I am writing from Hong Kong. A year ago I commented on one of Noah’s articles. The mood among the English literate Chinese middle class (my cohort) has turned to total despair. Noah was more right in 2021, our cohort got it wrong. X is worse than all of us thought. Those of us with the luxury to “run” are making back up plans to leave. Most cannot.
I have a friend who was a banker in Hong Kong. He left about five years ago. The word from the mainland was that foreigners were no longer welcome, and he was the last westerner to leave. The writing has been on the wall for at least a decade. Even in 2010, ex-pats in China had noticed a shift. For a decade or so, an outsider could build a good business in China, but then it became increasingly difficult. One had to take in local partners, share IP with local competitors and otherwise accepting that the golden age of investment was other. China played the usual industrialization game, almost by the book, and it has now reached an end stage.
Anyone who has studied Chinese history knows that the country has gone through a multi-century cycles with long periods of stasis interrupted by eras of outside influence. Sometimes they are triggered by invasions or rebellions, but China has long periods with limited outside influence. Geography explains part of it, but it seems to be embedded in the culture as well.
"China's "Profound Transformation" is not so profound" - Sep 2021.
In 2021 most Chinese middle class were quite satisfied with the Govt. Omicron had not yet hit. Shanghai was quite pleasant to live in. I walked around the streets of Shanghai in summer 2021 with no mask - nobody cared. Chinese and Expats mixed at happy hours, talking about web3 etc.
I work in the Chinese TMT sector. Fast forward one year, we've seen:
-2022 mass lockdowns for weeks/months (I left Shanghai 10 days before the lockdown - by pure luck, not insight)
-mass layoffs at Chinese TMT companies
-Chinese share price collapse - our pay is largely in stock, not cash
The old assumptions about Economic Growth as a KPI for the Gov are obsolete; this is a real paradigm shift. Control and Mobilization > Economic development.
"Surely they can't keep these lockdowns and economic suicide going? Surely they won't continue the crackdowns which are causing mass layoffs? This is madness!"
Well, they sure can keep this going, far far longer than any of us expected.
I was in China for 17 of the last 30 years and the times I was out of China,i was either doing graduate work, covering china from the USA or in HK. I worked in PE and VC and ran a start-up in the early days. One part that is glossed over is the disportionate treatment of the relationship treatment. In hindsight, while America looked to make money in China, China in some ways abused the relationship . This included forced technology transfer and the broad theft of corporate secrets. I had a long talk with a close friend who funded several deals and still lives in Shanghai. We both agree that this approach laid the groundwork for the current decoupling. Xi is also ushering in a different China that its citizens might not appreciate. Unlike the previous leaders, Xi is a pure politician and committed communist. China is now making it difficult to get or renew passports for its citizens. It has forced Zero Covid on its citizens because Xi cannot abide that China's domestic vaccines are weak and it would be embarrassing that a western/American vaccine would set the country back to work. China is running into somer serious economic headwinds that for years Chinese politicians have assumed that the country would never face- the middle income trap. This will cut down on economic growth. in addition, the CCP's plan to place communist party member into private company management will be a disaster. Part of the debt problem that the country faces is that politicians participated in loan decisions best left to the economics of banking. Now, imagine China's entire private sector now faced with the prospect that politics may enter into business decisions. Finally, China has an aging population which affects economic growth. This can be somewhat assuaged by immigration. However, China is making it very difficult for foreigners to live and work in China. According to a close Chinese friend, 5 years ago, Beijing had over 250,000 foreigners. Today, there are 25,000. It is an end of an era and I fear for my friends, both Chinese and foreigners, in China. 10 years ago, the Chinese I knew and met, students, investors, business people, laobaixin all looked forward to the array of opportunities in the future, better jobs, more money, travel. Increasingly, those rosy futures are dimming. China became a global power because of its economy. If it no longer has the same role in the world, what does it base its relevance on?
The removal of statistics show they are too bad to publish. The failures of the economy under persistent lockdown is no surprise. But hiding the numbers is to prevent disgrace for Xi and his version of the CCP and accompanying social unrest.
This is good but I’d suggest a couple of alternatives. More countries in Asia than you think might be likely to play both sides between China and the US. We’ve seen this already with India hedging between Russia and the US in the Ukraine conflict. In the long run, India is likely to be a great power. It has no reason to accept US hegemony. It can get more from the US by bargaining hard than by falling in line – because the US needs it to replace China as a source of cheap manufactures. Other countries in Asia see China as a large, near and rich market. They are not likely to want to decouple, although they will desire US protection if and when there is a more serious conflict. In short, the future might be more India versus China, with US playing a transitional role, than US versus China with India as a hanger on.
