon. So for
starters, China is just running out of
resources. Half of its rivers are gone.
60% of its groundwater is so polluted
that the Chinese government has said
it's unfit for human contact. So you
can't touch the water. So that means you
can't use it even for agriculture or
industry, let alone to drink. Uh Beijing
has about as much water available per
capita as Saudi Arabia does. It's a
similar story in terms of energy
resources. So China's plowed through
most of its exploitable oil, even coal
is becoming scarce. So as a result,
China is now the top importer of energy
resources around the world. It's also
the top food importer in the world.
China can't feed itself anymore because
half of its farmland has either become
so polluted you can't use it or it's
just turned into desert. And so raw
material costs in China have gone up
substantially in recent years. And that
makes economic growth much more
expensive. It's more it's three times
more expensive to produce each unit of
GDP today than it was in the 2000s. And
that's rising.
At the same time, China's running out of
people. So that baby boom generation I
mentioned earlier is now retiring and
falling onto the backs of a tiny one
child generation. Just over the next 10
years, China's going to lose more than
70 million working age adults. It's
going to gain more than 130 million
senior citizens. That's like taking an
entire France of workers, consumers,
taxpayers out of the country and adding
an entire Japan of elderly pensioners.
And it's going to happen just in the
next 10 years. That 15 to1 ratio I
mentioned earlier of workers to
retirees, that's going to collapse to
2:1. Two workers available to support
every retiree uh by the late 2030s.
Now, managing these problems is going to
be increasingly difficult because China
is now run by a dictator who
consistently sacrifices economic
efficiency to enhance his political
power. the zerocoid lockdowns, the
crushing of Hong Kong. Those are just
the most obvious examples, the the
channeling of subsidies to state
connected firms, the anti-corruption
drive that has scared lower level
officials from engaging in any kind of
experimentation or entrepreneurship
because they don't want to ruffle the
wrong feathers, disrupt the wrong
patronage network, and end up the target
of an anti-corruption probe. The
censoring of negative economic news, so
youth unemployment data is going off the
charts, and then that's just eliminated.
All these things just make it harder to
course correct in the middle of an
economic downturn and don't bode well
for China's economy. And then finally,
China is starting to lose some of that
easy access it had to rich country
markets, technology, and capital. So the
United States obviously is waging a sort
of trade and tech war against China. The
European Union, Japan to varying degrees
are starting to follow suit. And so
China just faces thousands of new trade
and investment barriers every year that
it didn't face as recently as 10 years
ago. And at the same time, China's
security environment is also starting to
look a lot more dangerous. So this is a
map of US military bases that are
currently being expanded.
You don't need to be a strategic genius
or attend the World Knowledge Forum to
understand the basic story that's going
on here. This is what Xiinping calls
all-around encirclement by the United
States. So China's boom now is finally
coming to an end.
And unfortunately, it's having shock
waves for lots of other countries today
because so many economies tied their
fortunes to a rising China. Um, and for
good reason. And so to sketch this out,
I kind I want to take you back to the 2000s.
2000s.
Some of you are probably too young to
remember that, but for those of you that
do remember it, uh, you'll remember that
China was growing at double-digit rates.
You might also remember that the ri the
rise of China was the most read about
news story in the world by far. Nothing
else came close. It was the most
decisive event of the first two decades
of the 21st century. Way more than 9/11
or the the British royal wedding or
whatever other news story you want to
put out there. And for good reason. Uh
China generated more than 40% of global
economic growth in the 2000s, in the
'90s. Um some scholars compare it to the
industrial revolution or the Renaissance
in terms of its global impact. I don't
know if I'd go that far, but it
certainly was spectacular to see China
rise. And during this time, China
becomes a buying machine. It just starts
buying up everything around the world.
Soybeans, computer chips, cars,
pharmaceuticals, machine tools, whatever
it was, China was buying it. And so the
China market becomes a gold mine for
many countries around the world. You can
see that imports as a share of China's
economy rise substantially.
The Economist magazine even created an
entire index that they call the Sino
Dependency Index which just showed how
incredibly dependent other economies
became on China's economy. Even major
countries Germany, South Korea, Japan,
France had upwards of 10% or more of
their fortunes essentially tied up in
trade and investment with uh with China.
China's rise, its insatiable demand for
resources also just drove up the price
of commodities around the world. And so
this had the indirect effect of bringing
up countries that weren't even trading
directly with China. They just benefited
from the fact that the things they had
to sell were selling for a higher price.
