Even If Joe Biden Wins in a Blowout, the ‘Global Economy’ Is Not Coming Back

Yves here. I hate to sound like a Luddite, but the idea of global production, in the form of China as the world’s manufacturer, was never sustainable. I am still gobsmacked that Western multinational and tech execs would make their operations hostage to a country where they have no influence over their government, and that government has a strong interest in developing its own champions.

By Marshall Auerback, a market analyst and commentator. Produced by Economy for All, a project of the Independent Media Institute

COVID-19 has not only presented the global economy with its greatest public health challenge in over a century, but also likely killed off the notion of America’s “unipolar moment” for good. That doesn’t mean full-on autarky or isolationism but, rather, enlightened selfishness, which allows for some limited cooperation. Donald Trump’s ongoing threats to impose additional tariffs on a range of EU exports are exacerbating this trend as the old post-World War II ties between the two regions continue to fray. Even the possibility of a Biden administration is unlikely to presage a reversion to the status quo ante. Regionalization and multipolarity will be the order of the day going forward.

Many will regard these developments as chiefly driven by geopolitical prerogatives. But over time, the driving engine of the process will be a combination of maturing technologies that are rewriting the laws of profitability in manufacturing and production for advanced economies. The various capacities that enabled a far-flung global supply chain and sent the economies of Asia into hyperdrive over the past 40 years have continued to mature. The rise of China, South Korea and Japan in this period is just a phase of a larger series of advances that are now likely to become more distributed and at the same time reshuffle the geopolitical trend lines we currently experience.

The reshuffling is coming in large part because America’s historic military dominance has less relevance in a world where the new forms of competition place greater weight on access to advanced research and technologies, rather than the projection of brute military force (especially given the increasing proliferation of nuclear technologies and the rise of asymmetric warfare). Furthermore, the lack of American manufacturing capacity has left it open to a significant loss of influence to the benefit of other regions, notably China (in Asia), and Germany (in the European Union).

China in particular will likely remain both a geopolitical and economic rival to the United States for the foreseeable future, especially as it already supersedes the United States in some areas of technology (such as 5G), and is increasingly becoming the locus of economic activity in Asia. As yet, Asia is by no means a cohesive economic or strategic bloc (such as the European Union), especially given the ongoing American influence in countries such as Japan, South Korea and Taiwan. But longer term, it is hard to believe that an independent democratic Japan would embrace a foreign policy stance that risks antagonizing a country of almost 1.4 billion people with nukes. According to some projections, by 2050 Japan will likely constitute about one-eighth of China’s GDP, South Korea much less. On the basis of that size disparity, strategic triangulation is a non-starter. Japan will no more be able to “balance” China than Canada today can “contain” the United States. It is likewise difficult to envisage Seoul continuing to have its own relations with the North being continuously subject to the vagaries of Pentagon politics in D.C. Heightening instability on the Korean peninsula is hardly in the long-term interests of either Seoul or Pyongyang.

By the same token, the idea of a broad but shallow trilateral United States-EU-Japan bloc against China is also a fantasy because the European Union, like Japan, increasingly finds its own interests clashing with those of the U.S. These tensions have manifested themselves fully in the current dispute over Huawei, China’s largest telecommunications equipment manufacturer. The Europeans, especially Germany, may well be too invested in China to side with the United States in this particular dispute given its strong pre-existing commercial ties with the former, as Wolfgang Munchau’s Eurointelligence highlights:

“China is Germany’s biggest trading partner. Merkel continues to seek dialogue with China and insisted that ties with the country are of strategic importance to the EU. If this can be called a strategy it is clearly motivated by economic interests. These days, German car makers are dependent on the Chinese market, where record sales in Q2 compensated for the fallout from the pandemic in other markets, the FAZ reports.”

This also applies in the specific case of Huawei, where the U.S. is spearheading an attempt to limit the Chinese company’s global reach on national security grounds. Berlin in particular is seeking to balance the tensions of preserving an increasingly fraying relationship with the U.S. versus safeguarding emerging German commercial interests in China. The Merkel government is expected to make a definitive decision on Huawei by the autumn when the German parliament reconvenes; this will have significant implications for Europe as a whole, as an increasing number of EU member states are moving away from the firm’s 5G wares.

German political opinion remains sharply divided on the issue of Huawei. The decision is also complicated by the fact that “Deutsche Telekom, a 32%-state-owned company, is the country’s largest mobile provider and already relies heavily on Huawei equipment. It has lobbied strongly against any action that would make it harder for it to roll out 5G,” according to the Economist. If the Berlin government fails to follow the lead of the United Kingdom (which recently reversed an earlier decision to incorporate Huawei equipment in its growing 5G infrastructure), it will send a very powerful political signal in terms of how Germany prioritizes its long-term interests, which are no longer axiomatically tied to the U.S.