That's several decades away. It will be the US vs China for the foreseeable future unless the PLA is stupid enough to try and invade India for the second time. For now, the ideologues in India's foreign policy establishment are too jaded by Cold War foreign policy and want to play a delicate balancing act that I personally think will blow up in their faces. We have a revisionist conservative party in power that prides itself in doing things differently and generally is copying China in industrial and economic policy without having the economic heft, technocratic leadership or national coordination required to succeed at it.
The kingmaker will be the EU which frankly seems to me like it's more likely to carry out a Faustian bargain with China if the US turns isolationist once more a century after its previous attempt to do so.
Yes, very quickly but a strong dollar is leading to inflation, depreciation and Indian manufacturing is going to take time to come anywhere close to matching China's so it's still very much dependent on its northern neighbour. China can still decimate India and there's not as much enthusiasm for decoupling inside India's business and policy circles as much as there is for indigenizing but there's just a distinct lack of knowledge, inputs & capital. It's going to be more painful for India unless US & India come to some sort of a trade and policy agreement but that would be anathema for a Democratic president who's promised to Build Back Better. Indian products get outmuscled by Chinese products in Bangladesh, Sri Lanka, Pakistan, Southeast Asia and East Asia so it's wishful thinking that they can simply topple China anytime soon.
In a decade, I'm sure Indian consumers will be rich enough that American and Europeans will want to bet on opening factories in India to support the domestic market while also supplying the rest of Asia. By then, Chinese products (EVs, high-speed rail, smartphones, 5G equipment, AI technology, batteries) will have already estalished a foothold across Asian and European markets already.
It's not just price that matters. It's reliability.
Chinese folks believe India wanted to invade Tibet or so they're told. Indian folks grow up learning that Mao Zedong sent his premier to be friends with India's first PM but was ultimately keen on showcasing his strength by punishing a weaker neighbour and grabbing a large tract of land, including an entire Indian state, while the US was distracted by the Cuban Missile Crisis.
Chinese diplomatic officials continue to ask for a border resolution in their favour and ignore anything India or anyone else suggests because the only borders they want to restore the map of the Chinese empire as it stood before the collapse of the Qing dynasty in 1911. Tibetan, Xinjiangese or Taiwanese self-determination doesn't matter.
Very good piece. It was clear the Chimerica theme was over during Obama’s term when China excluded US tech firms and social media, militarized the South China Sea, started reining in HK , and greatly ramped up espionage on the US government and private companies. China changed the tone long before Trump did.
The good news is that US manufacturing still has the expertise and tech IP- they went to China for ease of doing business: scale, quick approvals, low costs etc. It is not as if they forgot how to run factories. 3M was making masks in China.
A factory site in China can be leveled and developed very quickly with the right backing and connections. In many US states it would take 10 years to get a simple warehouse type structure approved (like a Wal Mart). Permitting reform is an issue in the US, though more serious in Blue states.
As manufacturing becomes more automated, the importance of labor costs will shrink (though they will still be a differentiator). Electricity costs, land costs, rule or law/property rights and transport network will be key competitive advantages. US land costs are reasonable (relative to Europe, not EM), electricity costs are low and the freight rail network is excellent.
Workforce scale and quality is lacking in the US, for sure. I agree that the US should look to allies in Asia and neighbors in Latin America to build and integrate a global network. This already exists, though not yet on the scale to replace a China.
Ideally it would be Europe who would develop and integrate Africa (particularly N Africa) and the Mideast, which has energy resources and young workforces. Unfortunately, Europe takes a mercantilist/colonialist approach to trade and is too timid in foreign policy and military affairs. The US is likely going to have to focus on Egypt, Morocco, Nigeria,etc because Europe will not be as active as it should (except France in W Africa).
The era of low inflation and ever increasing consumption is likely over as costs increase due to reshoring. EM countries could grow more slowly without the tailwind of globalization, except those countries integrated into a cooperative trade network. I believe the US model (which has always been for the subsidiaries of multinationals to become local companies and local manufacturers- in part due to US corporate tax rules) will have an advantage over the mercantilist/exploitive/neocolonialist approach taken by China and Europe.
I hate to "like" this post, but it brings a great deal into focus in a coherent way. Thank you for providing clarity.
As someone who became involved with China during the Cultural Revolution, and who watched with great optimism as China emerged from Maoism, the past decade has felt increasingly alarming, and this past week feels as though we've moved past the alarm phase and into the world that the alarms were warning about. And I think in two more weeks the alarms are going to become more intense with regard to the US.