Uh Russia for example, the rise of China
basically created massive demand for
everything that the Soviet Union used to
produce, whether it was weapons or uh
oil and gas or machine tools. And so
China's rise helped propel the
resurgence of Russia as well as do
dozens of other economies during this
time. At the same time, China wasn't
just buying stuff, it was also lending
money abroad. So as it accumulates
wealth, it then turns around and starts
lending out money so that mainly so
countries could employ Chinese companies
to build infrastructure, roads, bridges,
telecommunications networks, soccer
stadiums. Uh over the last 20 years, one
out of every three infrastructure
projects built in Africa was built by
China. Um and so China becomes this
dominant dispenser of of uh of loans.
But unfortunately that era is now over.
This era where really countries were
getting a triple win from China. A huge
market to sell their exports into. A
seemingly bottomless supply of loans to
finance all their development projects.
And then lots of experienced Chinese
companies that knew how to build pretty
much anything. That all has been going
away in recent years. Studies show that
every 1% decline in China's economic
growth rate reduces the economic growth
of its trading its main trading partners
by about the same amount. And one reason
for this is that China is just buying
less from the world than it used to. So
this is imports as a share of China's
already slowing economy. And as a
result, countries are seeing their
exports to China plummet. So South
Korea's exports to China dropped about
20% last year. Germany's dropped 9%.
Commodity producers like Australia,
Saudi Arabia, Brazil are starting to
feel the pinch.
At the same time, China's not loaning
money anymore. It wants that cash at
home. It's not offering debt relief to
other countries. It's demanding that its
partners now pay back the money with
interest. And as a result, lots of
economies are being pushed into debt
distress because of the massive loans
they took from China. You've seen just
in recent years, Venezuela, Laos, uh
Zambia, um lots of other countries are
starting to feel this. Pakistan um
because of the drying up of Chinese loans.
loans.
And at the same time, to make matters
worse, in order to save its own economy,
China is pumping up its companies with
subsidies, its manufacturing
enterprises, and then flooding global
markets with subsidized exports. You're
seeing this obviously in electric
vehicles, solar panels, a number of
other main manufacturing industries. And
so as a result, many countries trade
deficits with China have really surged
in recent years. And so this is now
creating a triple threat to a number of
economies because China's buying less of
their stuff. It's no longer giving them
easy loans. And now their markets are
being flooded with a wave of cheap
Chinese imports that are crowding out
domestic producers. So you're starting
to see this bite. And needless to say,
China's not making a lot of friends
during this time. So, China's
international favorability around the
world has fallen by more than half since
the 2000s. Anti-China sentiment around
the world has surged to levels we
haven't seen since the 1989 Tianan
Square massacre. And this really is a
sea change because when China's economy
was growing very rapidly, so many other
countries were curring favor with
Beijing to get access to its market. uh
you know the British hand back Hong
Kong, the Portugal hands back Macau, the
Taiwanese pursue engagement with China,
you have a dozen countries settle their
border disputes with China, you have the
United States shephering China into the
World Trade Organization and in fact
writing technology transfer uh protocols
into China's accession agreement. So
like please take take some of our
technology. But that now is flipping. As
as China's economy slows, as China
focuses on trying to save its own
economy and putting other economies at a
disadvantage, now more and more
countries are seeing China less as a
profitable economic partner and more as
a potential threat both economically as
well as in some cases geopolitically.
And so this now is putting China under a
lot of pressure because it's not only
dealing with a slowing economy, it's
starting to get more geopolitical push
back. And so this then begs the
question, how is China going to react to
these pressures? So I actually um
because I knew I needed to make slides,
I put my presentation notes into chat
GPT and just asked it to draw a picture
of what I was talking about and this is
what it came up with. Um so everything's
going to be fine. Don't worry about it.
Uh now look I don't want to be alarmist
uh but I am my my concern is that China
is becoming a classic peaking power
which historically have been the most
dangerous kind of countries in the
world. So for the past four decades this
rapid growth has pumped China up. It's
equipped it with the money and the
military muscle to really make big moves
on the international stage. It's also
just puffed up the ambitions of China's
leaders. you know, they think, hey, this
could be our century, uh, and we need to
move on it. But now, slowing economic
growth, greater international push back
is giving China the motive to move more
aggressively to achieve those lofty
ambitions. And when you look back at
history, a lot of these peing powers,
really none of them mellowed out and
dialed back their ambitions. Instead, as
I said, they cracked down on descent at
home and they expanded aggressively
abroad. a few even uh catalyzed massive
wars. So I I'll just give you a few
examples of these historical cases so
you can kind of see the range of
different outcomes and then I'll go back
to talking about China and how I worry
that it's starting to inch its way down
this well-worn historical path. So one
of these cases is actually the United
States in the late 19th century.