However Germany decides on Huawei, Atlanticism as a concept is largely dead in Europe. Even before the onset of the pandemic, for example, Italy had already become the first European country to join China’s Belt and Road Initiative (BRI) in response to ongoing economic stagnation. COVID-19 has, if anything, accelerated this Sinification of the Italian economy, given the ham-handed response of Brussels to the country’s plight (and which is still governed by old prevailing austerity biases). Although the tangible economic benefits of the BRI have likely been overstated, Rome-based journalist Eric Reguly has written:

The Italian government rolled out the welcome mat to Chinese President Xi Jinping in part because it is desperate for foreign investment. Italy suffers from crushing youth unemployment and never fully recovered from the 2008 financial crisis. It felt it was more or less abandoned by the U.S. and the rest of the EU on the investment front. The anti-EU sentiment among Italians rose during the migrant crisis, when other countries of the bloc refused to relieve Italy’s migrant burden, and rose again earlier this year, when Brussels ignored Italy’s initial pleas for help to fight COVID-19.

It is important to note that Huawei is but a symptom of a broader EU disengagement from the U.S. Even if Huawei’s role in Europe’s future 5G networks is minimized, the big winners will be European companies, Nokia and Ericsson, not American ones. The 5G deficiency is but one illustration of how America’s failure to prioritize a robust manufacturing sector has contributed to a loss of influence and leverage in Europe.

That in turn explains the relatively tepid response to American pressure in many European capitals. Many EU member states have made the calculation that their interests are no longer inextricably tied to those of the U.S. One also sees this in response to American threats over new Russian natural gas pipelines, which the EU is largely ignoring. Europe has outgrown the suffocating embrace of Cold War exigencies.

The one outlier might well be the United Kingdom in its post-Brexit incarnation. Via the Five Eyes intelligence coordination among the U.S., the United Kingdom, Canada, Australia and New Zealand, it is possible that there will be a further tightening of the Anglosphere countries. Their current convergence on Huawei is one illustration of this, although Huawei’s Chief Digital Officer, Michael MacDonald, concedes that the battle over 5G dominance is small fry compared to “the total Digital Economy, which is generally accepted to contribute as much as 25% of the world’s gross domestic product (GDP) by 2025-26, [and] will be worth approximately $20 trillion, with 5G contributing just 0.2%.” And here the U.S. has everything to play for, given its ongoing dominance through American Big Tech behemoths such as Amazon, Apple, Facebook and Google.

As far as the U.S. itself goes, that also means a narrow but deep North America strategy (United States/Mexico/Canada), especially given the American government’s increasing proclivity to view economic warfare through the prism of national security considerations (as it did during the original Cold War). Those national security calculations have changed somewhat: In a reversal of old Cold War norms, whereby the strategic importance of Japan via America’s offshore naval presence was paramount, Mexico is now being prioritized, at least in regard to manufacturing and investment flows via the new North American trade agreement. As U.S. Trade Representative Robert Lighthizer writes in Foreign Affairs, the newly reconfigured United States-Mexico-Canada (USMCA) trade agreement reinforces this trend by “overhaul[ing] the ‘rules of origin’ that govern trade in the… [automobile] sector,” increasing the threshold from 62.5 percent under the old NAFTA to 75 percent under the new USMCA.

These concerns are becoming bipartisan, as both parties are now tacking increasingly toward an overt form of economic nationalism.

Multipolarity need not usher in a Hobbesian-style world of eternal conflict. But as it becomes more of a reality, it signals the increasing eclipse of America as a preeminent superpower of one. Asia’s rise in particular simply returns the distribution of economic activity to what it was before the first industrial revolution. That’s not a bad thing, except for those rooted toward an embrace of American hegemony that must be retained at all costs, peacefully or by war. If anything, one could argue that America’s status as the world’s sole global superpower ushered in considerably greater global instability, given the absence of any restraining counterweight, as Washington went from one unilateral war of choice to another. A Joe Biden victory in November may temporarily arrest these trends, but the die has been cast.

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47 comments

  1. Sound of the Suburbs

    How can you kill growth in your economy?
    Copy Japan

    This is what the West did before 2008.
    Japan led the way and everyone followed.
    At 25.30 mins you can see the super imposed private debt-to-GDP ratios.
    https://www.youtube.com/watch?v=vAStZJCKmbU&list=PLmtuEaMvhDZZQLxg24CAiFgZYldtoCR-R&index=6
    What Japan does in the 1980s; the US, the UK and Euro-zone do leading up to 2008 and China has done more recently.
    The PBoC saw the Minsky Moment coming unlike the BoJ, ECB, BoE and the FED.

    Japan was just doing what the US had done in the 1920s; it’s inevitable with this economics.
    Policymakers set their economies up for Great Depressions by using bank credit to inflate asset prices, which causes debt to rise faster than GDP.

    How did Japan avoid a Great Depression?
    They saved the banks
    How did Japan kill growth for the next thirty years?
    They left the debt in place and the repayments on that debt killed growth.

    Richard Koo had studied what had happened in Japan and knew the same would happen in the West after 2008. He explains the processes at work in the Japanese economy since the 1990s, which are at now at work throughout the global economy.
    https://www.youtube.com/watch?v=8YTyJzmiHGk
    Debt repayments to banks destroy money, this is the problem.
    https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf

    The West isn’t as bad as Japan as we didn’t let asset prices crash, but it’s still the same problem.