Yes the 2022 midterms will long be remembered in history books as one of the great turning points in world history….well, perhaps only in the imagination of sad people who live on Twitter.
Actually, Treeamigo, I think people, sadly on Twitter or off, will regard the 2022 20th CCP National Congress as one of the great turning points in history, prefigured in very different ways by the two prior congresses.
The 2022 US midterm election will not likely be long remembered, except to the degree it may prefigure a 2024 US election that is an historial turning point.
The history of the world since the industrial revolution is that the countries with the greatest manufacturing industries become major world powers, and as they grow they lose their industry (Germany partially excepted) because their capitalist classes want cheaper labour and commodities. Then, after a lag, they lose their power despite keeping their living standards.
The British empire/U.K. is an example. It once bestrode the world, and now is a very minor world power. That is true for most of Europe, most countries now having limited manufacturing and military power. Given this reality America is in likely long term decline, although being the reserve currency masks a lot of problems.
Which is why I bet that China is going to try and challenge that.
Yeah, you would think so, for goods whose ultimate destination is the US, especially where transport costs and especially transport lags (China => US) are a significant part of the cost of goods sold.
But from the terrain following perspective of a company (my employer) which has been trying seriously for 3-4 years to move some outsourced manufacturing back from China to Mexico (which was our outsource location >20 years ago), it's amazing how much more expensive Mexico still is. And this is for bulky/heavy/moderate quantities (= expensive to transport) items going to final assembly in Texas, where the relative advantages of Mexico should be high.
Man, I've been saying for months now that you're too optimistic about the rest of the world falling in line with the US when the momentum is clearly in China's favour. You've no idea how much people seem to love to hate on the US because most people haven't read history books or Cold War literature! I feel cursed to have grown up in India, Southeast Asia and China on a diet of Western literature and American pop culture because I feel like it's not safe to talk to anyone all around me including the HK folks who are disillusioned with the CCP. Give it a few years of continous economic growth and all of them will sing a different tune and accept Chinese hegemony. Heck, people who are sticking around are even trying to get their kids to learn Chinese instead of Cantonese.
You should travel to places where China is influential to really get an idea of how differently they're perceived. No amount of Western journalism is changing their minds.
In most countries the people don’t matter- just the leadership and sometimes the elites. These people can be bought and are being bought by the Chinese through bribes and business opportunities (all across Asia, Africa and along the Silk Road).
The ordinary people and the countries’ treasuries will be left holding the bag (and the loans), but China can then swoop in with forgiving terms (in exchange for ownership of hard assets) and bribe the new set of leaders.
I remember when bin laden was killed by the USA. I was in Africa at the time and an African friend came over all outraged. I never saw him hating on the USA before.
But part of his shock was the relentless hunting of bin laden til they got him. He didn't seem to think the USA had that in them. I further wound him up by saying he better not annoy the Americans or they would hunt him to the end of the earth.
Exactly. I don't know too much about what's going on in the Middle East but there's always simmering tension in North Korea and in the South China sea mostly with Philippines. Ultimately, WWIII if it happens could just involve a lot of distracting skirmishes with the goal of China and Russia seeking to take over or demolish countries to solidify their claims of military supremacy in their respective regions and establish totalitarian control within their borders. Heck, if I was an American, I also wouldn't want to intervene beyond supplying military aid as it could really get out of hand and global public opinion is decidedly anti-American so it'd just blow up in their faces. Maybe I'm wrong. I dunno.
Had forgotten about North Korea. Add them in with an attack on Japan. If, Heavy on the if, one of the three started, followed by another, then another it would put the U.S. in a tricky spot. Let one’s allies or needed partners get taken out, and who will trust you?
An attack on Japan or Korea would be a violation of sovereignty and I'm sure the US would intervene but US foreign policy has been ambigious on Taiwan so they can't safely do that without it escalating. An attack on US bases in Japan or Korea would be the start of the US-China war but an attack on some random little islands (the Senkaku Islands) that China claims and North Korea invading South Korea with the Chinese claiming they have nothing to do with it would lead to a lot of confusion and stretch the US army/navy/air force thin.
It's all about finding the right way to intervene these days. The US can't intervene in Ukraine because it's not part of NATO and it'd be politically unpopular at home. The US shouldn't intervene if random islands get attacked near Japan or Philippines and wouldn't want to intervene if there's a Taiwan invasion as it's another country's problem or at least that's how the US electorate see it.
Maybe I'm weird, because although I don't think Ukraine ia worth defending with American troops, I *do* think Taiwan is. This might be a really stupid idea, but I think that the US should have troops in Taiwan the way it does in South Korea, making it impossible for someone to invade without killing Americans and leaving us no room to declare the invasion "someone else's problem". (Although Reagan did pull out of Lebanon after terrorists attacked and killed US soldiers there.)
