The relationship between China and the US will define the geopolitics of the future. Can the conflict between the two giants be avoided?
The Future of Work will not happen in a vacuum; it will happen in a political, social, and economic environment. The geopolitics of the future will have an enormous impact on all our lives, so it is a topic worth studying.
In the post entitled What will the world be like in 2100? I hinted at the creation of a new world order, with globalization continuing its march towards more integration, although with its ups and downs, and two superpowers, China and the US, dominating the world scene.
Is this forecast correct? Nobody knows yet, but it does seem likely. In this post, we will focus mainly on the rivalry between China and the US.
Avoiding the Thucydides trap
The Thucydides trap establishes that there is a tendency towards war when one superpower is declining, and another one is rising. War seems to be almost inevitable in those cases. The term is modern and is mainly used to refer to the US and China, but it is based on the commentary of the historian and general Thucydides on the Peloponnesian Wars, when the established hegemon, Sparta, and the rising power, Athens, clashed in several wars.
It is a process that we have seen happen many times in history after that, for example, between the same Greeks/Macedonians and Persians, Greeks and Romans, Romans and Germanic peoples, the Mongols and the Chinese, the Japanese and the Chinese, all the innumerable wars between European powers from the Middle Ages to the Second World War, and a long list of other conflicts in history.
The rise of China in the last decades is undeniable. The progress their society has seen in a generation is astonishing, raising hundreds of millions of people out of poverty and becoming one of the most modern and digitally savvy countries in the world. China has become an economic and technological powerhouse that might pass the US in real GDP terms in the 2030s.
The US still has the most powerful army in the world, but for how long? As the power of the US wanes and that of China rises, is war inevitable, or can we escape the Thucydides Trap?
A two-horse race?
A war between the two world superpowers would be disastrous for them and the rest of the world, as the world economies are more interconnected than ever. Still, it is not entirely out of the question. A top US admiral warned that China could invade Taiwan before 2027. This could be the catalyst of a war between the two giants.
Taiwan isn’t officially an American ally, as the US is committed to the One China policy since the ’70s. Still, in practice, they have supported Taiwan by selling weapons and providing them with military support for decades.
As The Economist argues, if China attacked Taiwan and America didn’t go to their aid, all the American allies in Asia (Japan, South Korea, and all the rest) would realise that the US was no longer able to guarantee their safety. The Pax Americana would crumble, causing the end of the world order as we know it.
The US still has the mightiest and the most technologically advanced army in the world, but it is not clear they would win a war in China’s backyard. The result would be uncertain, so it would be a risky move. Nobody in the Chinese or US government wants a war against the other power, but this alone hasn’t avoided wars in the past. Often wars that nobody wants end up happening anyway.
The US and Western powers feel that China has been increasingly assertive in its foreign policy, and Xi Jinping is leaning towards a more authoritarian grip on the country internally. On the other hand, China feels its deserved rise into world power is being curtailed by a paranoid and declining power like the US. It is Thucydides’ trap once again.
The consequence is an escalation of disputes between both countries via a trade war, sanctions on each other, the limitations against Huawei, etc. The last two years of the Trump administration saw a rise in this escalation, which Biden is bent on continuing, but with the support of the Western allies Trump so much spurned.
The world is watching nervously while the two superpowers escalate and harden their stances, but for the sake of all of us, let us hope we don’t end up in Cold War II. It would be catastrophic. There are many global challenges we need to face as a species. After all, we are all people, and we all have the same problems: global warming, the risk of nuclear annihilation, technological disruption… to name just a few.
Many people believe that Artificial Intelligence is the future. I would argue that it is already the present, as it impacts almost everything we do, and it is upending numerous industries. In his book about China, the US, and AI entitled AI Super-Powers, Kai-Fu Lee argues that China has all the elements to dominate the AI world in the future and thus become the leading global super-power.
He argues that the US dominated the initial stage of AI innovation, as it attracts the main researchers in the field, but China will dominate the phase that we are now entering, the phase of implementation. Creating an AI super-power in this era requires four main building blocks: abundant and quality data, the right kind of entrepreneurs, well-trained AI scientists, and a supportive policy environment. Lee believes China has an advantage in most of these.
To begin with, China has more mobile and internet users than the US and Europe combined, which gives Chinese companies an advantage in the quantity of data they manage and analyse. Not only that. In China, the digital world combines with the real world for every day online and offline services, so the quality of the data these companies have about their consumers’ behaviours is much richer than that of their Silicon Valley peers, which consists mainly of the number of likes, follows, and thumbs-up. Thus, China edges the US in both the quantity and quality of its data.
