Is a military confrontation between the United States and China possible?

Definitely. In fact, we have dedicated an entire article to the Thucydides trap dimension, more specifically Harvard professor Graham Allison’s observation that historically and statistically speaking, a confrontation between an emerging power (China, in our case) and the dominant one (the United States, in our case) is not just possible but downright likely, having occurred in 75% of such cases throughout history.

However, we have argued that as we come closer to the present, Graham Allison’s approach may very well stop making as much sense because new variables emerge, more specifically the “Mutually Assured Destruction” concept (the idea that in a nuclear war, there can be no winners, only losers) which acted as the number one deterrent when it comes to let’s say direct military confrontation between the US and USSR.

Fast-forward to the present and here at ChinaFund.com, we have coined the term “Mutually Assured Economic Destruction” given the deeply interconnected nature of today’s worldwide economy or if you will, the idea that peace represents the way to go, if only for financial reasons (to conveniently modify a Woody Allen quote).

Possible?

Yes.

Likely?

No.

In a nutshell, these two questions and answers tend to describe the attitude of the ChinaFund.com team with respect to the military confrontation scenario. We consider it quite likely that the US and China can remain adversarial in many respects without there being a need for direct military confrontation and on the contrary, with them even collaborating in certain key instances, when doing so makes sense for both parties involved.

That being stated, we owe it to our readers to at least take the possibility seriously and as such, have also analyzed the military dimension of Sino-American relations by dedicating an entire article to China’s military sector on the one hand and on the other hand, dedicating one to China’s military capabilities. As both articles allude to, despite the fact that impressive progress has been made in China (just like with most other sectors), a hypothetical military confrontation would be rather clearly in “asymmetric warfare” territory for the simple reason that there is a severe difference between the two players when it comes to anything from military capabilities to overall strategies.

Yes, it is true that China:

1. Is now the worldwide leader in terms of total artillery
2. Occupies position two in terms of aircraft fighters, self-propelled artillery, aircraft attack, armored fighting vehicles and combat tanks
3. Occupies position three in terms of total aircraft strength, total helicopter strength and attack helicopters as well as rocket projectors
4. Has the infrastructure dimension going for it, anything from roughly 4 million kilometres in terms of roadway coverage and 86,000 kilometres in terms of railway coverage to 16 major ports and over 500 airports

However, there is more to the military equation than the quantitative dimension and as we move on to the qualitative one (anything from cutting edge technology to geopolitical influence), the US is still in a more than comfortable enough lead for us to state that, again, a hypothetical military confrontation between the two entities would be firmly in “asymmetric warfare” territory.

As such, China’s attitude cannot help but be rather similar to Russia’s in terms of approaches, an attitude that revolves more so around hybrid warfare (conducting cyber attacks, defending itself against cyber attacks, launching informational warfare campaigns such as fake news distribution, basic online propaganda and the list could go on and on) than around a direct military confrontation.

While it is true that both China and Russia are already engaging in various more or less subtle forms of hybrid warfare, it would be a stretch to conclude that one entity or the other is “at war” (hot war, that is) with the United States. At best, a “Cold War 2.0” narrative would make more sense and not because adversarial tendencies are nowhere to be found (on the contrary) but rather due to a combination between geopolitical realism (China as well as Russia realizing that they are nowhere near parity with the United States militarily speaking), Mutually Assured Destruction as well as Mutually Assured Economic Destruction.

This hybrid warfare dynamic once again makes it clear that potential conflicts between the United States and either China or Russia (perhaps both) need to be seen through an asymmetric warfare lens. Even with the impressive progress of China on pretty much all fronts correlated with the fact that the United States has arguably made several steps back on the international scene on the one hand and has its share of endogenous problems on the other (anything from unemployment issues to social unrest), it would be nothing short of ludicrous to paint the picture of parity when comparing the US and China.

As a conclusion, for the reasons outlines throughout this article and many more, the asymmetry between the United States and China tends to be far more pronounced than headline statistics indicate. As such, “asymmetric warfare” is the name of the game when analyzing various scenarios, with the important remark that just like during the Cold War, Thucydides Trap-related arguments may very well once again be invalidated (we certainly hope so, in light of the fact that large-scale conflicts between combatants such as these two entities cannot possibly end well for humanity as a whole, realistically speaking) for reasons pertaining to Mutually Assured Destruction as well as Mutually Assured Economic Destruction.

This perspective is, however, quite short-sighted.

Why?

Primarily because it (conveniently) overlooks what China gave the West in return. More specifically and as ironic as it may seem, many of the Westerners who are complaining about China’s alleged free ride by for example publishing social media posts are doing so from their ultra-affordable phones and/or laptops, technology which wouldn’t have been nearly as accessible to the general public (and certainly not at today’s low costs) in the absence of “spoiled children” such as China.

To put it differently, the idea that the globalization-facilitated arrangement is one-sided, with China perpetually on the receiving end of benefits and the overly generous West on the giving end is childish at best and ignorant at worst.

As a bit of a creativity exercise, let us simplify an economic talking point and try to view things from the perspective of someone who believes the exact opposite, that the West is on the receiving end much more so than China. That person would most likely point out that China is getting a most peculiar deal in light of the fact that it exports actual products, whereas the West exports… well, inflation. In other words, China exports tangible products that make the lives of Westerners easier as well as more pleasant and receives pieces of paper or numbers on a screen in return (fiat currency that can be printed out of thin air or even easier yet, made available after a few clicks by central banks such as the Federal Reserve).