You are correct, we have no legal obligation to defend Ukraine. We lack a legal, though Biden has given a verbal reason for or to defend Taiwan. South Korea we are required to defend. We have some sort of agreement with Saudi Arabia, but am not familiar with what it requires of us.
My worry is that these four will follow Putin's path, and purposely wreck havoc, forcing us to actually defend a treaty ally or not to be trusted when the chips are down.
This may be a one off Putin mistake, just it looks to convenient to me not to be the start of something.
Putin earlier today, after my previous posts, said nuclear use would be stupid. So long as he holds to that, my scenario is bogus, once that changes, it may become very active. Heavy of the word, may become.
We do not disagree. My thought is of a continuing cascade of wars, that would likely force US to act, which would result in a ratcheting up by one of the four adversaries. How one manages such a set of escalations is neither easy to do or too imagine.
Thanks, get the sense this essay will provoke a shift in how I, at least, view the world. Like Russian tanks on the way to Kiev did. My hope is you find a way to inject a version of this into European discourse.
The TPP still exists. It is now called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. It excludes both China and the USA. With luck this state of affairs will be permanent.
Great article! Couldn't come at more perfect time either. China imo has just hit the fan with a lot of things. The lack of statistics, and the truthfulness of those released statistics, baffles me. I have to imagine the broad Chinese economy is hurting. Also fascinating to see how trade and direct investment has changed in the country.
Great article and I agree completely with the blueprint for the new world order. I do think getting India to go along with this will be tricky. They will need to be given a top seat at the table (with the US and EU) so they don’t feel like they are being colonized again. Also, there will need to be a military agreement to allow them to remove their dependence on Russia. Maybe bring India into NATO. Once organized, I hope it leads to a new era of innovation spurred on by competing with China to end the complacency and profit maximization we have seen after the Cold War ended.
We are seeing the same again now. A couple of centuries of colonialization does lead to residual perspectives that don't necessarily favor European and European-origin (US, Canada, etc.) countries.
Surprised to see you quote Gramsci there, though it is probably his most famous phrase. I dug into Prison Letters for a few weeks. He is an obvious genius but it’s a hard slog, especially if you are not already intimately familiar with Italian culture.
Noah, great article! Can you please touch on the smile curve chart by Meng. I noticed that Mexico is at the top right hand portion of the cuve. How does Mexico's position from a geographic and manufacturing capability standpoint factor into your equation going forward? Already the relationship between Juarez/El Paso is significant... do you see this increasing?
A flippant reply about a problem arguably likely to do more damage to the world (kill more people) than our China confrontation. I think your China policy needs an explicit way to keep cooperative channels open, as we did with Russia at the height of the cold war. I don't recall a word about this in your otherwise excellent analysis.
Possibly the way smallpox was dealt with during the Cold War. If both major powers agree that, their other differences aside, a thing must be done, it gets done. Their allies go along with them, and no one else wants to try to stand in their way.
Strange that Europe isn’t using the opportunity of the cessation of oil and gas to go first. I am sure there would be many eager followers and EU voters would be all for it
I am writing from Hong Kong. A year ago I commented on one of Noah’s articles. The mood among the English literate Chinese middle class (my cohort) has turned to total despair. Noah was more right in 2021, our cohort got it wrong. X is worse than all of us thought. Those of us with the luxury to “run” are making back up plans to leave. Most cannot.
Hey, me too!
I have a friend who was a banker in Hong Kong. He left about five years ago. The word from the mainland was that foreigners were no longer welcome, and he was the last westerner to leave. The writing has been on the wall for at least a decade. Even in 2010, ex-pats in China had noticed a shift. For a decade or so, an outsider could build a good business in China, but then it became increasingly difficult. One had to take in local partners, share IP with local competitors and otherwise accepting that the golden age of investment was other. China played the usual industrialization game, almost by the book, and it has now reached an end stage.
Anyone who has studied Chinese history knows that the country has gone through a multi-century cycles with long periods of stasis interrupted by eras of outside influence. Sometimes they are triggered by invasions or rebellions, but China has long periods with limited outside influence. Geography explains part of it, but it seems to be embedded in the culture as well.
What article were you looking at?
"China's "Profound Transformation" is not so profound" - Sep 2021.
In 2021 most Chinese middle class were quite satisfied with the Govt. Omicron had not yet hit. Shanghai was quite pleasant to live in. I walked around the streets of Shanghai in summer 2021 with no mask - nobody cared. Chinese and Expats mixed at happy hours, talking about web3 etc.
