The defining question about global order for this generation is whether China and the United States can escape Thucydides’s Trap. The Greek historian’s metaphor reminds us of the attendant dangers when a rising power rivals a ruling power - as Athens challenged Sparta in ancient Greece, or as Germany did Britain a century ago. Most such contests have ended badly, often for both nations, a team of mine at the Harvard Belfer Center for Science and International Affairs has concluded after analyzing the historical record. In 12 of 16 cases over the past 500 years, the result was war. When the parties avoided war, it required huge, painful adjustments in attitudes and actions on the part not just of the challenger but also the challenged.
– From Graham Allison’s article: The Thucydides Trap: Are the U.S. and China Headed for War?
For the past two years, my geopolitical assumption has been that the Trump administration would more or less continue along with the reckless, shortsighted, and disastrous neocon/neoliberal interventionist foreign policy of the past two decades focused on undeclared regime change and proxy wars across the world, especially the Middle East. Given his strange obsession with Iran, I figured he’d start a conflict there and that this conflict would end up a bigger disaster than Iraq.
I assumed this mistake would coincide with continued massive deficits, a unwieldy debt load and most likely a recession. In turn, I believed this would lead to an embarrassing and chaotic unraveling of the U.S. empire. At that point, other nations like China would opportunistically take advantage of the huge power vacuum left over.
Based on a variety of events over the past few months, I’m no longer convinced this is how it’s going to unfold.
First, the article published by Bloomberg back in October, The Big Hack: How China Used a Tiny Chip to Infiltrate U.S. Companies, really grabbed my attention. If you haven’t read it, I strongly suggest you go do that, as I was immediately blown away by the implications. To summarize, the story purports that 17 sources in both government and the corporate world claim Chinese spies inserted a malicious microchip into Supermicro servers and that this affected nearly 30 companies, including tech behemoths Amazon and Apple. Equally incendiary, the article reported that Amazon and Apple knew about it, but never let the public know. Apple, Amazon and others vehemently denied the Bloomberg story, and we still don’t know the truth. As I noted at the time:
In other words, we've got a seriously fucked up situation on our hands because one of these things must be true. Someone is lying and lying BIG.— Michael Krieger (@LibertyBlitz) October 4, 2018
Either China really did compromise hardware and U.S. tech giants are actively covering it up, or unnamed sources invented a story to make China look nefarious in order to up the ante in the growing dispute between the two nations. We still can’t be sure which one is true, but the end result is pretty much the same. Greatly increased tensions with China.
While I knew the Bloomberg story had wide-ranging implications, it wasn’t enough to make me seriously consider a distinct geopolitical forecast.
Then came the second major event, which was the arrest of Wanzhou Meng, the CFO of China’s telecom giant Huawei earlier this month. Importantly, she’s much more than just an executive at a giant Chinese company, she’s “the daughter of the telecom giant’s founder, Ren Zhengfei. An ex-officer with the People’s Liberation Army, Ren is one of the country’s most revered business figures.”
It’s also worth mentioning that she was arrested while Trump was sitting down to dinner with Chinese President Xi Jinping on the sidelines of the G20 summit. I can’t even imagine the level of anger this must have caused on the part of the Chinese. This made me realize that the “trade war” is just a prelude to a much bigger confrontation.
Moving along, yesterday we learned of a sudden plan to withdraw all U.S. troops from Syria. I want to make it clear we don’t know if this is just talk or will actually happen (for a skeptical take see this), but if it does occur, it will make it increasingly likely that U.S. foreign policy has undergone a massive and monumentally significant shift. A shift away from failed regime change boondoggles in far flung areas of the world Americans don’t care about, to a very major and probably long-lasting confrontation with China itself.
If this is in fact the case, it’s impossible to overstate its significance.
In my view, such a shift would signal that the U.S. has acknowledged the unipolar imperial world completely dominated by America is over and unrecoverable, and therefore resources will shift away from the silly dream of full spectrum global dominance into a managed retreat. A managed retreat would be considered preferable since it could be done on U.S. terms as opposed to having the terms forced upon it. In other words, it would be a proactive foreign policy based on reality, rather than a reactive one forced upon it by circumstances.
This isn’t to say any of this will be good or pleasant, but from the realpolitik perspective of those preoccupied with U.S. power in a post unipolar world, it’s the most likely move. A realization that wars in the Middle East achieve no long-term objectives for the U.S. may finally have occurred. They just weaken the country, get the public annoyed and waste enormous amounts of money that could be spent elsewhere. Meanwhile, other countries just sit back and wait for America to fall over so they can pick up the pieces. Finally, it’d be almost impossible to sell the public on another major conflict in the Middle East. Selling the public on China as an adversary will be much easier.
Today we saw further evidence of things heating up, as Deputy Attorney General Rod Rosenstein and FBI Director Christopher Wray announced the unsealing of an indictment against two accused Chinese hackers. As Ben Hunt of Epsilon Theory observed.
This is what you do to solidify domestic public opinion before waging a war, trade or otherwise. https://t.co/A47APTd4yD— Ben Hunt (@EpsilonTheory) December 20, 2018
Then there’s the ongoing crash in financial markets. Many people think this is just the market reacting to interest rate hikes in the midst of an economic slowdown and a realization that corporate profits have peaked. While that’s undoubtably a big part of it, I think there’s more.
I think gold is the real canary in the coal mine, and gold is starting to signal serious problems on the geopolitical front. I’ve noticed for a few weeks that gold had started to trade strong, in sharp contrast to the past seven years. While it reversed and went lower after the hawkish Jay Powell did his thing yesterday, it did something unexpected today. As the stock market continued to plunge, gold reversed all its losses and closed at a new near-term high. Gold is seeing beyond the simple economic issues and into the geopolitical realm in my opinion.
But what is gold telling us? I think it may be confirming the thesis outlined above. Which is that U.S. foreign policy is pivoting away from aimless wars all over the place in order to sustain the impossible dream of unipolar empire, and toward a more singular goal focused on preventing China from dominating the globe in the decades ahead. If successful, the coming multi-polar world may be characterized by a bifurcated global economy, as outlined in a very interesting piece from Strategic Culture, America’s Technology and Sanctions War Will End, by Bifurcating the Global Economy.
Globalization as we have all known it is dead and buried and it isn't coming back. The future global economy will look completely different and will likely be far more balkanized.— Michael Krieger (@LibertyBlitz) December 20, 2018
Of course, there’s no way to know if I’m right about any of this. Just because it looks this way today doesn’t mean it will play out that way in the future. Nevertheless, I’ve now seen enough to seriously consider that we may be entering an entirely new geopolitical environment dominated by vastly increased tensions between the U.S. and China. If so, it will likely last a lot longer than you think as leaders in both China in the U.S. will be looking for a scapegoat as their crony, financialized economies struggle under unpayable debt and unimaginable levels of corruption.
* * *