    China was the last real engine of global growth after 2008, and they have made the same mistake as everyone else.
    China did see the financial crisis coming, but the debt fuelled growth model they have been using since 2008 has reached the end of the line.
    This is why the global economy was slowing down before the coronavirus.

    Bank credit effectively moves future prosperity into today, and we have had the good times already, like Japan in the 1980s.
    https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf
    Now its repayment time, like Japan for the last thirty years.

    Banks – What is the idea?
    The idea is that banks lend into business and industry to increase the productive capacity of the economy.
    Business and industry don’t have to wait until they have the money to expand. They can borrow the money and use it to expand today, and then pay that money back in the future.
    The economy can then grow more rapidly than it would without banks.
    Debt grows with GDP and there are no problems.

    Reply
    1. Sound of the Suburbs

      What are the big problems with neoclassical economics that cause policymakers to lead their economies into Great Depressions?
      1) It doesn’t consider debt
      2) It makes you think you are creating wealth by inflating asset prices.
      Bank credit flows into inflating asset prices and you are on your way to a Great Depression.

      The UK is the best example.
      The UK used to be the great financial superpower and it looks as though we understood this in the past.
      https://www.housepricecrash.co.uk/forum/uploads/monthly_2018_02/Screen-Shot-2017-04-21-at-13_53_09.png.e32e8fee4ffd68b566ed5235dc1266c2.png

      What happened in 1979?
      The UK eliminated corset controls on banking in 1979, the banks invaded the mortgage market and this is where the problem starts.
      The transfer of existing assets, like real estate, doesn’t add to GDP, so debt rises faster than GDP until you get a financial crisis.

      Before 1980 – banks lending into the right places that result in GDP growth (business and industry, creating new products and services in the economy)
      Debt grows with GDP
      After 1980 – banks lending into the wrong places that don’t result in GDP growth (real estate and financial speculation)
      Debt rises faster than GDP

      2008 – Minsky Moment, the financial crisis where debt has over whelmed the economy
      We saved the banks to avoid a Great Depression.
      We left the debt in place to cause a balance sheet recession.
      After 2008 – Balance sheet recession and the economy struggles as debt repayments to banks destroy money. We are making the repayments on the debt we built up from 1980 – 2008.
      Japan has been like this since 1991.

      China has worked it out, very late in the day.
      The PBoC knew how to spot a Minsky Moment coming, unlike the FED, BoE, ECB and BoJ.

      Davos 2018 – The Chinese know financial crises come from the private debt-to-GDP ratio and inflated asset prices
      https://www.youtube.com/watch?v=1WOs6S0VrlA
      The black swan flies in under our policymakers’ radar.
      They are looking at public debt and consumer price inflation, while the problems are developing in private debt and asset price inflation.

      Davos 2019 – The Chinese know bank lending needs to be directed into areas that grow the economy and that their earlier stimulus went into the wrong places.
      https://www.youtube.com/watch?v=MNBcIFu-_V0
      This is what the UK used to do before 1980.

      Reply
      1. TomDority

        Well – one part that is not mentioned — or stated directly I guess
        You stated ( and I have no problem with the facts)
        1) “The West isn’t as bad as Japan as we didn’t let asset prices crash, but it’s still the same problem.”
        2)”2008 – Minsky Moment, the financial crisis where debt has over whelmed the economy
        We saved the banks to avoid a Great Depression.
        We left the debt in place to cause a balance sheet recession.'”

        Regarding #1 – The fact that the west’s asset prices (namely property -real estate -) did not fall, IMO, means that the west is worse off than Japan because our cost of living, working, and production is much higher than the rest of the world by that very fact.

        Raising asset prices, raises prices of everything associated up line – Higher property prices means higher food prices, higher lease prices, higher labor prices, higher production costs, and on and on.

        Investing (not by wall street style asset price inflation) in the ultimate infrastructure (planet earth) is the only way all the species on the planet can survive.

        The asset price inflation style of “investement” must be quashed through heavy taxation.

        Reply
  2. Thuto

    Sharing power peacefully has never been the calling card of the hegemon so the transition to a distributed network of regional economic blocs described in this post will cause much consternation amongst the elites in Washington. Even with regional economic sovereignty on the comeback trail, those 800+ army bases around the world are staying open, you can bet on that. Brute force as a geopolitical chess piece ain’t falling off the table.

    As an aside, I still hope for an analyst with the bandwidth to do an analysis of what seismic shifts in the global economy mean for a broad range of countries, iow high, middle and low income countries. Instead, we still have the tendency by analysts, especially in the west, to reference analyses on those dining at the top table (I.e. g7, China, SK and maybe a few other countries) as “global” when it’s anything but.

    Reply
    1. Marshall Auerback

      Nowhere do I suggest that brute force will disappear. The last 25 years have not seen the US less inclined to use force. Has that use of force increased their influence/leverage?

      The die is cast, regardless of what the US does.