Of course, this perspective is just as short-sighted as that of Westerners who complain about China being the spoiled child of globalization. In reality, these “pieces of paper” and “numbers on a screen” enabled China to escape international isolation and tap into a huge worldwide market. Furthermore, this “worthless fiat currency” (that can indeed be created out of thin air but for which, and therein lies the key to understanding the equation, there is incredible demand) enabled China to invest in its modernization, anything from infrastructure to education and fast-forward to the present, China now has financially potent enough consumers so as to embrace an economic growth model that revolves much more so than in the past around internal consumption.

As many of you most likely suspect, the question which constitutes the title of this article is intentionally misleading and provocative. The answer tends to revolve around the idea that picking a “winner” represents an economic thinking mistake right from the beginning and that in reality, the answer is simple: both. China needs the West and the West needs China, with many choosing to paint an adversarial picture where there isn’t one.

Make no mistake, there will most likely never be an ideological love story between China and the West for the simple reason that political values are light years apart. However, love it or hate it, today’s globalization-facilitated economic interconnectedness is most likely the best scenario we have from a wide range of perspectives, from economic growth to geopolitical stability and ultimately world peace.

As mentioned in other articles as well, “Mutually Assured Economic Destruction” can be just as effective when it comes to conflict prevention as the nuclear weaponry-related “Mutually Assured Destruction” principle that governed the Cold War. In other words, just like the devastating effect of nuclear weapons make it clear to all potential combatants that a nuclear war would result in catastrophic outcomes for all parties involved (there are no “winners” in a Mutually Assured Destruction scenario, as the name makes clear), the effects of moving away from today’s economic interconnectedness would be so game-changingly dire that the parties involved have no choice but to act responsibly.

Yes, depending on the political climate/context, one political actor or another will make a negative statement about globalization every now and then. But the political actors in question have economic consultants and a decent enough basic understanding of Mutually Assured Economic Destruction to ensure that leaving political theatrics aside, there is a survival-related commitment across the board when it comes to maintaining the globalization status quo.

Not because there is a globalization love story one could refer to, because there isn’t, but rather because globalization doesn’t have to be perfect to survive: it simply needs to be better than the alternatives and it would be difficult to envision a workable economic model which revolves around completely abandoning globalization.

Of course, this doesn’t mean there will not be changes along the way. For example, it’s quite likely that after the COVID-19 disaster from a supply chain perspective, governments will be far more eager to encourage completely domestic supply chains when it comes to products that are perceived as relevant to national security (for example masks and medical equipment in the context of pandemics, with the same principle being valid when it comes to other threats) but it is extremely difficult to believe that these changes will threaten globalization at its core.

In conclusion, understanding that China and the West need one another is not a matter of generosity but rather one of self-preservation for all (geo)political actors involved. As such, while concessions will need to be made for political reasons whenever the proper context emerges, few decision-makers are truly committed to embracing models that revolve around abandoning the core pillars of globalization and status quo international relations.

Therefore, as borderline delusional as it may be to believe globalization will disappear completely from the international landscape, it would be borderline ignorant to assume the status quo can persist indefinitely or to put it differently, the idea that globalization will remain unchanged is not exactly something the ChinaFund.com team agrees with.

Why?

Simple game theory.

There is more to life than economics and aspects such as political implications need to therefore be taken into consideration as well so as to reach realistic conclusions. As an extremely eloquent example to that effect, many economists expressed grave concern with respect to the Treaty of Versailles and the stipulations pertaining to the reparations Germany was forced to pay. Thinkers including John Maynard Keynes himself made it clear that despite the fact that things were “watered down” (with a significant part of those 132 billion gold marks being nothing more than let’s call them accounting fabrications) compared to some of the more aggressive expectations among victors, the reparations in question were still devastating enough to essentially bring Germany to its knees and lead to a buildup of anything from frustration to socio-political movements that ultimately disrupted the (vulnerable) European peace status.

However, game theory kicks in and the general public in victorious nations wanted Germany to pay, both literally and figuratively. As such, stipulations perceived as too timid would have come with significant negative political consequences back home and as such, many politicians were essentially “mandated” to be more aggressive than economic common sense would have dictated. Not for economic reasons, not for historical reasons but simply for political ones. As it was, the Treaty was hardly generating enthusiasm in victorious and revenge-seeking countries such as France, with politicians most likely feeling that toning it down even a notch further would have been politically unacceptable.

The same principle is valid in 2020 and beyond.

Once again, any economist worth his salt is most likely more than eager to point out that throwing globalization into the dust bin of history and paving the way for fragmentation or even (for the more utopic of citizens) some form of autarky would be extremely counter-intuitive, to the point of yet again jeopardizing the climate of peace between at least major economic superpowers.

In a nutshell, globalization currently contributes to the “Mutually Assured Economic Destruction” conflict deterrent dimension, just like the “Mutually Assured (Nuclear) Destruction” concept acted as a major direct military conflict deterrent during the Cold War. To be more precise, given the ultra-interconnected nature of worldwide economies in a globalization framework, pretty much any even remotely knowledgeable market participant can and will state that something along the lines of a military confrontation would result in lose-lose situations that are simply unacceptable.

Once again, these are anything but controversial thoughts.

At the same time, however, politics can and will also get in the way, for the simple reason that globalization is certainly not perfect. Therefore, just like there have been (many) winners, there are also losers. For example, a relatively low-skilled United States worker who used to have impressive job security during the let’s say fifties and earned enough to support a large family on just one income now most likely finds himself in a climate he neither understands nor likes. Job security is hardly a given these days and on the contrary, chances are that many such individuals are currently switching from one low-paying service sector job to another in a manner that inevitably leads to a massive build-up of frustration.

