Dress Rehearsals for Empire
China and the Battle for Middle Earth
Almost twenty years ago, tensions between the United States and Israel rose to stratospheric levels. Israel had been America’s key ally in the Middle East, particularly after the fall of the Shah in Iran in 1979. Yet in 2000, at the zenith of the Israeli-Palestinian peace process, President Bill Clinton confronted Prime Minister Ehud Barak: cancel your military sales to China or risk serious damage to relations with the United States.
The sale of the Phalcon radar system was at the heart of the divergence. The sale of this early warning system was part of a multi-billion dollar growing military partnership between Israel and China. What was going on? How could a prominent American ally be in a growing military partnership with China?
Fast forward to today, and China’s flirtations in the Middle East, America’s traditional backyard, have escalated far beyond batting practice. Long-standing relationships with countries outside the American order always found a stalwart in China (e.g., Syria, Iran, Libya, Sudan). Yet, the Gulf was always seen as America’s foreign heartland. And Saudi Arabia was the domesticated prize.
In hosting Saudi Arabia as part of a tripartite dialogue with Iran, China seemed to be squaring a circle that President Obama failed to complete. When Obama pursued the Iran deal, the Gulf went up in arms and asked for (and received) permission for a war in Yemen. That was part of a broader ‘directly confront Iran everywhere’ strategy. Then came China, that, in contrast to the U.S., was in a full-blown alliance with Iran. Yet that is where Saudi Arabia turned for a strategic geopolitical shift.
The headlines came fast and furious. The New World Order has arrived! China displaces the U.S. in the Middle East! Saudi Arabia turns its back on America!
So, is it all over? The arc of China’s rise is a century-long project. It has been testing its position globally and vis-à-vis the United States for decades. Today, China is a strong power. It now seeks the hard and soft power projection commensurate with its status. That projection of power is playing out across Middle Earth – the vast area between the West and the Far East. Yet, China’s status should not be mistaken as an alternative to the United States. There is no Chinese empire ready to displace the American empire.
There is only one dominant global power: the United States. Where relationships with China are not an existential threat (capriciously defined by the DC establishment) to the American empire, they can and will continue. Governments and institutions operating in Middle Earth should act accordingly. If a threat is perceived, those same entities will be asked to choose sides, just as Israel was: stay within the American project or operate outside it.
The Rise of Empires
Ray Dalio has written about the changing world order and, like many prognosticators, has foretold a binary transition with echoes of the past. China is on the rise and the U.S. is in decline. Bridgewater was built accordingly. So were many investment firms that pursued a strong China presence. More broadly, the American economy before COVID was tilted in this perceived inevitable direction.
The United States was already the leading economic power by the end of World War I, a position that Dalio’s charts would assert China is in today. The story roughly goes that the U.S. emerged as the leader in the 1920s, FDR’s subsequent post-Depression moves laid the groundwork for American monetary supremacy, and World War II obliterated the rest of the world’s powers. The U.S. kept a global foil in the form of the USSR. Then it built its empire project superficially around the rules-based institutions it hosted, namely the United Nations and Bretton Woods financial instruments.
Is China’s status today akin to the U.S. in the 1920s? China’s GDP today is where Japan was in 1990 vis-à-vis the United States. The ‘Rising Sun’ in the East three decades ago was Japan, not China. Japan precipitously faded in the 1990s, just as its global takeover project was set to begin. China today, however, still has a ways to rise as an economic engine, even if its population has peaked. Its collective financial strength and output will rise as a result - as will its funding and development of its military.
We are only at the beginning of China’s rise and not at its end. In 1960, the U.S.'s share in the global economy was around 40%. In 1920 it was perhaps half of that (all the numbers are all over the place, GDP is somewhat made up, and going nominal or real is a matter of perspective). When Woodrow Wilson won a peace prize for his role in the aftermath of World War I and the founding of the League of Nations, he was cautious in asserting U.S. dominance. The League was ultimately based out of Geneva, not the United States (corrected later after World War II with the UN based out of New York).