      Reply
      1. Thuto

        I agree, the die is indeed cast but that’s because nations are growing a pair and less inclined to submit to the belligerence and depending on the strategic incentives in play, nuclear powers like Russia step in to stop the US and its allies having it all their own way, as the Russians did in Syria.That said, with over half a trillion in military spending every year there’ll be a lot of ink spilt by hawkish think tanks on “project for a new american century” type documents advising the Pentagon on how to reassert brute force as a centrepiece in global geopolitics. That means the likelihood of military skirmishes is going to increase even further as the former bully resists the implications of the changing landscape.

        Reply
        1. John Wright

          One side effect of the Iraq/Afghanistan/Libya military efforts is the illustration to the world that the USA definitely does not do “nation building” and does not win wars despite a 700billion/year “defense” budget.

          I believe part of the US military’s function is to make the world safe for globalization and increased corporate profits for US business interests, but that ability must be questioned in a few boardrooms right now.

          The strategy of outsourcing much USA manufacturing to China and Asia and then attempting to influence the Chinese to behave the way the USA wants seems destined to failure.

          The Project for the New American Century group may have helped spawn a new truncated American Century that only lasted a few years until it was obvious that the Iraqis did not “welcome us as liberators”.

          USA citizens may be far less willing to engage in more “bringing Democracy” military actions in the future, especially when the USA democracy appears so corrupt.

          Reply
      2. Susan the other

        But one question is important given the economic chaos. Important so as not to derail any progress toward national economic cooperation, that is. If Biden won it is assumed he would ramp up US military intervention and per your last sentence we don’t know how “temporary” it would be or what new mess it would leave us with. You: “…If anything, America’s status as the world’s sole superpower ushered in considerably greater global instability given the absence of any restraining counterweight…” Brute force doesn’t really need to be the mission. It’s proven counterproductive. I’d like to think it actually will disappear and we can give our military a new mandate. I’m sure they can think up something better. It’s hard to imagine an ancient institution like the military just going poof.

        Reply
  3. c_heale

    I think this analysis doesn’t take into account that oil production from.convential and unconventional sources has peaked (in 2018), and that we are likely to have food shortages next year. Imo the world is moving into the post oil era, and simultaneously an era of food scarcity not surplus.

    Reply
    1. Amfortas the hippie

      yeah.
      I’m going long on local food production(already have been for 20+ years, just with much more urgency, now…and much more support from mom, who sit’s atop the money.)
      In wandering the net, i’ve come across more and more rumblings about localism…especially regarding food.
      what was still a pretty much fringe concern has suddenly blossomed into a topic that even the small-c conservatives(ie; everybody with any clout) are discovering.
      I just hope it’s not to late to make that pivot, out here.
      I’m worried about the availability of seeds this winter.
      (…as well as the mountains of cowshit that are contaminated with persistent herbicides, but which folks will clamour to obtain=> failure of harvest right when we need it most)
      This is to say nothing of the world out there, outside of our sparse isolation.
      goats are still hard to come by out here…suburbia still screwing up the market with continued panic buying(at a lower level than a few months ago)
      —i didn’t expect this development…panic buying of goats(and baby chicks and even steers and milk cows)
      I think it’s an underappreciated indicator of the level of fear out there.

      Reply
      1. jr

        Thanks, very interesting especially that last bit about livestock shortages and panic buying…there was a lot of talk of flour and yeast shortages when COVID hit and the story was that people were just getting back to home cooking to while away the time. It was more than that. It was also because they were scared. Baking bread is not only a practical skill, it’s a symbolic act, it’s the Staff of Life. I can guarantee there are countless thousands of pounds of flour and yeast packets sitting idle in pantries across America, only used once when the panic was fresh but forgotten when Poppa Johns got rolling once again…

        Reply
      2. carl

        I agree with your sense of increased interest in growing food. Nurseries here have been periodically sold out of some herbs (parsley, cilantro), chicken wire is unobtanium, and when I went looking for a chicken coop, I found intense interest and heavy competition. The earlier runs on the grocery stores, I think, gave people the idea that the universal availability of food might be suspect.

        Reply
        1. Amfortas the hippie

          wife went to wallywhirled the other day for my mom(i always add storeable food to these excursions)
          she said the shelves were ” half-empty”…things like canned goods, mason jars, big pots and pans, ziplocs, pasta rice and beans…
          that tells me that folks out this way are expecting…or are at least worried about…shortages in the near term.
          this time of year, the cardboard seedracks are usually still up, with a diminished number of seed packets.
          This year, they’re simply gone…from the feedstore, hardware store, herbalist/nursery, and walmart.
          we’re at the end of the line for bulk transport, so that wiggles the utility of this anecdata, somewhat.
          I’m collecting $$ for a seed order…even if it’s last year’s seed…and, given the poor garden performance this year, am diverting a lot to seed saving.(weather was weird all season, and i was scattered/scatterbrained from february on)
          it has never…Ever…been this difficult to get a billy and a couple of nannies out here.
          i don’t know what this has done to the price, because i can’t find any,lol.