“Why have so many jobs left the United States?”

“Why should I suffer just so that multinational corporations can enjoy massive profits?”

“Why should my life be turned upside-down by all this insecurity compared to the days when my father and grandfather worked at the same factory throughout their entire careers?”

These are just three questions that millions upon millions of people in the United States alone are asking themselves, individuals who are anything but happy with the status quo and more than eager to find a third party to blame, with the usual suspect being… you’ve guessed it, China. As mentioned at the very beginning of this post, the idea that China can keep thriving as the proverbial spoiled child of globalization is optimistic at best for political rather than economic reasons… citizens in more developed nations are simply no longer willing to silently tolerate this phenomenon.

This represents yet another reason why China has embraced a “new paradigm” in terms of economic growth, one that revolves around accepting lower and definitely single-digit yearly GDP growth rates on the one hand and on the other hand, one which revolves to a much more significant degree on internal consumption. Fortunately for them, as explained in another article, a stronger and stronger middle class has proven to be ready to take over and the transition to this new system has started quite a while ago, for reasons that revolve around more than simply “globalization fatigue” for lack of a better term.

As a conclusion, no, China cannot keep thriving in a “globalization 1.0” framework and while globalization itself is most definitely not going anywhere, “globalization 2.0” is likely to involve a fair bit more fragmentation than its predecessor.

Still, as also mentioned on our website, there is more to being the number one superpower than being the number one economic superpower in light of the fact that there are a wide range of forces at play rather than simply economic ones: military forces, geopolitical influence forces, cultural forces and the list could go on and on.

Needless to say, China’s ascension to “supremacy” will most likely be anything but straightforward, just like the United States did not exactly have what one would call a smooth path either. Indeed, from civil war to wars with foreign opponents, the road to success of the US has been paved with a wide range of challenges and the same principle is valid when it comes to the United Kingdom and any other past superpower.

Can the transition to supremacy of China be peaceful?

While nothing is impossible, the probability of China’s ascension being peaceful depends on how exactly the term “peaceful” is defined. If we are to define it as uneventful in general or in other words, assume that a peaceful ascension is one where military challenges altogether are completely absent, then the probability of that happening is very (very!) close to zero in our opinion. Simply put, there is no such thing as a historical example involving a superpower having achieved its status in the absence of challenges on the military front as well and while past performance does not guarantee future results, let’s just say we have valid reasons to be skeptical.

If we narrow down the definition of “peaceful” however and limit ourselves to considering the term one which describes the absence of a direct military confrontation between the EXISTING superpower and the EMERGING superpower then yes, the probability goes up quite a bit, especially in light of the nature of 2020’s worldwide economy.

Even so, we need to be aware of the Thucydides Trap dimension (one covered through a dedicated article, available HERE) or in other words, the fact that throughout history, the majority of conflicts between existing superpowers and emerging ones have resulted in direct military confrontations between the two. However, as we get close to the present, the likelihood of the transition in question not involving a direct confrontation between the two entities increases. As an example, we have the fact that the United Kingdom and United States did not engage in a military confrontation while the US was transitioning toward becoming the dominant superpower of the world (of course, if we move further down the road and look at the more distant past, we can easily identify US – UK tension situations but that would be intellectually dishonest in light of our existing conversation due to the fact that at that point, the United States was hardly interested in “branding” itself as a contender with respect to the goal of becoming a superpower) and on the contrary, meaningful cooperation was the norm.

Will the same principle be valid when it comes to the US and China?

This is where things get tricky because needless to say, identifying common denominators in terms of values between the United States and the United Kingdom is multiple orders of magnitude easier than identifying common denominators between the United States and China. Therefore, it would be fairly safe to state that the likelihood of China’s hypothetical transition to supremacy being let’s say uninterrupted by the United States tends to be on the lower side.

Still, we have reasons to be hopeful (in light of the fact that a peaceful resolution is in the best interest of all parties involved, not just the two nations) for reasons which revolve around… well, economics. Simply put, there would be so much to lose in the context of a direct military confrontation between economic superpowers that there are strong (to put it mildly) disincentives associated with endeavors that would lead to that.

In a way, a valid case could be made that just like nuclear war represents a “Mutually Assured Destruction” scenario, any type of direct military confrontation between two remarkably powerful nations represents a “Mutually Assured Economic Destruction” one. Furthermore, these two countries hardly live in bubbles. On the contrary, a lot of thought needs to be given to what happens next and what the various trading partners of the countries in question have to say about the conflict resolution mechanisms between the two. To put it differently, there are also extremely strong forces coming from the direction of trading partners to keep things peaceful because such a conflict would not be in the best interest of the many stakeholders involved.

Is it true that it isn’t difficult to envision scenarios in which a direct military confrontation occurs anyway? Yes, it is, from scenarios revolving around economic collapse situations leading to desperate scapegoat hunts and finger pointing campaigns that ultimately transition into an all-out war to scenarios involving black swan events as Nassim Taleb calls them, unexpected developments which render the past proverbial rules of the game obsolete.

As a conclusion, while it is unlikely that the ascension to supremacy of China can occur in the complete absence of military challenges, the world has valid reasons to be optimistic that a direct confrontation between superpowers can be avoided this time around, while, of course, also understanding that the ascension of China itself to undisputed superpower status is anything but guaranteed.

But is this picture genuinely complete?

