This essay has been published by firstpost.com at https://www.firstpost.com/opinion/shadow-warrior-a-us-china-condominium-dividing-up-the-world-between-themselves-12464262.html
Amidst all the heated rhetoric about the Ukraine war and the possible Taiwan war, there is the undeniable fact of a great-power rivalry between the US and China, with Russia reduced to a bit player. It is also undeniable that in relative terms, China is advancing and the US is declining. What might be the end result of this rivalry?
The standard answer is the Thucydides Trap, as articulated by an academic from Harvard University, Graham Ellison. In a nutshell, it argues that when there is a rising power and a declining power, chances are that they will go to war, based on actual experience dating back centuries to the Greek rivalry between Athens and Sparta.
That prospect is daunting, because of the possibility of nuclear exchanges between the two; even if that is avoided, a destructive World War III would involve many others, including India which (unfortunately, once the ancient buffer state of Tibet was swallowed up) has a long and restive land border with China.
But there are other scenarios. One is accelerated American decline, and therefore tacit surrender. The second is the collapse of China from its internal dynamics, including a Potemkin-ish economy with very high debt/GDP and inflated GDP from pointless construction.
Towards a condominium
The third, I am beginning to believe, is becoming more and more likely: a condominium between the two, an ‘adjustment’ as we say in India, whereby they will arrive at a satisfactory compromise, without direct conflict between them. In other words, they will carve out zones of control, spheres of influence, and create an armed truce. That may well be the best outcome for both nations: no destructive war, some compromise, and business as usual, more or less.
The very fact that everyone is now talking darkly about conflict between the two is, counter-intuitively, a signal that the opposite is likely. There are a few reasons that such a non-conflict scenario might make sense. One is demographics. You don’t want to go to war when your population is falling. As is well-known, China will suffer a steep decline in population, thus making for a high elderly-dependency ratio and reducing internal demand along with supply of labor. The US has been assumed to be immune to this disease that afflicts Europe as well.
Demographic decline
However, a recent analysis by the Financial Times (I would like to include a caveat here about the possible unreliability of short-term data analytics and naive assumptions about causality) suggests that US longevity is declining sharply, especially among its youth. Larry Summers, a former top official, made the following dramatic comparison with the former Soviet Union:
Here is a relevant chart from the FT story itself, and it tells a depressing tale. A lot of young Americans are dying, from drug overdoses, accidents, and so on.
So perhaps both these countries will suffer a genteel demographic decline. If that is the case, then it is logically better for them to not go to war or disturb the status quo ante too much.
Debt trap
Another reason is the level of external debt and thus codependency. The US has an enormous level of dollar-denominated debt ($24 trillion), and China holds quite a bit of that ($3 trillion) in US Treasury securities. The US has a vested interest in not letting the value of the dollar decline (for all sorts of reasons), but it turns out the Chinese have a vested interest in that too, because otherwise their holdings will suffer a loss of value. Right there is room for a compromise.
Supply chains, deindustrialization and penetration of products
A third reason is the supply-chain dependence. As John Mearsheimer of the realist school of international relations has suggested on many occasions, the US made a fatal mistake in allowing China to strip it of its industrial capacity after its WTO accession around 2000. As David Teece of UC Berkeley warned long ago, losing manufacturing means that you will eventually lose the capacity for design as well.
China is so good at mechanical engineering and at vastly scaling up operations, and they have acquired so much product intellectual property through R&D, coercion or theft, as well as excellent tacit process IPR, and developed clusters and ecosystems so well, that it is going to be hard for ‘alt-Asia’ to step into the breach and offer an alternative. Besides, in the short run, the ‘China price’ is irresistible for US managers with their short-term incentives.
On the software side, four out of the top ten apps in the US are apparently Chinese in origin, according to Jacob Helberg, a Stanford geopolitics expert on the Realignment podcast. This includes Tiktok, which is at the center of a dispute about the transfer of detailed US consumer data to China, and the military implications thereof. On the other hand, major US platforms such as Google, Meta, Youtube etc are banned in China. There are also Chinese CCTV cameras, container cranes, and even vacuum cleaners hoovering up American data.
Plus, Wall Street has invested so much in China that they cannot easily pull away from the Dhritarashtra embrace: “‘Will you walk into my parlor?’, said the Spider to the Fly”. This applies to Silicon Valley venture capitalists too, investing in, say, artificial intelligence companies in China, apparently also unmindful of the fact that the Chinese government is within its rights to confiscate their entire funding.
And they are repeating that cycle all over again, not having learned bitter lessons from the last time around. In this report, read ‘China’ for ‘overseas investments. The lemmings are running over the cliffs, again.