          Reply
          1. Jaye Lee

            You may want to take a look at the heirloom seeds at Texas Ready (their seeds are for all zones, not just Texas). They have a pretty wide range, and seem to be stocked now.

            Reply
            1. Amfortas the hippie

              that’s the one i’ve been pushing for mom to get…and maybe two, for barter. just a bunch of ordinary heirloom seeds, nothing fancy…and a lot of them.

              my limited means goes to more esoteric, but practical, things that you hafta hunt through seed catalogs for(lovage, hyssop, other useful esoterica that does well here but that i haven’t yet incorporated into the seed-saving). If i leave that part with mom, we’ll get a bunch of “neat stuff” that won’t grow out here, is hybridized to hell and gone, and that noone on-site will eat unless starving.(if i ever see another kholrabi…)
              I’ll have difficulty enough with the mess of storable squashes,lol.

              Reply
              1. Jaye Lee

                I got lovage from urban farmer online, and borage from Baker Creek Heirloom seeds, also online. I couldn’t find them elsewhere. Also Annie’s heirloom seeds, but I forget what I got from that site. Happy seed hunting…

                Reply
          2. Ian Ollmann

            We planted our victory garden in the spring. With six zucchini plants, we will never go hungry again!

            Why? Well for one, we aren’t vacating the house for months at a time this summer, so we can keep a garden and water it. Second. Famine often follows epidemic. So some home grown food provides alternatives. It also helps postpone shopping trips. Fresh veggies are the reason we need to go shopping every two weeks. With a garden we can put off shopping to 1/month. We can make our own oat milk from oatmeal. The neighbors have chickens and too many eggs. That pretty much covers all the quickly spoiled food.

            The ice cream I miss, but we’ve also started making homemade which I prefer, and the effort involved saves some calories that I really don’t need.

            Reply
  4. kees_popinga

    The idea that China could “supersede” the US in such an ugly technology such as 5G is an unfortunate bit of conventional wisdom. A nation of people staring at their phones as they walk past cell towers placed on every block is a dystopia that, with luck, America will continue to be to backward enough to avoid.

    Reply
  5. Larry

    I really have to disagree with the authors contention that military strength doesn’t matter. I would say people in Iran, Syria, Palestine and many other countries around the world would find that statement laughable. Proxy wars and resource fights will continue unabated even if super powers never have a direct clash. Hell, the cold war lead to untold suffering around the globe.

    What happens if China starts making a move on Taiwan to grab the semi-conductor industry? The U.S. is extremely weak and obviously rudderless during this pandemic. Now would be a great time for China to make a bold move that would be unlikely to be countered.

    Reply
    1. philnc

      What if? China alone has enough nukes of all sizes to throw the globe into nuclear winter, but US military strategy for great power conflict has been “escalate to de-escalate” for a long time. That’s madness. A conventional conflict across the Taiwan straits would quickly result in the sinking of most if not all the US surface assets that tried to intervene, including supercarriers crewed by thousands of sailors (this isn’t news: the Falklands War showed how vulnerable surface warships were to even the relatively unsophisticated missiles in service forty years ago). How do you walk that back? You can’t. The best thing we could do for Taiwan, if we really cared about the world, would be to restart efforts to reduce and eventually eliminate nuclear weapons. But neither of the current major party candidates, or any potential successors, will do that. They’re captive to a greedy and self-destructive military industrial congressional complex that has engaged in what my gen Z son calls ” functional nihilism”. That’s one reason that old anti-nuclear activist Howie Hawkins got my attention with his routine calling out of the issue.

      Reply
    2. Jeremy Grimm

      What would China gain from a military move on Taiwan? Taiwan isn’t going anywhere and China can gain greater benefit from continuing its patient absorption of Taiwan into its economic and political sphere of influence. However the US seems to believe it might make advantage of promoting fears of Chinese military annexation of Taiwan.

      After following DoD spending patterns for a few decades I saw pale outlines of what I guessed was a pattern of funding rotation — this is not backed by advanced statistics or Bayesian analysis — just a gut feeling. Obama’s 2012 “Pivot to East Asia” regional strategy coincided with “pivots” in DoD funding lines for weapons procurement. But as I recall the Army’s turn at the front teat was coming to its end before the “Pivot to East Asia”. The Army had fed billions to Boeing funding the FCS [Future Combat Systems] omnibus of programs and supporting operations in the Middle East, but it’s turn was ending. The Army had to shift toward the rear of the pig and the Navy and Air Force shifted up. The “War on Terror” had successfully thrown the Middle East into greater Chaos, and monies for continuing the “War on Terror” were needed to further build “Homeland Security”.

      “Strategically, maintaining peace and security across the Asia-Pacific is increasingly crucial to global progress, whether through defending freedom of navigation in the South China Sea, countering the nuclear proliferation efforts of North Korea, or ensuring transparency in the military activities of the region’s key players.” Clinton, Hillary (November 2011) “America’s Pacific Century” Foreign Policy [https://foreignpolicy.com/2011/10/11/americas-pacific-century/]
      What better way to cover the rotation in DoD funding lines and justify the Navy’s move up to the front teat?