Furthermore, what are the implications when it comes to the economic recovery dimension? China has indeed proven to be more competent at tackling the issue medically speaking and logistically speaking, but does this also mean it is much better-positioned when it comes to recovery scenarios compared to the West?

The answer to both questions is, unfortunately, no.

When it comes to the first one, it is important to embrace objectivity when analyzing the COVID-19 response and understand that while for example China has without a doubt done a much better job on the containment front, the same cannot be stated about the prevention dimension, especially in the earliest stages. Unfortunately for all stakeholders involved, China has initially downplayed the severity of the threat by a wide margin, with the authorities (in true CPC fashion) choosing to sweep the issue under the rug and punish those who have made coronavirus-related problems public. Furthermore, we need to understand that the post-containment numbers themselves might not necessarily be amazingly accurate but rather on the (very) optimistic side. As such, no, any picture that revolves around the idea that the entire endeavor represents a glorious success of (the Communist Party of) China is most definitely incomplete.

Moving on to the second issue, let’s just say that the economic recovery dimension is multiple orders of magnitude trickier than meets the eye and to understand this, we need to come to terms with the fact that China-related problems represented perhaps the number one reason why the COVID-19 situation was far more problematic in the West.

For the most part, we are referring to supply chain reasons. More specifically, to the fact that extremely wealthy Western nations found themselves dependent on either final product imports or at least imports with respect to vital components as far as much-needed medical equipment was concerned. Had medical equipment been plentiful enough in the West, initial containment would have been multiple orders of magnitude easier, at least from a logistical perspective. Instead, we had images of New York City doctors who earned six figures yearly being forced to wrap plastic garbage bags around their legs in the absence of alternatives, something Western leaders consider unacceptable.

As such, in the opinion of the ChinaFund.com team at least, China’s economic recovery will be hindered not necessarily by the effects related to the shutdown itself (although, of course, those are indeed more than serious as well, with economic shutdowns having dire implications) but rather by the geopolitical implications of the 2020 development.

The idea that Western nations will simply shrug and move on as if nothing happened is childish at best, especially in light of the fact that 2020 is an election year in key jurisdictions such as the United States. What is far more likely to happen is politicians pinpointing China as the main culprit that needs to be punished for the entire situation, for reasons which range from the fact that the virus itself came from China and might have been avoided if the authorities would have been more prudent when it comes to controversial wet markets for example to reasons that revolve around the West’s problematic dependence on Chinese imports.

On the one hand, the West has been enjoying affordable Chinese imports for not years but decades, with businesses also finding it convenient from a bottom line perspective to move at least certain departments to China. However, 2020 revealed more or less ignored problems associated with this reality, problems pertaining to excessively complex supply chains. More specifically, the COVID-19 situation caused major bottlenecks pertaining to China and as a result, just when medical supplies were needed the most, they became either excruciatingly expensive or unavailable altogether. Needless to say, such situations will be considered unacceptable moving forward, with Western decision-makers doing their best to tackle this issue.

And in the spirit of tackling the over-reliance on China issue, it is worth pointing out that a wide range of Western businesses have been so affected by the effects of economic shutdowns that they ended up depending on government assistance. Needless to say, “bailouts” have never been popular and now more than ever, the opportunity emerges for them to come with strings attached. For example, financial aid being conditioned, with the authorities demanding that the companies on the receiving end of various bailouts commit to moving as much in the way of production back home as possible.

Furthermore, we need to understand that China is not yet considered a risk-off jurisdiction. In fact, we have dedicated an entire article to explaining just that, an article which can be accessed by clicking HERE. As such, the market is willing to tolerate far more if you are let’s say the United States (including injections of trillions of dollars into the financial system and this time around, even “real” economy) than if you are China.

For these reasons and quite a few others, we have to be realistic and understand that China’s recovery will be far more complicated than that of Western nations. Does this mean it will be impossible? Of course not, it simply means that those who are either holding Chinese assets or are manifesting interest in gaining exposure to some down the road need to be prepared for a bumpy road. As much potential as there is in China (and, make no mistake, there most definitely is!), the road to long-term sustainability and prosperity will be paved with many challenges and in our view, the COVID-19 situation is most definitely a textbook example of just that.

There is a reason why for example the European Central Bank, which already has interest rates in negative territory, is not rushing toward options that revolve around aggressive future cuts. They understand all too well that no, savers are not willing to tolerate anything the banking system throws at them and as such, we are close to the limit in terms of what central banks can reasonably do in terms of interest rate reductions.

This leaves the second dimension of central banking action as a potential “new paradigm” solution: monetary easing, with the most popular to the term of (in)famous term being the QE one (Quantitative Easing) used in the United States after the Great Recession. In light of the fact that the ChinaFund.com team believes we have established that there are limits in terms of rate cuts, it makes sense to ask ourselves if the same principle is valid with respect to monetary easing or, on the contrary, if we are in El Dorado territory when it comes to the latter.

As a reference point, we have the aftermath of the Great Recession, with many central banks “printing” trillions of currency units, in an attempt to provide adequate liquidity levels and thereby avoid a financial system meltdown. For example, in the case of the United States, as much as $85 billion per month were “printed” by the Federal Reserve at the height of US QE, more in one year than had existed since the year the Federal Reserve was established (1913) and up until the Great Recession. As far as the European Central Bank is concerned, it injected even more liquidity into the system at the height of its monetary easing program and the list could go on and on.

Many economists, in light of these unprecedented monetary easing measures, expected runaway inflation. Fast-forward to 2020 and, with the benefit of hindsight of course, we can safely state that no, monetary easing did not result in runaway inflation and if anything, central banks were still more concerned about deflation than inflation.