I work in the Chinese TMT sector. Fast forward one year, we've seen:
-2022 mass lockdowns for weeks/months (I left Shanghai 10 days before the lockdown - by pure luck, not insight)
-mass layoffs at Chinese TMT companies
-Chinese share price collapse - our pay is largely in stock, not cash
The entire experience is surreal. Neverending lockdowns. Armed police in white hazmat suits pointing guns at tourists at Xishuangbanna airport in Yunnan. (https://euroweeklynews.com/2022/10/04/china-zero-covid-policy-machine-guns-xishuangbanna-airport-yunnan/)
The old assumptions about Economic Growth as a KPI for the Gov are obsolete; this is a real paradigm shift. Control and Mobilization > Economic development.
"Surely they can't keep these lockdowns and economic suicide going? Surely they won't continue the crackdowns which are causing mass layoffs? This is madness!"
Well, they sure can keep this going, far far longer than any of us expected.
Time to G.T.F.O.
I was in China for 17 of the last 30 years and the times I was out of China,i was either doing graduate work, covering china from the USA or in HK. I worked in PE and VC and ran a start-up in the early days. One part that is glossed over is the disportionate treatment of the relationship treatment. In hindsight, while America looked to make money in China, China in some ways abused the relationship . This included forced technology transfer and the broad theft of corporate secrets. I had a long talk with a close friend who funded several deals and still lives in Shanghai. We both agree that this approach laid the groundwork for the current decoupling. Xi is also ushering in a different China that its citizens might not appreciate. Unlike the previous leaders, Xi is a pure politician and committed communist. China is now making it difficult to get or renew passports for its citizens. It has forced Zero Covid on its citizens because Xi cannot abide that China's domestic vaccines are weak and it would be embarrassing that a western/American vaccine would set the country back to work. China is running into somer serious economic headwinds that for years Chinese politicians have assumed that the country would never face- the middle income trap. This will cut down on economic growth. in addition, the CCP's plan to place communist party member into private company management will be a disaster. Part of the debt problem that the country faces is that politicians participated in loan decisions best left to the economics of banking. Now, imagine China's entire private sector now faced with the prospect that politics may enter into business decisions. Finally, China has an aging population which affects economic growth. This can be somewhat assuaged by immigration. However, China is making it very difficult for foreigners to live and work in China. According to a close Chinese friend, 5 years ago, Beijing had over 250,000 foreigners. Today, there are 25,000. It is an end of an era and I fear for my friends, both Chinese and foreigners, in China. 10 years ago, the Chinese I knew and met, students, investors, business people, laobaixin all looked forward to the array of opportunities in the future, better jobs, more money, travel. Increasingly, those rosy futures are dimming. China became a global power because of its economy. If it no longer has the same role in the world, what does it base its relevance on?
The removal of statistics show they are too bad to publish. The failures of the economy under persistent lockdown is no surprise. But hiding the numbers is to prevent disgrace for Xi and his version of the CCP and accompanying social unrest.
Ten to twenty years ago they had to go by tons of steel shipped to get any tea idea of how the economy was doing.
This is good but I’d suggest a couple of alternatives. More countries in Asia than you think might be likely to play both sides between China and the US. We’ve seen this already with India hedging between Russia and the US in the Ukraine conflict. In the long run, India is likely to be a great power. It has no reason to accept US hegemony. It can get more from the US by bargaining hard than by falling in line – because the US needs it to replace China as a source of cheap manufactures. Other countries in Asia see China as a large, near and rich market. They are not likely to want to decouple, although they will desire US protection if and when there is a more serious conflict. In short, the future might be more India versus China, with US playing a transitional role, than US versus China with India as a hanger on.
That's several decades away. It will be the US vs China for the foreseeable future unless the PLA is stupid enough to try and invade India for the second time. For now, the ideologues in India's foreign policy establishment are too jaded by Cold War foreign policy and want to play a delicate balancing act that I personally think will blow up in their faces. We have a revisionist conservative party in power that prides itself in doing things differently and generally is copying China in industrial and economic policy without having the economic heft, technocratic leadership or national coordination required to succeed at it.
The kingmaker will be the EU which frankly seems to me like it's more likely to carry out a Faustian bargain with China if the US turns isolationist once more a century after its previous attempt to do so.
India’s growing pretty fast, no?