Lee also argues that Chinese entrepreneurs are like gladiators hardened in the cut-throat arena of the hypercompetitive Chinese market. Western entrepreneurs seem to be more gentlemanly and are not used to the methods and toughness of the China market. This is another point in their favour.
Regarding AI scientists, this is where the US still has the edge over China, especially in the quality of top researchers. However, Lee believes that the main breakthroughs in the AI and Machine Learning fields have already been achieved. In the implementation era, the quantity of solid engineers will be more important than the quality of elite researchers. Here China wins once again.
Last but definitely not least, the Chinese government has focused all its efforts on promoting and enabling the development of AI industries. Westerners can complain as much as they want about the authoritarian inclinations of the Chinese Communist Party, but it is undeniable that when they put their minds to achieving something, they get the right amount of focus and resource allocation at all levels of government. The vast investments and facilities given to AI companies are a clear example of this.
Kai-Fu Lee cites a study from PwC, that estimates that AI deployment will add $ 15.5 trillion to global GDP by 2030, of which China would get $7 trillion, almost double the US take of “only” $3.7 trillion.
Proponents of capitalist liberal democracies based on a market economy traditionally argued that their model was the best to allocate resources and promote innovation, as innovation cannot be centrally planned or fostered. China is not centrally innovating, but it has created the right incentives and environment to create an economy where innovation is fostered and encouraged.
AI is one of the most significant technological innovations of the last few decades, with an impact everywhere, from new business models to military strategy and intelligent weapons. If one power gets AI supremacy over all the rest, it may well end up dominating the world.
It will be interesting to see how this space develops.
Geopolitics money: Petrodollar vs. e-Yuan
Since the Bretton Woods conference just after the Second World War, the US Dollar has been the world currency reserve. First, it was backed by gold, but by the late 60s, the US Government could not maintain this backing due to the escalating costs of the Vietnam war and the social reforms of the time. In 1971 the Nixon administration decided to dismantle the Bretton Woods standard and stop the gold backing of the USD.
A couple of years later, the US government made a deal with Saudi Arabia and other Gulf powers, establishing that they would sell oil products denominated only in dollars and buy US Treasuries and bonds. In return, the US would provide military protection and sell them weapons. All countries needed to have US dollars in their reserves to buy oil. Thus it was created the petrodollar system that made the US dollar the de facto global currency.
Being the global currency brings some advantages to the US Government, not only economic but also geopolitical. The US Government can print all the money they want, and the cost will be transferred to all citizens of the world, not only to their own citizens. They can also sanction other countries and individuals and take them out of the SWIFT payment system altogether or freeze their assets in allied banking systems. They have been using the dollar as a political weapon with increased frequency in the last few years, which irks its rivals and pushes them to look for alternatives.
The EU tried to rival the USD with the creation of the Euro, but it wasn’t a match. Even if it became the second most used currency in the world from inception, more than 80% of global trade is still carried out in USD.
Saddam Hussein didn’t want to sell Iraqi oil in “the currency of the enemy,” so he announced they would be selling it in Euro denominations in 2000. Some people believe that the actual cause of the Iraq War was not to find WMDs or to fight Islamic terrorism but to bring the considerable Iraqi oil reserves back to the petrodollar system and set an example for the rest of the oil-exporting countries so none of them thought about leaving the dollar system again.
China doesn’t like or want to rely on the US Dollar either, so they are trying to uplift their currency, the yuan, from another angle. They are one of the first countries in the world to launch a Central Bank Digital Currency (CBDC), a centralized cryptocurrency owned and managed by the Chinese Central Bank.
Couple the digital e-yuan with their Belt and Road Initiative, whereby they are investing massive amounts of money in infrastructure projects around the ancient silk road, and their bet for an increasing number of countries in their vicinity to conduct more trade in the new e-yuan is clear. This will give them, like the global USD does to the US, more economic and political clout.
There are currently around 200 countries in the world, but when talking about future geopolitics, we have only spoken about the US and China so far. What happens with all the others? Aren’t they important?
Of course, they are. Billions of people live there, me included. Many things will happen in India, Africa, Latin America, Europe, South-East Asia, the Middle East…. Still, everything will circle around what happens between China and the US, be it a Cold War, a Trade War, or just some gentle discrepancies. For the sake of all of us, let’s hope it is the last one.
Whichever it is, the tensions and rivalry between China and the US will be the main geopolitical battle for the next years and decades. Let’s keep an eye on it.