Basically after the US Civil War in the
1860s, there's this big economic boom in
the United States because they're no
longer the Americans are no longer
fighting each other. They were starting
to spread westward across the North
American continent. But then by the
1880s, you have a series of what were at
the time the worst depressions in
American history. And the Americans
started to freak out that the reason
their economy was doing so badly was the
frontier was closed. There was no more
open land to expand into. There were no
more green field investment
opportunities to exploit. And so the US
government did a couple of things.
First, it cracked down hard on organized
labor. So if you study US history, this
is the era of just brutal repression of
labor movements. Uh sending in police
forces to basically beat workers with
clubs. And then at the same time, the
Americans started to pump exports and
investment into Latin America and Asia.
Then the Americans built a giant navy to
protect those far-flung investments. And
then the United States just started
annexing territory overseas. So when
times got tough, the United States
really got moving in a big way. This is
the era of American imperialism,
fullthroated imperialism. Um, and it
comes right after the worst economic
crisis that the United States had
suffered up to that point. Uh, Russia
around the same time at the turn of the
20th century sees its economic boom
fizzle out and the zar responds by
putting 70% of the country under martial
law and then seizing assets and
resources in Manuria, moving into Korea
as well. Russia sends about 200,000
troops into East Asia to take over
resources and they don't stop expanding
there until the Japanese, as you can see
on the right side of that screen, uh
boot them out in the Russo-Japanese war.
Germany and Japan, we know this story
well, the Great Depression, they don't
react particularly well uh to that.
Japan in particular, as it's
experiencing these economic troubles,
also is feeling the pressure from the
United States. But more recently, you
know, people forget that Russia's
aggression today also has a peaking
power origin. So in the 2000s, Russia
was a resurgent economy. It was banging
out roughly 8% annual economic growth
rates largely because all those
commodity prices were very high. But
then after the 2008 financial crisis, a
lot of the prices for all the things
that Russia was selling go down. They
take down Russia's economy and Putin's
popularity with it. He responds first of
all by jailing more dissident and
dialing up anti-western propaganda. But
he also starts putting pressure on
former Soviet states to join the
Eurasian Economic Union, this customs
union, where he basically says, "I'm
going to put tariffs around all of you
so that it's harder for you to trade
with the rest of the world, but you have
to lower your tariffs with Russia and
basically become economic vassels of the
Kremlin." So needless to say, some
Ukrainians were not so excited about
that idea. they were much more
interested in getting a giant trade deal
with the European Union. And we know how
that tugofwar between Russia and the
West has ultimately played out. So you
see this pattern over and over again in
history. It's the the rapid rise
followed by the fear of a potential
decline if countries don't do something
that if you don't get moving, the
international balance of power may
eventually turn against you. And so when
I look at China today, I see China doing
three things that make me very
concerned. Uh, first of all, China has
been dialing up domestic repression. And
I actually I now use the term fascism.
And I don't use that lightly because I
know it's a loaded term, but if you look
at what's happening in China today, a
lot of the classic hallmarks of a
fascist regime are starting to show
themselves. So, first of all, you have
the worship of a central leader. If you
listen to Chinese propaganda today, they
celebrate Xiinping like he's the third
pillar of this holy trinity. So they say
under Mao, China stood up. Under Dong
Xiaoing, China got rich. And under
Xiinping, China is going to become
mighty again. Hujin Tao and Jang Zamin,
I guess, are just forgotten. They're not
even mentioned in this. But you see this
extreme warship and he is centralized
power of course as no leader has since
Mao. Another aspect is dialing up of
hyper nationalism and not just like our
country is great nationalism but this
this idea of taking revenge on hostile
foreign forces that disrupted the golden
age of the nation. This golden age that
the dear leader is going to eventually
restore. You see these themes of
national rejuvenation and recovering
from the century of humiliation
increasingly featuring in schools in
popular media as well as in government
documents. You also have the brutal
repression of ethnic minorities. So
Chinese documents increasingly describe
the weaguers other ethnic minorities as
a cancer that has to be cut out of the
system before it infects the rest of the
body politic. And you've seen the
extreme measures that China has gone to
in order to control these minority
populations. the re-education camps, the
bulldozing of uh traditional communities
and so on. You also have the development
of this Orwellian surveillance state
that can just track massive populations
and then discipline people instantly by
if you do something wrong, maybe getting
cut off from travel. Um and then if
worse comes to worse, you can just send
in the traditional authorities to crack
heads. And then finally, this worship of
military strength. And it's not just the
the parades and the gooststepping. It's
it's more subtle things like the civil
military fusion concept which is
explicitly designed to erase the
boundaries between civilian and military
life. Any organization, any company can
essentially be commandeered to serve the
nation in a geopolitical or military sense.
sense.