Does this mean there are no limits to monetary easing?

Has humanity found the “quick fix” it has been looking for all along, with central banks simply injecting as much liquidity into the proverbial system as necessary after a deflationary shock so as to get things back on track?

In our view… no.

Right off the bat, we need to understand that the data we have with respect to the worldwide monetary easing experiment is limited. As such, it would be premature to state that monetary easing stood the test of time.

Furthermore, we need to also look at the trajectory of the currency that was created. While central banks have controlled the “how much?” dimension by deciding how significant of a monetary easing programs they went with, they had (far) less control over what happened next. To illustrate this, we will resort to an extreme example and assume the Federal Reserve “prints” not one trillion but $999 trillion, yet simply buries the currency in question somewhere. Needless to say, there will be no inflationary effect to speak of, for the simple reason that those $999 trillion have not found their way to the “real” economy.

On a much smaller scale, the same principle was valid after the Great Recession, with a lot of currency simply being used as reserves in the banking system (hoarded, if you will) rather than finding its way to Main Street. As such, the direct effects of QE in the case of the US did not involve consumer price inflation, as it most likely would have if the Federal Reserve would have somehow distributed the $85 billion it created monthly to each US citizen. Instead, that currency found its way to the “hands” of the largest US stake holders and was indirectly used to buy various assets (stock buybacks, for example), with the end result being asset price rather than consumer price inflation.

What about the realities of 2020?

Let’s just say that this time around, from China to the United States and from South America to Europe, citizens have made it clear that they are no longer willing to tolerate a primarily “too big to fail” bailout framework and instead, demand that money ends up in the hands of the average individual as well. This became apparent in the United States, with the first Congress-passed bailout package also involving a sum of $1,200 that is to be distributed on a per-person basis, based on 2018-2019 records. The beginning of something that resembles a Universal Basic Income paradigm, if you will.

The more of the currency that is created ends up being used for consumption (especially if it offsets the deflationary effects of the 2020 crisis to a significant enough degree), the more likely it is that this time around, consumer prices actually go up… economics 101, at the end of the day. Can there be guarantees that inflation would finally become problematic? Of course not, because as always, time will tell and only let’s call them excessively optimistic/confident market participants claim to be able to predict the future. A common sense conclusion would therefore be this: while nobody can know with certainty what happens next, “prudence” is the operative word and it would therefore be wise (in the opinion of the ChinaFund.com team, at least) to exercise restraint before claiming victory for the proverbial “limitless monetary easing” camp.

Let us start by briefly addressing some of the problems with obvious political implications that the COVID-19 situation has caused directly:

1. Supply chain disruption, plain and simple. Simply put, as the spread of the virus progressed and epicenters changed, a chain reaction inevitably took place. From bottlenecks in China to bottlenecks in China and the European Union and so on… the virus most definitely caused an import/export nightmare
2. Widespread economic shutdown. The authorities found themselves in a bit of an economic predicament with respect to how to handle the situation. Do you try to keep the economy running and risk letting the virus spiral out of control, with it possibly crippling the medical system or do you implement strict “whatever it takes” quarantine measures, knowing that you are causing unprecedented economic shutdowns? As time passed, the science became clear, in that aggressive quarantine measures were the only way to go, with even initially “skeptical” nations such as the United Kingdom (that believed ultra-aggressive quarantine can be avoided) changing course
3. Unprecedentedly abrupt (temporary or even permanent) job loss. Millions upon millions (… upon millions) of individuals from all over the world found themselves in one form or another of unemployment. In some cases temporary/technical unemployment, in other cases permanent unemployment, with them no longer having a company to return to. Governments and central banks did indeed intervene so as to save as many jobs as possible but at the end of the day, it is difficult to do so when it comes to companies (for example tourism-related ones) which saw their income source dry out completely overnight
4. Dishonest competition among countries for medical equipment due to bottleneck issues in exporting nations such as China and India. From political pressure to secret government agency involvement so as to secure medical supplies, countries essentially outbid to the point of out-bribing one another, with the United States representing a textbook example to that effect, much to the frustration of even long-time allies such as European Union nations

The list could continue but we do not believe it is necessary, in light of the fact that it already paints an accurate enough picture of reality. As such, let us take things one step further and also focus on some of the most important indirect political implications involved, such as:

1. Increased pressure being placed on companies that rely on imports to a great degree to move as much as possible in terms of production back home. Few can deny the fact that the 2020 developments have made one aspect perfectly clear, the fact that at least as far as strategic products are concerned, over-optimization and increasingly complex supply chains (with components imported from a wide range of different countries and even the smallest of disruptions throwing a wrench into the entire endeavor to the point of making it impossible to deliver the final product) represent systemic risks. As such, politicians are being remarkably firm when asking for dramatic changes in this respect
2. It should come as no surprise that “selling” a generalized quarantine isn’t exactly a simple job for politicians and as such, they had to reach for their proverbial wallets (more specifically, taxpayer wallets or central bank “printers”, depending on how you choose to see it… arguably both) and essentially promise mass assistance in an effort to increase compliance
3. In an effort to save as many jobs as possible, entire industries have essentially been bailed out, with the general public however (skeptical after the bailouts which came after the Great Recession) demanding that there be strings attached. For example, again, that companies which have been saved by the proverbial taxpayer return the favor by moving as much in terms of production and adjacent services back home as possible so as to create jobs
4. When it comes to international relations, yes, the virus has caused problems directly (as mentioned in item #4 of the previous list) but also exposed existing vulnerabilities. For example, it made it clear that yes, Donald Trump was being more than serious with his “America First” agenda and the same principle was valid with respect to other geopolitical actors. Therefore, a more than valid case could be made that the COVID-19 crisis exposed serious flaws in international cooperation and, as if that was even necessary anymore, the fact that the world is in an undeniable isolationist trend

Did the start of 2020 only expose negative elements?