Yes, very quickly but a strong dollar is leading to inflation, depreciation and Indian manufacturing is going to take time to come anywhere close to matching China's so it's still very much dependent on its northern neighbour. China can still decimate India and there's not as much enthusiasm for decoupling inside India's business and policy circles as much as there is for indigenizing but there's just a distinct lack of knowledge, inputs & capital. It's going to be more painful for India unless US & India come to some sort of a trade and policy agreement but that would be anathema for a Democratic president who's promised to Build Back Better. Indian products get outmuscled by Chinese products in Bangladesh, Sri Lanka, Pakistan, Southeast Asia and East Asia so it's wishful thinking that they can simply topple China anytime soon.
In a decade, I'm sure Indian consumers will be rich enough that American and Europeans will want to bet on opening factories in India to support the domestic market while also supplying the rest of Asia. By then, Chinese products (EVs, high-speed rail, smartphones, 5G equipment, AI technology, batteries) will have already estalished a foothold across Asian and European markets already.
It's not just price that matters. It's reliability.
That’s if Western countries trust Chinese tech to not spy on them.
"Second" time?
https://en.wikipedia.org/wiki/Sino-Indian_War
Chinese folks believe India wanted to invade Tibet or so they're told. Indian folks grow up learning that Mao Zedong sent his premier to be friends with India's first PM but was ultimately keen on showcasing his strength by punishing a weaker neighbour and grabbing a large tract of land, including an entire Indian state, while the US was distracted by the Cuban Missile Crisis.
Chinese diplomatic officials continue to ask for a border resolution in their favour and ignore anything India or anyone else suggests because the only borders they want to restore the map of the Chinese empire as it stood before the collapse of the Qing dynasty in 1911. Tibetan, Xinjiangese or Taiwanese self-determination doesn't matter.
Very good piece. It was clear the Chimerica theme was over during Obama’s term when China excluded US tech firms and social media, militarized the South China Sea, started reining in HK , and greatly ramped up espionage on the US government and private companies. China changed the tone long before Trump did.
The good news is that US manufacturing still has the expertise and tech IP- they went to China for ease of doing business: scale, quick approvals, low costs etc. It is not as if they forgot how to run factories. 3M was making masks in China.
A factory site in China can be leveled and developed very quickly with the right backing and connections. In many US states it would take 10 years to get a simple warehouse type structure approved (like a Wal Mart). Permitting reform is an issue in the US, though more serious in Blue states.
As manufacturing becomes more automated, the importance of labor costs will shrink (though they will still be a differentiator). Electricity costs, land costs, rule or law/property rights and transport network will be key competitive advantages. US land costs are reasonable (relative to Europe, not EM), electricity costs are low and the freight rail network is excellent.
Workforce scale and quality is lacking in the US, for sure. I agree that the US should look to allies in Asia and neighbors in Latin America to build and integrate a global network. This already exists, though not yet on the scale to replace a China.
Ideally it would be Europe who would develop and integrate Africa (particularly N Africa) and the Mideast, which has energy resources and young workforces. Unfortunately, Europe takes a mercantilist/colonialist approach to trade and is too timid in foreign policy and military affairs. The US is likely going to have to focus on Egypt, Morocco, Nigeria,etc because Europe will not be as active as it should (except France in W Africa).
The era of low inflation and ever increasing consumption is likely over as costs increase due to reshoring. EM countries could grow more slowly without the tailwind of globalization, except those countries integrated into a cooperative trade network. I believe the US model (which has always been for the subsidiaries of multinationals to become local companies and local manufacturers- in part due to US corporate tax rules) will have an advantage over the mercantilist/exploitive/neocolonialist approach taken by China and Europe.
We will see.
I hate to "like" this post, but it brings a great deal into focus in a coherent way. Thank you for providing clarity.
As someone who became involved with China during the Cultural Revolution, and who watched with great optimism as China emerged from Maoism, the past decade has felt increasingly alarming, and this past week feels as though we've moved past the alarm phase and into the world that the alarms were warning about. And I think in two more weeks the alarms are going to become more intense with regard to the US.
Yes the 2022 midterms will long be remembered in history books as one of the great turning points in world history….well, perhaps only in the imagination of sad people who live on Twitter.
Actually, Treeamigo, I think people, sadly on Twitter or off, will regard the 2022 20th CCP National Congress as one of the great turning points in history, prefigured in very different ways by the two prior congresses.
The 2022 US midterm election will not likely be long remembered, except to the degree it may prefigure a 2024 US election that is an historial turning point.
>And I think in two more weeks the alarms are going to become more intense with regard to the US.
Why's that?
Hi Joe - Because I was wrong! This string predates the election, when there seemed to be momentum towards a "red wave."
“ The U.S. was willing to tolerate the devastation of its manufacturing base, but not its relegation to a second-class power.”