So at the same time um China also is
developing a new economic strategy and
it seems to be one that is prioritizing
leverage rather than just rapid growth.
So I think the basic idea is okay, our
economy is not going to grow as fast as
it did, but we can still get leverage
over our trade partners by dominating
what Chinese documents call the choke
points of the global economy. So these
are things that other countries can't
live without. Whether it's medical PPE
or rare earths or certain types of
computer chips or access to the South
China Sea, there are certain strategic
industries that China is looking to
dominate. And you see that China pairing
that with an increased willingness to
impose sanctions on other countries. So
for example, Australia calls for an
investigation into where COVID came from
and China uses its economic leverage to
basically wage a trade war against
Australia. Now the Australians in
typical Australian fashion kind of react
with good humor. they sponsor this uh
fight communism by buying Australian
wine campaign and then uh parliament
members and other western democracies
kind of pick this up and you know it's
this sort of patriotic thing um but it's
it shows that China is much more willing
to adopt a mercantalist strategy to flex
its muscles in reaction to the fact that
it can no longer just buy off other
countries through promises of rapid
growth um by partnering with China. And
then finally, what worries me the most
is this big military buildup. So, um,
China is engaged in the largest peaceime
military buildup of any country since
Nazi Germany. It's churning out warships
and ammunition at an extremely rapid
rate. You see that reflected in a huge
increase in the military budget. So,
China still claims it only spends about
$230 billion a year. American
intelligence suggests it it's uh almost
three times that amount. that's been
backed up by think tanks that basically
find things that other countries put in
their military budgets that China has
been leaving out to make its budget look
smaller. But when you factor those
things in, you see a major increase in
the budget. And you can also just see
the results of this military investment
with things that you can see with your
own eyes. So the number of warships that
are coming out of Chinese shipyards has
surged in recent years. uh China is
doubling the size of its nuclear arsenal
and increasingly China is deploying
these military assets in more aggressive
ways than it used to. And I think this
all reflects a basic calculation that
China can no longer rely on economic
carrots to get other countries to give
it concessions and so it's more willing
to start using military sticks to try to
coersse compliance. So in the Taiwanese
case, you know, China used to hope that
the Taiwanese would eventually just
unify with the mainland through trade
and investment links and tourism that
eventually the Taiwanese would come
back, but that has failed. And so now
China is sustaining um the the largest
military show of force in the Taiwan
Strait in more than a generation. To
really underscore that, China has built
full-scale models of Taiwanese and
American military bases out in the
desert, as well as full-scale models of
American aircraft carriers so that
Chinese forces can do practice bombing
raids on those uh on those uh mock
military vessels. You're seeing
something similar happening in the South
China Sea. So this is a heat map that
the New York Times put together that
shows just from 2021
to 2023 the increase in the density of
Chinese naval and maritime militia uh
operations. A lot of these are
concentrating around disputed features
in the South China Sea. And they're not
just increasing the presence. China's
just gotten much more aggressive in the
way that it uses these naval and
maritime militia vessels. So, especially
the Philippines has really come in for a
lot of coercion just over the last year
where China, you know, blasting Filipino
ships with water cannons and and lasers,
uh, you know, boarding Filipino ships
literally with knives drawn. And so,
you're just seeing a greater willingness
to court risk. And you're also seeing
something similar happening on the
border with India where you've had a
number of skirmishes, some of which have
actually killed several dozen troops.
So, it just seems like across the board,
China is much more willing to try to
extend its security perimeter, even
having to use force to shove its way to
carve out space for itself in what it
views as an increasingly hostile world.
Uh the the last part of this and and
what also worries me is just that China
in addition to building up its own
military has been working increasingly
with other autocratic uh revisionist
powers. uh most notably obviously
Putin's war on Ukraine sustaining that
by providing critical components. China
recently reaffirmed its alliance with
North Korea and then with Iran really
giving it an economic lifeline. There
was a massive infusion of Chinese
investment recently at the same time
that China sold Iran a bunch of weapons.
And so the again the strategy here seems
to be what political scientists call
external balancing. There's internal
balancing where you try to counter your
adversary by building up from within
your own military forces, your own
power. But if you can't catch up, then
what you can do is external balancing.