Most definitely not, there have of course also been success stories involving impressive cooperation but after drawing the line and trying to let’s say assess the net result, the scale tends to unfortunately be tilted rather aggressively toward the negatives. Again, many of them were hardly unknowns to the average geopolitical trend observer in a post-2016 framework (with the Brexit vote and 2016 US elections in the spotlight) but this much is certain: globalization is most definitely under attack.

Can it survive?

That remains to be seen. There are undoubtedly very strong forces which are working toward maintaining the current political status quo (companies and politicians who understand that even with its many imperfections, the benefits of globalization outweigh the cons) but on the other end of the spectrum, there are mounting negative ones determined to push humanity in the opposite direction, especially in light of the fact that 2020 is an election year in key jurisdictions such as the United States. Historically speaking, the ChinaFund.com team hopes the latter forces will prove to be unsuccessful because if there is one thing history books have taught us, it’s that widespread isolationist tendencies don’t exactly tend to lead to positive outcomes. Or, as a conclusion: hope for the best but prepare (hedge) for the worst.

Is the end of globalization near?

Right off the bat, we want to make it clear that this article is firmly in the realm of speculation and merely reflects the opinion of the ChinaFund.com team. At the end of the day, nobody truly knows what the future has in store and those who claim they do are nothing but charlatans or, to use another term, snake oil salesmen.

In our view, the word “end” tends to be too harsh.

No, we do not believe that the end of globalization is nigh, for the simple reason that the current well-functioning of the worldwide economy depends on it to such a degree that it is just not feasible to assume we can simply erase it from the equation altogether. The logistics of it all make too little sense for us to consider using the word in question.

On the other hand, we do understand that there is a lot in the way of incentives to “combat” globalization in one way or another. Even well before 2020’s developments, frustration levels within Western nations were sky-high from the perspective of the average worker in general and especially blue-collar worker in particular. To put it differently, the lower-skilled a Western worker is, the less he has taken advantage of everything the modern-day economic system has to offer.

In stark contrast, higher-skilled employees who let’s say work in the service sector have done remarkably well. For example, a high-end IT professional, even if he went into debt so as to get a good college degree, can almost immediately find employment opportunities that put his professional life well on the path toward financial sustainability. It isn’t the least bit difficult to understand how, from the perspective of such a person, things seem to be going amazing: they have more than enough money coming in that they can spend (among other things) on cheap imported goods, what’s not to love about globalization?

The more time passes however, the more people enter the former category. Even among the previously mentioned IT professionals, there is a deep divide. A gap, if you will, between those who aren’t affected by globalization and those who are. For example, an average Western programmer who specializes in the most widely-used languages, let’s say a LAMP programmer (Linux – Apache – MySQL – PHP), will have severe difficulties competing with a similar programmer from a poorer nation and as such, will gradually develop resentment toward globalization much more so than an in-house Western employer who is ultra-specialized and feels more than secure financially. This much is certain: the number of frustrated Westerners has been growing continuously over the years and if anything, the year 2016 has proven that critical mass has been reached.

However, we would argue that this doesn’t mark the end of globalization altogether but rather… well, the end of globalization as we know it.

2020’s developments are a textbook example to this effect and will almost certainly generate short, mid as well as long-term changes with respect to supply chain complexity reduction for vital goods. For example, Western politicians will encourage let’s say those who sell protective medical gear far more aggressively to move as much as possible in the way of production back home so that repeats of the 2020 situation do not occur (with Western nations who were desperate for medical supplies so as to combat the COVID-19 pandemic experiencing major bottleneck issues due to being overly-dependent on China).

Furthermore, in light of the fact that a wide range of businesses have been affected to such a degree by the economic aftermath of the COVID-19 pandemic that they required government assistance, it shouldn’t come as a surprise that in some cases, assistance came with strings attached. Strings which oftentimes also revolve around, of course, moving production back home.

For these reasons and many more, a fair case can be made that it would be optimistic to the point of naïve to assume that globalization can find a way to survive “unharmed” after a perfect storm-type cataclysm such as the COVID-19 pandemic. On the other hand, it would be equally optimistic to the point of naïve for the proverbial other side to believe that autarky is anything but a utopic scenario or in other words, that globalization can and will be eliminated from the equation altogether. Whether we are referring to logistical reasons, geopolitical considerations or even business common sense, it should be obvious that moving away from globalization altogether is… well, pretty much impossible.

This, however, doesn’t mean there won’t be consequences for the proverbial spoiled children of globalization (as they are perceived by the West, at least) such as China. In some cases due to their own mistakes and in others as a result of exogenous shocks, nations such as China will have no choice but to adapt to the post-2020 realities and focus more on trends pertaining to unleashing their domestic consumption potential, a model China was already embracing well before the coronavirus became a threat. At the end of the day, as complex as the equation may seem, it all starts making sense once you meaningfully “get” China and understand the stage of economic development it is currently at. As always, if that is not yet the case as far as you and/or your organization are concerned, the ChinaFud.com team will gladly be of assistance and is only one quick message away.

