Interesting article. Well thought out, and well researched.
First, what I liked:
- The decoupling dashboard. It's an excellent way to illustrate the state of affairs and you provided necessary and sufficient information.
- The critical window. It seems like you nailed the big hitters, and the timeline.
- Calling out that China has been preparing for the decoupling, and painting the timeline.
However, your risk analysis seems willfully overconfident.
- It is disingenuous to treat "The US and its allies" as a unified bloc while neglecting that the US has been estranging its putative allies while China has been making deals with them. This seems likely to continue.
- Belt and Road has been successful in South America, and many Latin American countries have begun to migrate from the US to China as their major trading partner for the past decade. Indeed, you point to an inability for China to feed itself without US soybeans but it has been doing just that voluntarily this year due to trade agreements with Brazil - what you claim to be a liability for China turns out to be a major headache for the US without any pain on the Chinese side. (This begs the question of how many of the other claims would result in a similar outcome?)
- The analysis neglects the US debt problem and the real risk of inflation. You mention four things that international currencies require, but then describe a strategy whereby the US violates one or more of those with IEEPA. Doing so would put dollar dominance at risk, risking real ecosystem collapse in the US. My analysis suggests doing so would be far worse for the US than for China.
- The appeals to game theory and physics are overblown. Your analysis does not contain a real treatment of either of these things, and invoking them drastically weakens your argument.
These items notwithstanding, I learned from this essay, as with all of your articles. Please treat this critique as an invitation to debate and clarify our understanding rather than an attack on your work. Thank you for writing it.
Looks to me you are too optimistic on the short to medium term pain in US, etc. Too pessimistic on China. Where is Russia as a China friend?
What happens to China:
Month 1:
RMB collapses 30-50% (capital flight unstoppable). Comment: Really? Why? If it was unstoppable, it would have happened.
$2.5T in US assets frozen → $1T+ in losses realized. Comment: Are you sure these numbers are correct? What is the source?
Food shortages (30% of soybeans from US, can’t replace immediately). Comment: Who cares about Soy. They can eat rice, plant more soy, get from Brazil, etc. It's not a must.
Year 1:
Social unrest (property owners + unemployed workers). Comment: Naah, not unrest.
The numbers are all best attempts as making estimates for deeply uncertain/unknowable things. That's part of my process, make good faith estimates then do the backward induction. Revise them in a quasi-Bayesian way as neccessary.
interesting, feel like i have to agree with many points, but feel it is too one sided trying to point china as being weak. You mention the usa can achieve self sufficiency on rare earth in 10y time... how certain are you about this? what do you base this on?
This analysis feels too binary and not reflective of a complex system. On any one of these issues, suspect it’s not as bad for the Chinese as it looks and for the US it’s not as good as it looks. Seem to recall Russia was supposed to be losing (not this publication) yet they seem to be winning.
I was going to write the same thing. I badly want to absorb the material because the points are interesting/provocative but the GPT-speak is so incredibly distracting.
I don’t know enough about what is actually happening in china behind the scenes, but seems like a potential flaw in your analysis is that it you might be underestimating how capable they are to make changes to their current trajectory.
How do you handicap the odds that a Chinese invasion of Taiwan leads to a kinetic war with the US? I think we tend to see Taiwan as a chip factory but ignore the strategic importance of having a barrier to China's eastern side that they would want to hold for strategic naval purposes. Even if the US can re-shore advanced chip manufacturing (which would be saying something) Taiwan remains strategically important for naval reasons.
Would it be possible for China to use massive fiscal spending associated with wartime production to alleviate the pressures of unemployment and loss of major export markets (I am thinking US entering WWII ending the Great Depression type of thing)?
The obvious issue is that the US borrowed a lot to fund that spending. China already has a lot of debt and in this scenario I am describing I am not sure who would be left to lend to them.
Obviously just brainstorming but any thoughts on what could happen in a hot war?
Why not assess the impact of zero REE from China on western supply chains? Also inflation will become a major problem in the US in case of an overall supply shock. The whole Ai theme which is not only driving asset markets higher but also GDP (wealth effect that’s driving consumption + investment share of GDP). Already pretty extreme social polarisation in the US. Government shut down. It’s far more symmetric in my opinion. China has an ability to suffer whereas the US doesn’t. Believing that CCP will lose power if they don’t deliver economic prosperity is unfounded but an attractive simolification
I always heard that the social contract between the CCP and the people was economic materialism in lieu of political participation. If not, what is it?
Interesting article. Well thought out, and well researched.
First, what I liked:
- The decoupling dashboard. It's an excellent way to illustrate the state of affairs and you provided necessary and sufficient information.
- The critical window. It seems like you nailed the big hitters, and the timeline.
- Calling out that China has been preparing for the decoupling, and painting the timeline.
However, your risk analysis seems willfully overconfident.