Thus there is reason for compromise: and I think that will lead to a system where each will have its defined ‘sphere of influence’ that the other respects. We have seen a similar system in the past where the US and the Soviet Union had their respective ‘empires’; it was only when one was vulnerable was the other able to force a collapse.
Dividing up the world
There is room for a condominium agreement between the US and China, and in fact this may well be the most likely outcome of their palavers. Least cost to them, and workable. And there is precedent, for instance in Egypt and Sudan. There was also the Berlin Conference of 1884 that divided up Africa among colonial European powers.
A possible division of the world between the US and China would be: the US would continue to dominate the Western Hemisphere and the Americas, thus an Atlantic and Pacific power; China would dominate Asia, the Indian Ocean, Africa, and also be a Pacific power.
Such a working arrangement was foreshadowed by earlier calls by POTUSes Clinton and Obama for China to be hegemon in ‘South Asia’. Such a possibility may be the reason that the late Abe Shinzo came up with the idea of the Quad, which could possibly place some limits on China’s Asian dominance even if there is a condominium.
I was reminded of this possibility by news from an unlikely source: the Vatican announced that its ‘papal bulls’ from the 1500s, which justified the genocide of indigenous people all over the world, was being withdrawn.
There were other papal acts that sanctioned the division of the world between Portugal and Spain. It was not another papal bull, but the Vatican-brokered Treaty of Tordesillas in 1494 that allowed these two countries to claim (by divine right, obviously) any lands that they ‘discovered’. In effect, Portugal got Asia and Africa, and Spain got the Americas. Of course, any indigenes that they ‘discovered’ were disposed of via the ‘Doctrine of Discovery’.
I am sure that the Vatican can be pressed into service for a putative ‘Treaty of Geneva’, let us say, that formally divides the world into US and Chinese spheres of influence, which the other party will largely keep out of, all the better to take care of the natives without undue conflict between the principals.
The Vatican, after all, provides the lead to the Anglosphere despite the Catholic-Protestant divide: the ‘Doctrine of Lapse’, by which British imperialists created a “law” whereby any Indian kingdom that didn’t have a ‘proper male heir’ automatically became British territory, was likely derived from the ‘Doctrine of Discovery’, which basically says: “What’s mine is mine, what’s yours is negotiable”. Divine right, manifest destiny, whatever.
The condominium idea is not even all that unusual. France and Britain had one over Egypt in 1875-76, and Britain and Egypt had one over Sudan 1899-1955. So international law, such as it is, does recognize the possibility of this sort of arrangement.
Manufacturing consent
The other reason for confidence, paradoxically, is that there is a lot of talk about the US-China rivalry, and what the mainstream media says needs to be taken with a large pinch of salt, because of widespread evidence of ‘manufacturing consent’; some have even gone to the extent of dubbing it the ‘Censorship-Industrial Complex’, so vast is its impact. Therefore, it is not unreasonable to believe whatever the media is offering is the exact opposite of reality
One of the most dependable of these is the Economist magazine from Britain. Despite their oft-trumpeted self-image as the voice of reason, they generally are the voice of NATO, and are quite bullish about conflict. In fact, I can’t remember a war they did not like, and I suspect they like all totalitarians, especially Xi Jinping. In one of their recent issues, they raised the specter of war between China and the US; I contend this is good reason to imagine a rapprochement.
According to the Economist, however, economic decoupling between the two may cost between 0.2% and 7% of world GDP. Well, that right there is as good a reason as any to think about a more comfortable condominium arrangement. Another good reason is that instead of five great powers – US, Russia, China, the EU, and India – jostling for power, there are really only two.
Russia is a much diminished version of the fearsome Soviet Union, despite all its nuclear warheads and missiles. The EU is splintered and also compromised: as was said of Germany, its biggest member, it “outsourced its security to the US, its energy needs to Russia, and its export-led growth to China”; but these days, it’s the US in all three roles. India is not ready to play in the big leagues. So it’s down to the two elephants in the room dancing together.
Why dominate just half the world, not the whole world?
A legitimate question would then be why the US would want to relinquish its hegemony over virtually the entire world, and confine itself to just half the world, abandoning Anglosphere friends New Zealand and Australia to the tender mercies of the Chinese Communist Party, and leaving Germany, France et al vulnerable to Chinese pressure tactics. India and Japan will be thrown to the wolves, too, not to mention Taiwan.
The answer is that the US may no longer have the capability to bestride the world like a colossus, as it did for a brief shining moment after the Cold War ended, and the unipolar world was a reality, and Francis Fukuyama announced ‘The End of History’: America had won, and capitalism had won. American soft power was dominant, too.
Things look rather different these days. There are concerns about how capable the US is in several spheres: military, economic and cultural.
Military problems: No longer globocop?