At the origin of these developments lies… of course, China. Right off the bat, we would like to make it clear that we are not trying to paint a picture of China as a geopolitical actor that deliberately caused and causes problems but rather a picture involving a series of unintentional as well as unfortunate circumstances which each chipped away at the proverbial foundation bit by bit. In aggregate, they caused changes which make it clear that the international relations system countries have returned to after extensive quarantine periods is in a bit of a “new paradigm” situation.

The problems, at their core, revolve around unintended consequences pertaining to supply chain complexity and over-optimization, which have proven to be a literally deadly duo:

1. On the one hand, globalization inevitably brought about an increase in supply chain complexity which cannot be ignored, with a very fragile equation being involved in the production of most goods: components which need to be imported from various countries, the manufacturing process which takes place in yet another jurisdiction, just like the customer support dimension and the list could go on and on. Needless to say, all it takes is for one cog to stop spinning and the activity of the supply chain as a whole grinds to a halt. This became painfully obvious in early 2020, when China was the epicenter of the coronavirus pandemic (before it was labeled a pandemic) and companies that were dependent on Chinese imports found themselves unable to keep functioning
2. On the other hand, a valid case could be made that had enough inventory existed around the world, the temporary disruption of economic activity in China or anywhere else would not have represented such a literally deadly scenario. Unfortunately, the exact opposite trend has manifested itself over the years, with companies doing their best to avoid a “bulky” inventory strategy and instead, keeping the business as “lean” as possible by only keeping a carefully calculated quantity of supplies within reach (needless to say, a low one). As such, the minute disruptions appeared, many overly-optimized businesses found themselves in a blockage situation

To make matters worse, the previously mentioned duo did not just manifest itself when it came to let’s call them “expendable” products but rather as far as the exact opposite was concerned: crucial medical equipment. As the epicenter of the COVID-19 pandemic moved to Europe and later on to the American continent, healthcare system after healthcare system found itself forced to deal with a severe shortage of masks and other essentials due to the fact that they were either dependent on Chinese imports of the actual product or at the very least on imports of various components. Regardless, the end result remained the same: a severe shortage of medical equipment precisely when it was needed the most.

This state of affairs, as mentioned at the beginning of our article, brought out the best in people as well as governments in certain cases: international cooperation, with for example both China and other European Union nations helping the gravely-affected Italy with much-needed equipment and medical expertise (Germany, for example, even agreed to accept Italian patients and relieve the especially Northern Italian healthcare system of a serious burden).

Unfortunately, it also brought out the worst, with for example the United States engaging in behavior one can consider less than ethical, even when allies were involved. Whether we are referring to the Donald Trump administration essentially trying to bribe German biotech companies that were working on vaccines or US officials outbidding their French counterparts to the tune of offering three times more for medical equipment as well as instant payments, it has become clear that in many instances, the worldwide international relations framework revolved around a more than obvious adversarial approach.

It will most likely take years upon years for the many ramifications of this adversarial attitude to manifest themselves but the bottom line is this: trust, especially among Western nations, has been lost to a significant degree. Even within the European Union, leaving positive examples such as the previously mentioned ones aside, tensions kept appearing with respect to how to tackle the economic implications of the 2020 crisis, with debtor nations such as Italy and Spain demanding extremely aggressive and decisive measures, whereas Northern European creditor nations such as Germany and the Netherlands hesitated.

To make matters worse, 2020’s realities didn’t exactly come after an extremely rosy period in terms of international relations, especially after the (in)famous 2016 developments, with the Brexit vote kicking off a trend of increasing isolationism and the US elections which resulted in the victory of Donald Trump sealing the deal. Therefore, a more than compelling case could be made that the 2020 developments did not just come as a short-term hiccup in a longer-term trend of increased international cooperation but on the contrary, essentially made an already volatile geopolitical landscape worse.

Can China take advantage of this state of affairs? Let’s just say that even if logic dictates that this might be the case, the situation tends to be more complex than meets the eye because despite there being increasing tensions among Western nations, the temptation to simply point to China as the main cause of everything that is going wrong both economically and geopolitically might be too great to resist, especially in the United States and other countries where leaders on the isolationist side have been or will be elected. No matter what happens, the ChinaFund.com team will continue keeping its fingers on the pulse of not just China but the broad international relations landscape as well.

Social media companies can grow extremely quickly, bring massive groups of people together and also wield enormous power. Let’s take a quick look at some of the United States’ top social media companies and their relationship with China.

Facebook

About:

When it comes to social media companies, Facebook is the undisputed leader in terms of sheer size and numbers. Facebook currently has about 2.5 billion active members worldwide (as a quick reminder, the global population is just under 8 billion). This means that over 25% of the world is on Facebook. This percentage is probably even larger when you consider the fact that not every person in the world has access to the internet.

Facebook was founded by Mark Zuckerberg while he was at Harvard and he is still very much involved in running the company as well as the (key) decision-making process. Today, they are the center of quite a few political conflicts in the U.S. and have been accused of influencing presidential elections as well as promoting fake news articles.

Facebook and China

Facebook is currently banned in China due to the country’s strict guidelines with respect to controlling what can or can’t be viewed on the internet. China prohibits all content that is not perceived as being in the best interests of the state. Their internet security is so broad (considered to be the most intense in the world) that is has been dubbed “The Great Firewall”.

Facebook was blocked in 2009 after being used for communication by protesters in western China.

It’s not that China has a specific vendetta against Facebook. The Great Firewall prevents quite a few technology companies from operating in China and also prevents their citizens from accessing foreign news sites such as the BBC, The New York Times, and The Wall Street Journal.

