If China Were Smart… | Firewall vs. FAANG | Markets Are Dumb 15

It’s amazing to me how much of the Security/geopolitics conversations happens around stuff that will never matter. The Pentagon and their pet think tanks and congresspeople are pushing the “New Cold War” with China because they know that it will keep the money rolling in. But it really doesn’t make sense. All the defense related crap we are buying will be superseded or sunk within the first month or so of an actual shooting war with China. Nobody really knows what such a war would look like, but it’s obvious to me that most of the trillions we spend on weapons will be wasted.

What I have done this week, and with last week’s video, is try to talk about areas of competition that actually matter. Diplomacy, Business, and the degree to which the rest of the world is still willing to put up with US hegemony are vastly more important factors in the resolution of this competition than almost anything that will happen in the South China sea. It’s the management of these other competition spaces that will determine whether war with China happens in the 2030s, the 2130s, or not at all. The Big Tech companies are another one of those great benefits, like the peace dividend at the end of the cold war, that we in the United States may be in the process of wasting. We should maybe spend a billion or two thinking about these companies strategically, among the trillions we’ll spend on useless weapons platforms. Today’s video is a place to start.

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Video Transcript after the jump…

Hey there. About a month back I pointed out that China had completely squandered the opportunity of the century. In Donald Trump they have a US president who works as hard as he can to out-do all the most vicious propaganda about evil capitalist Imperialist America. For three years the world has been desperate for saner leadership. This was China’s opportunity to really shine. Instead the Chinese Communist Party chose to use this time to build concentration camps in Xingjiang and screw up their financial window on the world in Hong Kong, maybe permanently.

The Chinese government’s actions over the past couple years have certainly changed my impression of the country. I used to see the country as the scrappy upstart, trying to make its way in a world the US runs. I don’t like communism or authoritarianism, but I do like underdogs, and China’s transition from emperor like Mao to regularly rotating corporate looking leaders was reassuring.

” Actually, I am not going anywhere”

Yikes. Underdogs with concentration camps and renewed presidents for life are a lot less attractive. I think folks have probably noticed me getting more hostile towards China, and I don’t think that trend is going to stop. But today I want to work against that trend, and lay out the strategy that the Chinese government should have been following since 2016 and could still follow today, if it were smart.

You won’t hear it from cable news, but for people who read books, it’s pretty obvious the whole world lives under a US led system. This system was set up successfully, and survives, because it provides benefits, and the illusion of equality to other countries around the world. But Since the end of the cold war the US has been placing many elements of this system in jeopardy.

Remember Sovereignty, the idea that every country has the right to mind its own business? The US treats that idea like toilet paper now, not just for places like Iraq, Syria and Libya, but for any country in the world that tries to maintain its own trade policy with a growing number of countries. Remember security? Over the past decade the European Union was almost destroyed, first by a US financial crisis, then by US policies in the Middle East that created a flood of refugees.

What has saved US hegemony so far is the Chinese Communist Party. Sure the US is turning into a demented basket case, but what the Chinese have going still looks a lot scarier. China doesn’t seem to offer sovereignty or security either. The thing is though, US power has acquired another new aspect over the past decade, and China may really have the antidote.

Supposedly free trade has been the corner stone of US leadership since the 1940s. The US usually had the biggest companies, but other countries always had serious competitors that they controlled. This held true all the way down to the first decade of this century when banks ruled the world. The European and Asian mega-banks were sometimes even bigger than the US versions. This balance or at least the appearance of balance is now gone. The most important and most valuable companies in the world are all tech companies. And our allies don’t seem to have any. Well I guess all of Europe can congratulate itself on Spotify. Woo hoo!

This problem has been exacerbated by coronavirus, which is commonly understood to have done a decade’s worth of pushing business online in just a few months time. It’s tempting to tell US allies that this is just how capitalism works and they should be more competitive, but that’s going to get old fast. In a world where just four US companies are more valuable than the entire Japanese stock market, it’s not going to take long for people to get sick of US-led capitalism. And China has already shown that they have an alternative that works. They have the world’s only serious non-American tech companies.

When we think of China’s great internet firewall, it’s usually in terms of censorship and oppression. But it also allows China to have their own successful internet companies. Asian and European countries that remember independent economic life are going to find that prospect more and more appealing. If you doubt that this desire exists, you should Google the EU’s long running war against US tech companies.

A smarter Chinese government would re-brand it’s great firewall as an instrument of freedom and independence. It may seem absurd, but in the context of US software companies eating all of international commerce that’s kind of what the great firewall is. A smarter China could completely re-brand the battle over Huawei 5G technology as a fight against US imperialism. US hegemony is vastly more vulnerable here than it is in the South China Sea. If US policymakers and business people were smart, we would be thinking through this vulnerability and coming up with solutions that don’t make us look even more like whiny imperialists.

So far, we in the United States don’t need to up our game. Because the Chinese Communist Party is even dumber than we are. China is filled with brilliant, strategically minded, entrepreneurial people. Luckily for the US it is still controlled by morons who think cultural genocide is a winning strategy for the New Cold War. As I have said before, the Chinese Communist Party is the US’s best friend. We won’t be able to rely on its stupidity for ever.

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