In some senses, China is somewhere between 1920 and 1940. It is carefully testing its role as a superpower, just like Woodrow Wilson did. The United States, however, was on its way to becoming a dominant superpower and ultimately a unipower. China is far behind where the U.S. was in 1920 in terms of global economic leadership today. The Iran-Saudi peace deal is not the end of World War I, and the Shanghai Cooperation Organization is not the League of Nations or NATO. And China is not on a trajectory to be at the level of a post-World War II America.
The Rise of the Rest
The story in the last half-century is not just about China's rise but, perhaps more importantly, the rise of the rest. Today's discussion of the global economy often starts with the United States and ends with China. Yet, in the last half-century, and definitely since 1990, the story has also been about the rise of the rest. There was a resurgent Western Europe and then, after the Cold War, an emerging Eastern Europe. There were the Asian tigers of the 1990s and the BRICS of the 2000s. Today, sub-Saharan Africa has some of the highest growth rates in the world. And while some of the Middle East has stagnated, the Gulf has prospered and accumulated capital. The fastest-growing economy in the last decade, arguably, is Vietnam.
The Rise of the Rest matters because it is likely that China and the United States will not even have a combined economic share past where the U.S. alone was in 1960. China’s population, while significant, represents a smaller and shrinking share of the global population (the same goes for the U.S.). Throughout the 1950s, there were 100 or so countries. Today we are on the precipice of 200. And economically, 25 countries have a greater GDP than $500 billion today.
The Rise of the Rest becomes a quixotic notion falsely raising the specter of a silent majority caught between two powers asserting their writ. The Non-Aligned Movement was formalized at the height of American power in 1961 and today comprises 120 countries. It is feckless, toothless, and has no sway in international relations. BRICS without China would be a meeting that occurs now and then (which it already is). Even the EU has been unable to muster a military force outside its status as a military protectorate under U.S.-led NATO. Finland’s accession to NATO acknowledges where the real power lies when push comes to shove.
Hidden between the lines of the Rise of the Rest is the true story of the American empire. Ultimately, the rest of the world has grown not on its own but as part of a diffuse American order and empire. The global security architecture. The rules-based order. International monetary instruments. Multilateral trade pacts. Vietnam strengthened its U.S. relationship to become an outsourcing alternative to China and thus attained its unheralded status. It is a rise within the American order.
The nature of empire and control has changed from centuries past, as the American Empire project clearly shows. It goes by different names than past empires. The nature of control is less through force and more through the cost of exclusion (see Burma, Venezuela, etc.). One would not measure the value of the Roman Empire through the GDP of Rome or the city-states of the Italian peninsula. Similarly, from 1960 to 2020, American power is even stronger because the empire has grown, and the far-flung countries as part of this order are even more prosperous.
As China truly confronts America, it is confronting the entire order, not just the United States. In so far as countries, even France with Macron’s latest foray, look to China, it is to supplement, not substitute, their relationship with the United States. The rest of the world has prospered immensely over the last three decades. It is unproven whether a substitute would bring more benefits, despite the frictions that U.S. interference brings.
The Battle for Middle Earth
Much of the Cold War played out in the post-colonial world under formation, particularly in the 1960s. It is why so many regimes remained frozen for 30 years. Proxy wars were numerous, slowly leading to entrenched dictators and/or protracted civil wars. What was at stake, rather than necessarily the ‘capture’ of a micro-state or economy, was influence, prestige, and, notably, the ability to bleed the treasury of the other side.
Oft forgotten in global discourse is a vast area between the West and the East: Middle Earth, consisting of South and Central Asia, the Middle East, and Africa. Covering much of the world’s geography, representing 90+ countries and close to 4 billion people, it is already a substantive part of the world’s economy. Furthermore, growth set to occur there in the coming decades will pace the global economy.