So I'm just going to get allies to help
me do some of that dirty work. And so it
seems like China by cultivating these
partners and helping them ferment
conflict at various points around
Eurasia is stretching Western forces
thin. Um it's also just gaining military
technology. So Russia is giving China um
quieting technology for its submarines,
stealth technology for its aircraft,
early warning systems, etc. So you've
seen these autocratic links. Some people
call it an axis. I think it gives it too
much credit. I don't think it's quite on
the level of like a full-fledged
military alliance, but certainly it's a
it's a beneficial partnership as far as
these guys are concerned. So naturally,
all of this is fueling conflict with the
United States. And unfortunately, I
think it's going to get worse before it
gets better. Part of that again is based
on history. So there's been over the
last 200 years, there's been 27 great
power rivalries. And these cases really
only wound down not with the two sides
talking their way out and kind of
figuring out how they're going to divide
up parts of the world, but only after
one side basically loses the ability to
compete. only after there's a major
shift in the balance of power that
forces one side to basically make major
concessions. And unfortunately, in the
vast majority of these cases, that just
comes through a massive war where one
side beats the other into submission.
There's like the Soviet case, the Cold
War, where the Soviets just run out of
gas and have to sell out through
peaceful exhaustion, but that's not the
norm. And when you look at the
fundamental problem is that um it's what
political scientists call a credible
commitment problem. Meaning making
concessions to the other side that are
big enough to reassure the other side
also give the other side a huge
advantage, strategic advantage that you
have no idea if they're going to exploit
it or not. And they can't really
credibly promise not to exploit it. So
like you look at something like Taiwan
and uh the Americans say, "China, lay
off Taiwan. Stop all that aggression." Chinese
Chinese
are probably going to drift further and
further towards them.
Taiwan, but the Americans say, "Okay,
yeah, if we do that, then the military
balance is going to shift more in your
favor, and that just makes an invasion
or a blockade even more likely." So,
there's lots of examples like that where
a lot of the main issues in USChina
relations are not what the Chinese call
win-win. They're essentially zero sum.
You know, you can either govern Taiwan
from Taipei or Beijing, not both. The
South China Sea can be Chinese
territorial waters or international
waters. Russia can be ground down or
propped back up and so on. So, it's just
very hard to walk all of this out. Now,
um I am cautiously optimistic that in 10
maybe 20 years, uh just based on the
trends I showed you now, there's a
possibility that China won't be able to
sustain the level of military investment
and international expansion that we're
currently seeing. I don't think Xiinping
would be willing to really dial back his
ambitions, but he's 71 years old.
Presumably, he'll move on at some point.
And I could see the next round of
China's leaders if they're faced with a
declining power ratio to the United
States and its allies having to come
back and rebargain essentially. And
there is a potential bargain I think
that could be had to resolve a lot of
the tension between the United States
and China really between the West and
China in general which is basically
peace and economic access. So you go
back to that bargain. That's really the
bargain that Germany, Japan, France,
United Kingdom, all these mighty empires
took, which is we're going to forego our
dreams of regional dominance and
territorial acquisition and in exchange
we get tremendous economic access to the
whole western network. We basically get
security guarantees and our people are
better off for it. So I could see
something like that happening between
the United States and China somewhere
down the line. But I think you're going
to have to have this shift in the
balance of power first. I think the most
likely scenario is that China runs out
of gas for all those economic reasons I
gave, but you know, it could be we just
had the debate. I didn't see how it went
between Harris and Trump. Uh but if the
United States tears itself apart uh and
just collapses, well then that's a shift
in the balance of power and maybe
that'll get resolved in China's favor.
The bottom line is something big is
going to have to happen for us to break
this deadlock. But in the good news is
in the meantime a cold war between the
United States and China doesn't have to
go hot. And there are in fact fringe
benefits to a cold war. You could have a
relatively tense but stable situation
where ironically the two sides in sort
of a space race dynamic push each other
to innovate faster and as a result
humans get better AI and better climate
reducing uh climate change reducing
technologies and all other kinds of good
things come out of this competitive
dynamic between two of the leading
states in the international system. So
we are going to have a cold war for now.
The bad news is I think we're entering a
moment of maximum danger just because of
where China is in its life cycle as a
great power. But if we can make it
through these terrible 20s, I think
there's we can be cautiously optimistic.
We'll get to a better place maybe in uh
10 years. Uh so on that happy note,
thank you so much and I hope to see you
all uh at the dinner later tonight.
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