Take the military arena first. The US outspends its competition by a wide margin. It has the latest and greatest gadgets, thanks to a well-funded R&D ecosystem and the military-industrial complex. But the problem is that the outcomes of military adventures are poor: the US has demonstrated its inability to win major wars with proxy foes supported by its almost-equals, but only skirmishes where it has overwhelming advantage.
Afghanistan and Vietnam, where rag-tag guerilla groups eventually wore out American resolve, show the limits to the use of military power. In particular, the helter-skelter abandonment of allies and materiel in Afghanistan signaled to the current generation, whose memories of Vietnam are distant, that the sole superpower can be defeated. The ongoing fiasco in Ukraine, which may end in a defeat for the side supported by the US and the EU, may strengthen this view. The probable fall of Bakhmut will end any illusions about the survival of the Zelensky regime.
The economic picture is none too good: De-dollarization a big threat
On the economic front, the immediate danger of the banking crisis precipitated by the Silicon Valley Bank’s failure may have been handled (with a $20 billion price tag to the taxpayer) but it has exposed some fundamental weaknesses in the US economy. But more alarmingly, there is a spreading sentiment towards de-dollarization which can seriously harm US interests.
The US made an extraordinary mistake in allowing, in fact encouraging, China to deindustrialize it based on the illusion that the latter would become a western-style capitalist democracy as it prospered. On the contrary, the reserve currency status of the US dollar is now under threat.
The stark reality is that the de-industrialization of the US has impoverished the nation. A good analogy is Britain. As a child, I remember a lot of “Made in England” products: these were coveted in the crony capitalist/socialist-era India of shoddy local manufacturing. But British goods have disappeared everywhere, and not coincidentally their economy has nosedived.
The same thing is happening in/to the US. There is far less by way of consumer goods that carry the “Made in the USA” label anywhere in the world. Admittedly, there are big-ticket, tech-heavy items such as Boeing’s aircraft and all the military hardware, as well as services such as Amazon cloud, Google search, etc. But the point is that the demand for US dollars for the purpose of buying American-made goods has fallen dramatically.
Therefore the major reason there is still demand for the dollar is its status as a reserve currency, whereby third countries largely denominate their trade obligations in dollars. So there’s an unending source of demand for the dollar. In particular, this has been true of the oil trade (and the consequent accumulation of the petrodollar).
Now, however, the Saudis are signaling in no uncertain terms that they are cross with the US. We can speculate about the reason, but they are cozying up to China, making friends with Iran, and joining groups such as the Shanghai Cooperation Organization that exclude the US. A recent production cut by Saudi-led OPEC+ is also not a friendly gesture.
Especially in the wake of sanctions against Russia, which has been removed from the SWIFT interbank exchange and other western mechanisms, there has been a rise in third-currency trade, for instance India and Russia may now be trading in rupees via Dubai banks. The BRICS countries have also announced they may create their own alternative currency.
All this means that the dollar, and the US economy, are no longer so secure. There is an eerie echo of what happened to the Soviet Union: they were defeated in Afghanistan, pushed into an arms race they couldn’t afford, and then they disintegrated. Obviously the US is not going to be balkanized, but it is possible that the US cannot afford an arms race, especially after the billions, or even trillions, that have been wasted on both Afghanistan and Ukraine.
Cultural collapse
The cultural angle is very damaging. The wokeness phenomenon in the US has led to avoidable fissures in society, with identity issues taking center stage in a destructive way. The spectacle of senseless gender battles about trans bathrooms and the definition of a woman, not to mention people with male genitalia hanging out of female swim costumes, as well as the violent Black Lives Matter riots, are reducing US soft power.
The widespread use of opioids, fentanyl and other such drugs, leading to the obvious deterioration of, say, downtown San Francisco into a festering and dangerous place (a famous Silicon Valley engineer, Bob Lee, was just stabbed to death in a casual killing) as well as the evisceration of criminal laws leading to undeterred theft from stores (Whole Foods closed their flagship store in San Francisco just a year after opening it) are making the US less attractive. Wokeness is killing America.
A lot of the hard drugs are believed to be coming from China. Opium War in reverse, maybe?
There has also been a lot of actual damage to third parties from US decisions. One example is in food prices almost certainly a result of the Ukraine war.
Walter Russell Mead, writing in the WSJ, warned that there is an erosion of trust in the US, and that both allies and foes are looking for a Plan B. This Plan B is the condominium.
Besides, the latest Pentagon leaks hurt the credibility of the US as an ally. Even the very pro-Democrat Washington Post was forced to admit this.
Given all this, the US may no longer be in any position to dominate the world as it used to just twenty or thirty years ago. A condominium with China is probably the simplest and most feasible Plan B for the US.
2900 words, 13 April 2023
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