The nature of American power today is derivative from the rest of the world (and vice versa). American economic strength allowed it to develop an insurmountable American military that reinforced American monetary dominance leading to further economic gains (and the circle restarts). Monetary dominance, however, emerges within a wider dollar-denominated order. Today the rise of the rest is the primary reason for the scale of American power. It provides for American power projection far beyond its near 25% share of global GDP and its borders (by the way, GDP is just one approximation of economic strength, but that discussion is better left to better people).
The Battle for Middle Earth becomes central to the contestation between China as a rising power if it seeks to displace the U.S. as a global hegemon. It is, in fact, zero-sum. The perceived NPV of American presence and dominance in Middle Earth will ultimately determine its power projection as an empire. Without Middle Earth integrated into the monetary monopoly, the power projection would fade. This is not 1960. American power is built on the back of its empire (which makes it, in some ways, highly susceptible).
China could still rise within the context of the American order or adjacent to it. Yet, if it seeks to grow beyond a certain point or desires its autonomy beyond the Federal Reserve’s influence over its economy, it will seek to displace the United States hegemonic position. Again, China is playing a long game (a century of rise starting in 1949), and thus we are only at the beginning of this contestation which will take many intermittent forms.
The Royal Trade-off
With the Shanghai Cooperation Organization, the Asian Infrastructure Investment Bank, and the Belt & Road Initiative, China put forth an initial collection of a Sino-styled NATO, Bretton Woods system, and Marshall Plan. Whatever that strategy was, it has come to be seen by target countries as complementary to the existing order, not an alternative. In so far as it gains influence, this is good for China, but given a zero-sum choice, it leaves the American order as the preferred choice time and again for countries around the world.
Countries know there are only so many battles and resources the (American) Capital can afford in faraway lands. Confronting 5G infrastructure by Huawei is an imperative that demands action. Chinese and French companies pursuing joint ventures in energy exploration - is that a red line? Is it a line worth fighting over? Ultimately, Chinese relationships with countries within the American order are not necessarily existential threats, even if they may be unwelcome or counter to optimal American interests.
And this brings us back to Saudi Arabia, Iran, and China. The United States engaged China heavily in attempts to contain North Korea in the 2000s and formally in the same effort with Iran (P5+1). China’s energy relationship with Saudi Arabia has been growing, with China becoming the world’s largest importer of Saudi oil. The United States, around the same time, has not been lining up to buy Saudi oil. America has risen to become the world’s largest oil producer during the same time.
So what is new exactly? Not much, in fact – yet. Close military links between China and Saudi Arabia could be a tipping point, as could a formal alliance. That would, however, come with an American ultimatum that no one is ready for nor wants. No country, particularly Saudi Arabia, is looking to shift from one order to another. And a Saudi Arabia closer to China, while not optimal for America, was inevitable due to the current energy dynamic.
The leadership in Saudi Arabia, as with many countries, is still firmly entrenched in the American global order (across all its dimensions, from monetary to the military.) They are, of course, attuned to the circumstances and nature of changing power in the world, and so are also hedging their relationships and building potential for future pathways. However, the choice to ‘switch sides’ is neither here nor around the corner. And choosing to waddle in international anarchy rather than within an order? That is no choice at all.
The Hard Truth
How the world is constructed today presents most countries within the American order with no alternative to the United States. There has yet to be a successful experiment of a country in contemporary times leaving the order, mind joining a rising proto-order out of China. Ultimately, the insurgent power (i.e., China) only needs to wound the established order to appear powerful. The true test, however, will be when the insurgent order needs to project power and provide for its subjects.
Can China do that? Does it have a stable currency that can be a reserve and serve a purpose beyond settling China-linked accounts? Does it have the institutional depth to provide for countries to maintain networks of complex relationships? Is its legal system transparent enough to enable global economic decision-making?
Maybe in 2049, but certainly not today.
There is a long road and many belts along the way before then.