Some of the other major technology companies that are banned in China include:

● Google (this includes YouTube, Gmail, Google Play, Google Maps, Google Drive, Hangouts, Blogger, etc.).
● Dropbox
● Slack
● Quora
● Wikipedia
● Vimeo
● Flickr
● Soundcloud

Despite being banned in China, Facebook still makes quite a bit of money from Chinese-based companies. For example, they saw approximately $5 billion in ad revenue from Chinese-based companies in 2018, which would make the country Facebook’s second-largest ad market. If Facebook were to ever bypass the ban by the Chinese government, there is no doubt that their company would thrive.

In 2018, Facebook also attempted to establish a $30 million subsidiary in Hangzhou to incubate start-ups and give advice to local businesses. However, permission to run this start-up was quickly withdrawn.

Instagram

Instagram falls under the umbrella of Facebook-owned companies and is also banned in China. Instagram was blocked in September 2014 during pro-democracy protests in Hong Kong. The main reason cited for the ban was that images of protests in Hong Kong might inspire those in mainland China to engage in similar movements.

Since Instagram is owned by Facebook, they will probably gain access to China at the same time Facebook does (if they’re ever given the green light, that is).

WhatsApp

WhatsApp is another popular Facebook-owned company, although WhatsApp is more of a global app (available in 180 countries). WhatsApp is no small fry itself, even when compared to the Goliath Facebook. They boast that over 1.6 million users log in each month to access their messaging app.

WhatsApp is available in 180 countries but China is not one of them. WhatsApp was blocked from China in September 2017 and is also blocked in Cuba, Syria, Iran, the UAE, North Korea and Qatar. However, some of these bans are applied to Voice Over Internet Protocol services as a whole. This means that the WhatsApp messaging service is allowed, just not their voice calling or video calling.

WhatsApp (and many other social sites) can still be used by the ambitious user who purchases a VPN. A VPN is a virtual private network that allows the user to bypass certain firewall restrictions and access public connections as though they were private.

Twitter

Twitter is also banned in China. Shortly after the anniversary of the Tiananmen Square Protest, Twitter received the ban in June 2009. Twitter, even more than other social media companies, is one that can quickly corral people and get voices heard. This is what the Chinese government wants to avoid.

Despite the ban, Twitter still has an estimated 10 million active users in China, who use VPNs to circumvent the ban. This number is a rough estimate because, due to the private nature of VPNs, it is very hard to track and monitor such activity.

The ban on Twitter includes Twitter-owned Periscope as well.

Snapchat

Continuing the trend, Snapchat is also banned in China. It’s unclear when Snapchat was initially banned in China. However, Snapchat does have a small research and development office in the country to work on Spectacles. These are Snap’s camera-equipped smart sunglasses.

This move was most likely made because the Spectacles are already produced there and the office only has about 20 people.

Reddit

Reddit was also blocked by China in August 2018. Due to the nature of some threads to be politically charged or discuss taboo topics (such as censorship), many Reddit users were surprised that the site hadn’t been banned earlier.

Tumblr

Tumblr was also blocked from China in May 2016, although pages containing politically charged content have been heavily censored in China before then.

Pinterest

Pinterest was blocked in China in March 2017, around the time when China was hosting its annual “Two Sessions” political gathering.

TikTok

It’s worth noting that Chinese companies have had their fair struggle of gaining access to American markets. TikTok is owned by China-based Bytedance and is quickly becoming one of the most popular social media apps in the United States. It is estimated that they currently have about 70 million users there. However, TikTok has been drawing more and more scrutiny from the U.S. government for passing data to the Chinese government. They are now under formal investigation by the FBI and many politicians have manifested their intention of banning them. Although not a social media company, Donald Trump has also barred U.S. companies from working with Huawei through 2021.

Who Isn’t Banned?

Clearly, The Great Firewall does a very effective job of keeping out foreign internet companies. Not only that but it was estimated by Harvard University that as many as 488 million social media posts are fabricated by the Chinese government each year. These posts are pushed out by government employees on Chinese social networking sites in an attempt to divert attention away from sensitive issues (such as political protests in other parts of the country). This shows just how far the government is willing to go to control what is being communicated online.

This leads us to a fairly obvious question: what do Chinese citizens use for social networking and the internet?

The answer is that, because China has stifled so many foreign companies, Chinese-owned companies have been able to thrive. For example:

➢ eCommerce retailers such as Alibaba and JD.com have been able to thrive in the absence of Amazon or eBay

➢ For searching, Chinese internet users turn to Baidu instead of Google

➢ Instead of WhatsApp or Facebook, the apps Tencent, QQ or WeChat allow citizens to connect with each other.

➢ Since Google and YouTube are both banned, Chinese citizens turn to Tudou and Youku

Moving forward, it will be interesting to see if The Great Firewall is ever repealed. If that ever happens, it is sure to have global repercussions, as technology companies will stumble over each other in an attempt to enter the market.

When it comes to social media companies, the total number of users generally drives their profitability and power. The larger the network, the more the company can make from selling ads. Also, due to the social nature of people, the more people that use a platform, the more other people are going to join. People want to do what their friends are doing, in other words.

Due to this, China wields a tremendous amount of potential power (considering the size of the Chinese population). When you take a look at the following picture, we are convinced that U.S. social media companies are chomping at the bit to get into the Chinese market:

We hope that you’ve found this article valuable when it comes to gaining information about social media giants in the United States and their relationship with China. If you’re interested in reading more, please visit the ChinaFund.com blog as well as the “New Here?” section of our website and for a more personalized experience, our consulting services are at your disposal.