23. Thucydides Trap
Thucydides, an ancient Greek historian of the Peloponnesian War (approximately 460 BCE to 404 BCE), famously said, “The secret to happiness is freedom... And the secret to freedom is courage.”
Among other contributions, he is credited with introducing the concept of the “Thucydides Trap,” which posits that "when a rising power threatens to displace a ruling power, the resulting structural stress makes a violent clash the rule, not the exception.”
Is this the current situation between China and the United States? It seems so. Keeping the Thucydides Trap in mind, let us examine three active areas of Chinese expansion. First, we will explore the secretive loans China has extended to countries worldwide, a matter particularly relevant amidst the Covid-19 shock and global financial risks. Second, we will analyze China’s recent overt agreements with US adversaries, which clearly contradict US interests. Third, we will delve into China’s recent overt aggressions in the South China Sea and discuss potential implications.
The Aid Data team at the College of William and Mary, in an article released in March titled “How China Lends,” presents the first systematic analysis of a sample of the 2,000-plus loans China has made worldwide over the last twenty years. Approximately 47% were in Africa, and 30% were in Latin America, regions geographically close to the US. Many of these loans are secured by strategic cities and ports, potentially ceding control to China if economic conditions deteriorate.
Do these loans have the potential to influence our neighbors? The William and Mary team asserts, “Cancellation and acceleration clauses in contracts grant Chinese lenders the ability to influence domestic and foreign policies.” Additionally, Chinese lenders, all quasi-government entities of the Chinese Communist Party, impose unusually severe confidentiality clauses that prevent borrowers from disclosing the terms or even the existence of the debt. Furthermore, Chinese debt is often obscured, hindering assessments of the borrower’s true financial condition.
Since President Biden took office, China has entered into two overt agreements that either defy current US policy or directly attempt to undermine US currency. First, the twenty-five-year China-Iran Cooperative Agreement secures a long-term oil supply for China and a market for Iranian oil, contravening extensive US policies restricting Iran put in place by the Trump Administration. Additionally, Russia has a 25-year deal with China to cooperate and export oil. On April 9th, China and Russia announced increased efforts at de-dollarization and renminbi digitization, along with several financial settlements not utilizing dollars. Perhaps more alarmingly, during Federal Reserve Chairman Powell’s term, the rest of the world has shown diminished interest in our monthly debt issuances, necessitating large monthly printing to cover the difference. If we lose our status as the world’s reserve currency, a significant decline in our currency’s buying power—possibly by 20-25%—could occur, resulting in a substantial decline in our standard of living.
What about China’s recent actions in the South China Sea? Are they precursors to conflict? Retired Colonel John Mills, in an article in the May 11th edition of Epoch Times, asserts, “China needs three things that we dominate: food, energy, and access to the capital market.” Mills notes that Biden’s Secretary of State commented, “… our purpose is not to contain China.” Mills, a national security specialist, believes, “[t]he CCP believes it is their time to displace the United States.” He suggests that rather than targeting Taiwan directly, China may opt for an easier target, such as Luzon, the largest island of the Philippines. Mills concludes that the current administration does not seem to understand these threats or act to defend against them.
To address the rising threat of a single-party totalitarian state to world democracy and peace, the US needs to seriously evaluate all the strategic and tactical aggressions China is implementing as part of its strategy to assert its dominance. The US must assess its assets— allies, capital markets, economic flexibility, military power projection, reserve currency, technical innovation, etc.— and develop a credible and implementable strategy to prevent Beijing from exerting control over the 196 countries in the world. It is long past time to initiate this process.
Have a blessed week!
Tony Chris