      This is all speculation and gut feeling — nothing more. But is it wrong to wonder whether DoD threat assessments and spending patterns follow or lead shifts in the patterns of US foreign policy? The few threat assessments I’ve read impressed me with their lack of continuity over time and lack of balance.

      I agree that military strength does matter in foreign policy posturing I doubt any player except the US would resort to brute force — which makes us an especially dangerous ally. There is no need for force when you can lean as hard as China can lean.

      Reply
    3. td

      Large carriers are for use against second- or third-rate powers and replace local airfields until those can be built. That is why China is building carriers in significant numbers, for use as part of the Belt and Road policy. No navy will take expensive surface assets into any environment where they lack air superiority or where there could be a lot of missiles flying around.

      Neither China or the US can directly threaten each other, but they can use submarines, mines and aircraft to attack the shipping that is the lifeblood of international commerce. Any war between the great powers will be protracted, indecisive and ruinously expensive. Proxy wars are far more likely and those rarely decide anything, either.

      For the same reasons, the US cannot stop China from taking Taiwan if they are so inclined. The invasion will be via short trips by landing craft and air. However, the takeover might end up ruining a lot of the assets on the island so I doubt that China will bother.

      Reply
  6. NotTimothyGeithner

    As to the ceos of tech companies not caring about how much control is in China, don’t underestimate orientalism. The South Park episode mocking Pokémon phenomenon probably has greater foreign policy insight most fp journals. Just swap out Japan with China.

    Though I’m sure team blue defenders will proudly explain the reason people can’t get their GIG job is Trump and suggest learning to code.

    Reply
  7. The Rev Kev

    I am guessing that the world will evolve into huge trading blocks that compete with each other but there will be a lot of friction that will happen as this shakes itself out. Each block would have a viable mixture of agricultural, industrial & technology sectors as their core basis. So rather than autarky on a national basis, you would have it in a block-wide basis. Perhaps North America will be one trading black, the EU another, Russia and China a third, etc. Those countries that will individually succeed will be those than retain some sort of autarky by investing in technology, training and education of their people and trade within their own block for that which they cannot grow or produce themselves.

    Of course the nature of military warfare has changed with the advent of missiles and drones. As an example, the US would love to attack Iran but the quantity and quality of missiles that they possess means that you will have American body counts not seen since Vietnam if there is an attack. As well, you would have as collateral damage the entire, complete, total oil infrastructure of Saudi Arabia as it would be toast – which nobody wants. And the US Navy is finding its gunboats, err, carriers withing range of carrier killers which are being fielded by more and more countries. So how many of those 800 bases are actually targets which was proved Iranians proved with their highly accurate targeting of those US bases in Iraq? The times they are a changin’.

    Reply
  8. flora

    Thanks for this post. It’s interesting to see references to individual nations and countries (political territories) used interchangeably with trading blocs like NAFTA and the EU (corporate supra-national entities). In this sense, the conflict isn’t between, say, the US and China. It’s a conflict between globalized corporate capitalism in North America and globalizing corporate capitalism in China. The conflict looks more like Godzilla vs Mothera corporate blocs in conflict instead of conflict between nations and political alliances. imo.

    An aside:
    The reference to the second industrial revolution is interesting. It’s been commented before that this moment in time feels like sleep-walking into disaster, like the run up to WWI. WWI was a disaster largely, imo, because the generals and admirals and planners were all thinking of war fighting as it had been 20 years earlier, before mechanization and industrialization could make war material on a vast scale. When WWI started it was the first ‘industrialized war’; neither side ran out of bullets or shells and mechanization made standard old tactics a trap. So both sides, unable to win with the old tactics, dug in.

    Reply
    1. flora

      adding: If Western capitalism is serious about meeting what it sees as a threat from China then the West cannot leave its manufacturing and especially not its computer/digital manufacturing in China or the East.

      Reply
      1. Synoia

        I’ve done both hardware and software. My view is hardware is generally correctly at release, and software is not.

        Software V1.0 is a long standing joke in the industry.

        I’ve written very reliable software. Current software practices have to be sharply curtailed, heavy use of state machines, and static memory allocation are key parts of the process.

        Mine rag 7×24 for 7 – 10 years, and was relatively easy to extend.

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  9. flora

    a quibble:

    The reshuffling is coming in large part because America’s historic military dominance has less relevance in a world where the new forms of competition place greater weight on access to advanced research and technologies, rather than the projection of brute military force (especially given the increasing proliferation of nuclear technologies and the rise of asymmetric warfare).

    China is militarily pushing into the South China Sea for naval control of those sea lanes, and has directly said it does not recognize Law of the Sea treaties in an area it claims it controls. The South China Sea shipping lanes are one of the world’s busiest and carry yearly over $3.4 trillion dollars worth of trade.

    The military dominance and, yes brute force is very important here.

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    1. flora

      adding: the irony that the US and allies military must defend open sea lanes from the country that makes a lot of the US military computer gear and hardware isn’t lost on this reader.