The capitalists convinced themselves that they could destroy workers wages without consequence, that the “jobs are not coming back”
https://youtu.be/CKpso3vhZtw
The history of the world since the industrial revolution is that the countries with the greatest manufacturing industries become major world powers, and as they grow they lose their industry (Germany partially excepted) because their capitalist classes want cheaper labour and commodities. Then, after a lag, they lose their power despite keeping their living standards.
The British empire/U.K. is an example. It once bestrode the world, and now is a very minor world power. That is true for most of Europe, most countries now having limited manufacturing and military power. Given this reality America is in likely long term decline, although being the reserve currency masks a lot of problems.
Which is why I bet that China is going to try and challenge that.
What does everyone think about the possibility of nearshoring from China to Mexico?
Some of that will happen
Yeah, you would think so, for goods whose ultimate destination is the US, especially where transport costs and especially transport lags (China => US) are a significant part of the cost of goods sold.
But from the terrain following perspective of a company (my employer) which has been trying seriously for 3-4 years to move some outsourced manufacturing back from China to Mexico (which was our outsource location >20 years ago), it's amazing how much more expensive Mexico still is. And this is for bulky/heavy/moderate quantities (= expensive to transport) items going to final assembly in Texas, where the relative advantages of Mexico should be high.
And what about the Chinese market? How happy will be the American capitalism to loose such a big share of the global market?
Man, I've been saying for months now that you're too optimistic about the rest of the world falling in line with the US when the momentum is clearly in China's favour. You've no idea how much people seem to love to hate on the US because most people haven't read history books or Cold War literature! I feel cursed to have grown up in India, Southeast Asia and China on a diet of Western literature and American pop culture because I feel like it's not safe to talk to anyone all around me including the HK folks who are disillusioned with the CCP. Give it a few years of continous economic growth and all of them will sing a different tune and accept Chinese hegemony. Heck, people who are sticking around are even trying to get their kids to learn Chinese instead of Cantonese.
You should travel to places where China is influential to really get an idea of how differently they're perceived. No amount of Western journalism is changing their minds.
In most countries the people don’t matter- just the leadership and sometimes the elites. These people can be bought and are being bought by the Chinese through bribes and business opportunities (all across Asia, Africa and along the Silk Road).
The ordinary people and the countries’ treasuries will be left holding the bag (and the loans), but China can then swoop in with forgiving terms (in exchange for ownership of hard assets) and bribe the new set of leaders.
I remember when bin laden was killed by the USA. I was in Africa at the time and an African friend came over all outraged. I never saw him hating on the USA before.
But part of his shock was the relentless hunting of bin laden til they got him. He didn't seem to think the USA had that in them. I further wound him up by saying he better not annoy the Americans or they would hunt him to the end of the earth.
Reminds me of the conclusion of PJ O’Rourke’s book “Give War a Chance”.
That’s if China’s economy still will grow fast.
At the moment that does not seem to be the case.
People are assuming that things, which includes Ukraine, will remain stable. This may be our biggest fallacy.
The U. S. Is not prepared for an assault on Taiwan by China or Iran to take On Saudi Arabia.
It is probably more likely not to happen but if that triumvirate sought maximum pressure simultaneously, it might work.
Though only if we held back from WWIII.
Too be fair, China isn’t ready for an assault on Taiwan yet either.
China also still has the Malacca Strait problem where the US and allies can choke off 75% of China’s energy.
Exactly. I don't know too much about what's going on in the Middle East but there's always simmering tension in North Korea and in the South China sea mostly with Philippines. Ultimately, WWIII if it happens could just involve a lot of distracting skirmishes with the goal of China and Russia seeking to take over or demolish countries to solidify their claims of military supremacy in their respective regions and establish totalitarian control within their borders. Heck, if I was an American, I also wouldn't want to intervene beyond supplying military aid as it could really get out of hand and global public opinion is decidedly anti-American so it'd just blow up in their faces. Maybe I'm wrong. I dunno.
Had forgotten about North Korea. Add them in with an attack on Japan. If, Heavy on the if, one of the three started, followed by another, then another it would put the U.S. in a tricky spot. Let one’s allies or needed partners get taken out, and who will trust you?
An attack on Japan or Korea would be a violation of sovereignty and I'm sure the US would intervene but US foreign policy has been ambigious on Taiwan so they can't safely do that without it escalating. An attack on US bases in Japan or Korea would be the start of the US-China war but an attack on some random little islands (the Senkaku Islands) that China claims and North Korea invading South Korea with the Chinese claiming they have nothing to do with it would lead to a lot of confusion and stretch the US army/navy/air force thin.