- It is disingenuous to treat "The US and its allies" as a unified bloc while neglecting that the US has been estranging its putative allies while China has been making deals with them. This seems likely to continue.
- Belt and Road has been successful in South America, and many Latin American countries have begun to migrate from the US to China as their major trading partner for the past decade. Indeed, you point to an inability for China to feed itself without US soybeans but it has been doing just that voluntarily this year due to trade agreements with Brazil - what you claim to be a liability for China turns out to be a major headache for the US without any pain on the Chinese side. (This begs the question of how many of the other claims would result in a similar outcome?)
- The analysis neglects the US debt problem and the real risk of inflation. You mention four things that international currencies require, but then describe a strategy whereby the US violates one or more of those with IEEPA. Doing so would put dollar dominance at risk, risking real ecosystem collapse in the US. My analysis suggests doing so would be far worse for the US than for China.
- The appeals to game theory and physics are overblown. Your analysis does not contain a real treatment of either of these things, and invoking them drastically weakens your argument.
These items notwithstanding, I learned from this essay, as with all of your articles. Please treat this critique as an invitation to debate and clarify our understanding rather than an attack on your work. Thank you for writing it.
Intriguing. Thank you.
Looks to me you are too optimistic on the short to medium term pain in US, etc. Too pessimistic on China. Where is Russia as a China friend?
What happens to China:
Month 1:
RMB collapses 30-50% (capital flight unstoppable). Comment: Really? Why? If it was unstoppable, it would have happened.
$2.5T in US assets frozen → $1T+ in losses realized. Comment: Are you sure these numbers are correct? What is the source?
Food shortages (30% of soybeans from US, can’t replace immediately). Comment: Who cares about Soy. They can eat rice, plant more soy, get from Brazil, etc. It's not a must.
Year 1:
Social unrest (property owners + unemployed workers). Comment: Naah, not unrest.
Regional governments defy Beijing (withhold revenue). Comment: Impossible.
What happens to US:
Month 1 to Year 1: Comment: I largely agree but the pain will be greater!
____
Agree long-term though.
The numbers are all best attempts as making estimates for deeply uncertain/unknowable things. That's part of my process, make good faith estimates then do the backward induction. Revise them in a quasi-Bayesian way as neccessary.
US may have a few more critical dependencies? like API's and pharma precursors
Pharma is a good point, I should incorporate that into subsequent versions, thanks for highlighting.
interesting, feel like i have to agree with many points, but feel it is too one sided trying to point china as being weak. You mention the usa can achieve self sufficiency on rare earth in 10y time... how certain are you about this? what do you base this on?
rare earths aren't that rare
yes but the whole infrastructure to extract them? often by products of other industries.
delusional china is doomed slop recycled for past 15 yrs.
This analysis feels too binary and not reflective of a complex system. On any one of these issues, suspect it’s not as bad for the Chinese as it looks and for the US it’s not as good as it looks. Seem to recall Russia was supposed to be losing (not this publication) yet they seem to be winning.
This would have been soooo much better if it wasn’t obviously so deeply edited by ChatGPT
I was going to write the same thing. I badly want to absorb the material because the points are interesting/provocative but the GPT-speak is so incredibly distracting.
Entertaining, but absolutely schizophrenic analysis, unhinged from reality.
Very interesting article.
Fascinating 4 D geopolitical chess.
I don’t know enough about what is actually happening in china behind the scenes, but seems like a potential flaw in your analysis is that it you might be underestimating how capable they are to make changes to their current trajectory.
Keep up the great work.
Excellent work on this.
How do you handicap the odds that a Chinese invasion of Taiwan leads to a kinetic war with the US? I think we tend to see Taiwan as a chip factory but ignore the strategic importance of having a barrier to China's eastern side that they would want to hold for strategic naval purposes. Even if the US can re-shore advanced chip manufacturing (which would be saying something) Taiwan remains strategically important for naval reasons.
Would it be possible for China to use massive fiscal spending associated with wartime production to alleviate the pressures of unemployment and loss of major export markets (I am thinking US entering WWII ending the Great Depression type of thing)?
The obvious issue is that the US borrowed a lot to fund that spending. China already has a lot of debt and in this scenario I am describing I am not sure who would be left to lend to them.
Obviously just brainstorming but any thoughts on what could happen in a hot war?
Why not assess the impact of zero REE from China on western supply chains? Also inflation will become a major problem in the US in case of an overall supply shock. The whole Ai theme which is not only driving asset markets higher but also GDP (wealth effect that’s driving consumption + investment share of GDP). Already pretty extreme social polarisation in the US. Government shut down. It’s far more symmetric in my opinion. China has an ability to suffer whereas the US doesn’t. Believing that CCP will lose power if they don’t deliver economic prosperity is unfounded but an attractive simolification
I always heard that the social contract between the CCP and the people was economic materialism in lieu of political participation. If not, what is it?