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      1. (poorly) Paid Minion

        If the day comes where the US is going to have to kiss the ChiComs ass, you can thank our so called government and business “leadership”.

        Sending them our factories and latest technologies, educating their engineers, all to make a buck, and chasing some vague assurance that doing so will give them access to the “Giant Chinese Market”. While at the same time thinking “exposure” to the “west” will turn them into a freedom loving democracy.

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    2. L

      Agreed, moreover this article misses the other side of self-interest for nations like Japan and Vietnam. While they may not want to piss off China, they also don’t want to bend to whatever China says. There is little gain in trading away the current order for a different dictatorial one. Just ask the Philipines how that has worked.

      In general, while I find his work insightful, I find this article by Mr. Auerback to be a bit narrow. To simply waive away Japan’s decisions based upon pissing off China or not misses the important nuance of walking a fine line and the fact that Japan and China are now scrambling fighters daily over island disputes. It is a fallacy to assume that Japan will only think one way on this.

      Austrailia, for example, does most of its foreign trade with China. Yet they just reiterated their opposition to the nine dash line. Why? Not because they want the US as a hegemon per se but because of their unwillingness to have China dictate.

      Similarly I find the assumption that an invasion of Taiwan would be trivial to also be a fallacy. Yes the PRC has sophisticated weapons. So does the ROC. Any mass invasion would be *very* costly and would involve others in a big way. Could it be done? Yes. Would it be easy? No. Can we assume the US or other nations would sit it out? Absolutely not.

      Reply
  10. ptb

    Regarding Huawei, the US has actually done a pretty good job compelling so many European markets to lock them out. Germany too will be adding their own competition with China to the balance, since China is now in a position to compete and beat Germany in exports of technological goods and infrastructure to the “rest of the world”. So Siemens, for example, may present an opposing voice to Deutsche Telekom. There is a caveat though. German exporters would get locked out of China in retaliation, and Japanese or Korean tech would replace the German’s in the medium term. The benefit of the Chinese market’s size will then make Germany’s other export competitors stronger. So in a way, Japan and Korea could “triangulate” quite nicely here.

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    1. Synoia

      The 5G products rely on lots of software. Hardware is easy to build.

      Software is not. Nine women in one month do not a baby make.

      By the way, what, precisely, does 5G provide me over 4 G LTE? The highest bandwidth need is movies, and 5G is all about bandwidth and last mile connectivity – All to deliver movies?

      I do not see movies as providing much of a country’s competitive advantage. Nor can one expect the far reaches of the US to receive 5G service within the next 10 years. Most rural areas have 2G at best.

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      1. rtah100

        Hardware is *hard*.

        Twenty years of early-stage VC investing have taught me that. Why do you think software is eating the world (TM Mac Andreesen)? On a superficial level, because it is easier to ship buggy code and continually update it than to measure twice and cut once. Deeper down, it isn’t: hardware is creating a world in which software *imagines* it is eating the world – but really it is just exploiting the capacity created by ever faster hardware to virtualise features.

        Software is just moving the electrons round but over the roads and junctions that hardware built….

        I’m not sure what the hard part of 5G is – a lot of it is just concurrent systems theory which has been well explored in the last twenty years (e.g. pi calculus, erlang etc.). I suspect the hard part is convincing telco’s they need to shift to frequencies that require radio nodes every few hundred metres, so you can reuse the old frequencies for something more profitable….

        Reply
        1. L

          Having experienced both, I would say that both software and hardware are hard. It is just that software is easier to replace.

          I think you are right about the hard part of 5G. The problem is not the concept, or the radio, it is that a network isn’t 5G, till all of it is 5G. That is replacing copper, adding masts, upgrading routers etc. And with vendor lock-in once something is in there deep, it stays.

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      2. ptb

        what, precisely, does 5G provide me over 4 G

        It increases per-device bandwidth in dense areas. (For low mobile-device-per-tower density but further distance, the lower frequencies are superior). The dream is that with enough bandwidth, every device can stream HD video — not to the device, but from the device. Thus enabling various fantastical AI applications. Stupid/obvious example: self driving vehicles (barf). Boring, Inane, Who cares? It’s a money maker anyway, people are easily impressed by that kind of crap. So one obvious use of high bandwidth: gather training data by, say, sticking a camera on the front of literally every car (mandate it for safety) and uploading it all to the cloud. 5G makes that kind of thing possible.

        It’s not particularly about making life better for flesh-and-blood persons, it’s about opening possibilities for (1) big business, and (2) military (drone swarms etc. use your imagination). You’ll get something too, not as cool. Acce$$ to a system that can show you super duper HD movies and play more data intensive games on the go.

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        1. Stephen Gardner

          This high bandwidth promise is based on the use of millimeter wave technology. That frequency range is notoriously bad for propagation. It doesn’t penetrate rain or leaves, much less walls. In fact this frequency range is used in the scanners at the airport because it penetrates your clothes but not your body. That’s why they need so many antennas. The phone companies will not spend the requisite money to do more than some showcase networks. 5G will reuse the older spectrum and the bandwidth will be a minor and incremental improvement mostly due to more sophisticated coding and other strategies to make do with lower frequencies.