It's all about finding the right way to intervene these days. The US can't intervene in Ukraine because it's not part of NATO and it'd be politically unpopular at home. The US shouldn't intervene if random islands get attacked near Japan or Philippines and wouldn't want to intervene if there's a Taiwan invasion as it's another country's problem or at least that's how the US electorate see it.
It's quite the pickle.
(American here)
Maybe I'm weird, because although I don't think Ukraine ia worth defending with American troops, I *do* think Taiwan is. This might be a really stupid idea, but I think that the US should have troops in Taiwan the way it does in South Korea, making it impossible for someone to invade without killing Americans and leaving us no room to declare the invasion "someone else's problem". (Although Reagan did pull out of Lebanon after terrorists attacked and killed US soldiers there.)
You are correct, we have no legal obligation to defend Ukraine. We lack a legal, though Biden has given a verbal reason for or to defend Taiwan. South Korea we are required to defend. We have some sort of agreement with Saudi Arabia, but am not familiar with what it requires of us.
My worry is that these four will follow Putin's path, and purposely wreck havoc, forcing us to actually defend a treaty ally or not to be trusted when the chips are down.
This may be a one off Putin mistake, just it looks to convenient to me not to be the start of something.
Putin earlier today, after my previous posts, said nuclear use would be stupid. So long as he holds to that, my scenario is bogus, once that changes, it may become very active. Heavy of the word, may become.
We do not disagree. My thought is of a continuing cascade of wars, that would likely force US to act, which would result in a ratcheting up by one of the four adversaries. How one manages such a set of escalations is neither easy to do or too imagine.
Sucks to be stuck in China!
Thanks, get the sense this essay will provoke a shift in how I, at least, view the world. Like Russian tanks on the way to Kiev did. My hope is you find a way to inject a version of this into European discourse.
The end of the TPP is going to end up being seen as a disaster isn’t it
We'll bring it back
The TPP still exists. It is now called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. It excludes both China and the USA. With luck this state of affairs will be permanent.
Great article! Couldn't come at more perfect time either. China imo has just hit the fan with a lot of things. The lack of statistics, and the truthfulness of those released statistics, baffles me. I have to imagine the broad Chinese economy is hurting. Also fascinating to see how trade and direct investment has changed in the country.
Great article and I agree completely with the blueprint for the new world order. I do think getting India to go along with this will be tricky. They will need to be given a top seat at the table (with the US and EU) so they don’t feel like they are being colonized again. Also, there will need to be a military agreement to allow them to remove their dependence on Russia. Maybe bring India into NATO. Once organized, I hope it leads to a new era of innovation spurred on by competing with China to end the complacency and profit maximization we have seen after the Cold War ended.
Outside of the fact that India is nowhere near the Atlantic, why is it never mentioned in terms of NATO?
India was officially neutral during the Cold War and in practice slightly favored the Soviet Union.
We are seeing the same again now. A couple of centuries of colonialization does lead to residual perspectives that don't necessarily favor European and European-origin (US, Canada, etc.) countries.
Surprised to see you quote Gramsci there, though it is probably his most famous phrase. I dug into Prison Letters for a few weeks. He is an obvious genius but it’s a hard slog, especially if you are not already intimately familiar with Italian culture.
He reminds me of myself in my younger days...
Noah, great article! Can you please touch on the smile curve chart by Meng. I noticed that Mexico is at the top right hand portion of the cuve. How does Mexico's position from a geographic and manufacturing capability standpoint factor into your equation going forward? Already the relationship between Juarez/El Paso is significant... do you see this increasing?
That's actually just one Mexican industry...not sure which one actually.
Noah, you don't mention the climate change elephant in the room. How is it to be dealt with in your bipolar vision?
It will be the same but hotter
A flippant reply about a problem arguably likely to do more damage to the world (kill more people) than our China confrontation. I think your China policy needs an explicit way to keep cooperative channels open, as we did with Russia at the height of the cold war. I don't recall a word about this in your otherwise excellent analysis.
I agree. As recent remarks from both leaders also seem to indicate, cooperation is the best result for everyone: https://asia.nikkei.com/Politics/International-relations/US-China-tensions/Xi-says-China-willing-to-work-with-U.S.-for-mutual-benefit
The new system should be a competition to see who can save the world, not who can control it.
Eh, it’s the truth. In the end, we’ll spray sulfur in to the atmosphere and turn the sky orange to make this planet livable.
Possibly the way smallpox was dealt with during the Cold War. If both major powers agree that, their other differences aside, a thing must be done, it gets done. Their allies go along with them, and no one else wants to try to stand in their way.
Strange that Europe isn’t using the opportunity of the cessation of oil and gas to go first. I am sure there would be many eager followers and EU voters would be all for it