          Reply
  11. Jeremy Grimm

    Is the ‘Global Economy’ not coming back? I believe the ‘Global Economy’ will likely come back with new centers and new supply lines but the supply lines will still be long narrow and very much global. I don’t believe the attractions of cheap labor and loose regulation of Corporate predations of that labor were peculiar to the US and I doubt they have lost their magnetism. The US appears poised to foster a new Corporate consolidation. As for other countries, I know too little to guess what is to come. But I doubt the present economic collapse will be followed by a new era of constraint and fragmentation of International Corporate Cartels.

    I do believe the US ‘Global Economy’ will not come back whether Joe Biden wins in a blowout or fizzles in defeat.

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  12. Michael

    One area not discussed in the article is the probability of the dollar losing its reserve status. If China stops using the dollar along with its allies and those choosing to business with it, may have an affect. Given the US debt, the country would be less likely to fund military imperialism across the planet, as there would be fewer external entities available through the purchase of US Treasuries, as alluded by Michael Hudson. Additionally, the move off of fossil fuels, and China having a monopoly on the refinement of lithium at least for the next ten years IMO will accelerate the dollar’s decline.

    In a debt crisis the US may have to cut its military, as did the Russians in its collapse.

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  13. VietnamVet

    I don’t believe in a rosy future of trading blocs rising after the fall of the hegemon and the end of the dollar as the reserve currency. Today is similar to the end of WWI. It will be generations, if ever, before globalism rises again to scavenge the last remaining resources on earth. The Western Empire is dead.

    The USA, India and Brazil are headed for isolation, depression and unrest. The only way out is restoration of a functional government and public health programs to mitigate the impact of the virus or a for-profit coronavirus vaccine that magically works the first time. The epidemic like the other four common colds likely will never go away.

    Boeing, the last major manufacturing industry in the USA, is losing aircraft sales left and right. The commercial aircraft manufacturer’s only hope of survival is a reformation of its executive suite to stop being thieves, a quick end to the pandemic, and surviving businesses to begin again flying their staff all over the world, after working a home for months, if not years. All unlikely.

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  14. John Anthony La Pietra

    Hmm . . . why does this sound familiar?

    Perhaps North America will be one trading bloc, the EU another, Russia and China a third. . . .

    Three big blocs, with X opposing Y and befriending Z, as it’s always done — and then opposing Z and allying with Y, also as it’s always done. . . .

    So familiar — but plusungood.

    Reply
  15. Altandmain

    I think that if Joe Biden wins, he will govern as a neoliberal and try to outsource to other low wage nations.

    That may not be a viable strategy though, as he will encounter backlash at home. It is however what the upper middle class and the 1% wants.

    China does have some technologies they need still (semiconductors comes to mind – they have are not near the top of the game like ASML, TSMC, nor the armies of fabless design companies), but they also lead in other regards.

    What happens next is not clear, but I think the rich will try to screw the rest of society in some way for themselves.

    Reply
  16. Norb

    Working people discussing the merits of a Joe Biden presidency just represents the complete success of the US oligarchy resting political power from the hands of the people.

    What needs to be brought back to life is a true American patriotism.

    Patriotism is a universal human trait. It offers a peaceful avenue for the future of humanity if it is not subverted and corrupted by selfish individuals.

    For those interested, I’ve found the writing of Matthew Ehret at The Canadian Patriot very informative on these topics.
    http://canadianpatriot.org

    As American history is being denigrated at every turn, it is important to realize that this is a human struggle not just the political needs of individual Nations or States. Human freedom is still being debated and fought over, however obfuscated by the oligarchy.

    Corporate power in the service of the State is the battle ground today, and well into the future. Will the State rule over corporations, or Corporate/Banking oligarchs rule the State. Will one group of States thus constituted subjugate another?

    The irony of the current situation is that the birth of the American nation signaled to the world a chance for a different way of being. A government for and by the people. That Republican ideal believed in the advancement of human capabilities for all. It believed in human potential in a positive, and truthful manner. Today, we have subversion and lies. A cynical human outlook that relies on deceit to further its goals and ends.

    All humans are flawed. The point of any social system, and its true value, is if its culture, customs, and laws bring about the improvement of the human spirt and condition. Can society face the truth. Can individuals face the truth.

    The US is forcing a winner take all mentality- to the detriment of the entire world. The question is why is this the case, and does it have any merit.

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  17. Craig

    “I am still gobsmacked that Western multinational and tech execs would make their operations hostage to a country where they have no influence over their government, and that government has a strong interest in developing its own champions. ”

    I’m not surprised at all. Executive pay is very short-term relatively speaking and rewards executives for making great short-term decisions which boosts their pay to level they can retire on in a year. In a few years, they will not be able to spend it all without trying pretty hard. Outsourcing created huge windfalls in terms of profit and pay.

    The long-term decimation of our manufacturing base was always an externality the executives never cared about. That’s what government is for, which unfortunately, is bought and/or hamstrung when it comes to corporations.

    Reply

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