This month we talk about the Thucydides Trap, de-dollarization, and decoupling.
We also discuss the T25, diplomatic realignment, and minilateralism.
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Transcript
The Cold War usually refers to a period roughly between the end of the Second World War and the collapse of the Soviet Union, so about 1945 through 1992—though some historians and other thinkers would shift these delineating dates, maybe moving the start or finish a few or a handful of years in either direction, depending on when they believe the dominant trends of the era actually began or ended.
But whatever the specific dates, this was a period defined by competition between the United States and its so-called Western Bloc, and the Soviet Union and its so-called Eastern Bloc.
And these blocs were assemblages of allied and pseudo-allied governments, in some cases lashed together by force or implied force, in some cases by history or perceived similarity, and in some cases by broad ideology, especially the adherence or presumed adherence to Communism on one side and Capitalism on the other as organizing models for their respective economies.
In essence though, WWII ended, the Nazis and their alliance were defeated, and among the victors were the US and the Soviet Union, which became, in the aftermath of that conflict, which killed so many and destroyed so much wealth and infrastructure, alongside all the lives lost, they became the two last-standing powers, making them superpowers in terms of military might and also in terms of their economic and manufacturing-based output—especially compared to the other powers at the time, most of which were in pretty bad shape, after all the fighting.
They also, because of that tentpole-like position they played for their respective, chosen organizing models—democratic-run capitalism and a top-down, dictatorial version of communism—each side started to shore-up their power by spreading their tendrils outward, expanding their spheres of influence, making deals to pull various other powers into their fold, and each attempting to reshape the world in their image, to align with their ideals and ways of doing things, while also preparing for what felt, for the entire duration of this standoff, like an inevitable, eventual, head-on military conflict between initially just super-powerful, super-wealthy opponents, but which eventually became a standoff between super-powerful, super-wealthy, heavily nuclear-armed opponents with gobs of allies bolstering their ranks.
To say that the Cold War shaped the modern world would be a vast understatement; much of how the world looks today is the consequence of this chilly conflict, and that encompasses everything from our infrastructure to our meta national bodies to our economic and diplomatic systems.
It has also shaped, I think, our perception of how things have typically worked, and thus, must work, and the order of operations when two superpowers with conflicting ideas about how to run things each want to maintain their existing power structure while also expanding to take more power, but keep stepping on each other's toes, to the point where you think there's got to be an actual fight between these two entities at some point, no matter what they do and how they try to tap-dance around that potentiality.
What I'd like to talk about today is what's become known in casual conversation, but also throughout the world of analysis and think tanks, as the Second Cold War, what that means and what it looks like, and how things might shake out in the coming decades.
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This is a very big, macro-scale topic, and there are a lot of stories contained within the larger, meta-story of the supposed Second Cold War, so I think it might be more digestible and comprehensible if I break it up into a handful of key themes, and those themes are The Thucydides Trap, Diplomatic Realignment, Minilaterialism, De-Dollarization, Decoupling.
In this context, the Thucydides Trap refers to an old, diplomatic and military truism that if there's an established power and a rising power, these two powers will tend to march toward conflict, because the emerging power inherently threatens to unseat the incumbent power, and the incumbent power knows this, and thus tries to stifle the rising power's rise.
So that incumbent is incentivized to sweep the legs out from under the rising power before they can become big enough to challenge their hegemony, while the rising power is incentivized to move fast and stack the deck in such a way that they can either take the established power by surprise, or set things up so that when this theorized conflict happens, they're more powerful than the establish player suspects.
This is not some kind of logical law or truth or anything like that, it's just something that's tended to happen throughout history, though it has been criticized over the years as being an oversimplification and maybe even a useless framing of things, because it assumes certain incentives will always exist and will stay the same, and that there's no possibility of coexistence, despite many historical examples of exactly that.
It also doesn't really take into consideration the many multinational bodies that exist, today, that can help governments hash out their differences without firing a single bullet or throwing a single punch.
But this term has become increasingly popular because it points at a seeming truth that China is on the rise, the US, the incumbent power, is on the decline, and that means—and this is based on all sorts of analysis, statements from leaders, and leaked documents—that means China will try to lead the US into a managed decline, slowly taking the reins of the world while the US continues to believe it's in charge, but over time, no longer is, and if the US realizes this is what's happening, it may come up with a casus belli for attacking China, or China could decide to push matters at some point, either because they believe they've reached a level of advantage where they can, or because they believe they're forced into a corner and have no choice, and that—be it an attack on Taiwan or some other red line crossed—could then lead to a direct or indirect conflict with the US.
And that possibility is considered to be a big deal because these two countries are the most powerful on the planet right now, by many metrics, and the amount of firepower they have between them, not even counting their nuclear arsenals or allies, are enough to wreak havoc globally, possibly breaking pretty much every aspect of globalization-related infrastructure in the process, not to mention all the lives lost, treasure expended, and infrastructural damage caused.
Diplomatic Realignment refers to the rearranging of pieces on the diplomatic and military and economic game board, and it's related to the Thucydides Trap in that the folks doing the rearranging are often deciding who's team they're going to be on should such a conflict break out, as they work out new military deals, economic relationships, and so on.
This is not the only variable shaping this diplomatic realignment, or the larger global realignment of pretty much everything as our relationships and technologies and ideologies and environments shift in all sorts of ways, but it is a fairly fundamental one, at least in terms of societal issues folks are trying to work into their math.
It's a bit like the carving up that happened as WWII ended and the Cold War descended over the planet; initially Europe and Asia were the game board, with the major players scrambling to grab territory and get their pieces in key spots, but then Oceania, Africa, and South and Central America were brought into the game, as well, and the US and Soviet Union did all they could to get these various governments and non-government entities in all sorts of far-flung places on their side, just in case war broke out, but also as a sort of ideological proof that theirs was the best way of doing things—which would tend to help their cause, alongside the economic benefits of expanding their relationships in this way.
Minilaterialism is a sort of antonym for multilateralism, which refers to collaborations between a bunch of different sorts of governments and similar entities, when used in this context.
Minilaterialism, in contrast, refers to sticking with smaller alliances, even to the scale of a single country, rather than joining up, formally, with a bigger bloc.
So as the world is divvying itself up into the US and EU and other roughly Western nations on one side, and Russia and China and Iran and other loosely-defined Eastern nations on the other, some countries, like India and Brazil and to some degree Turkey, which some institutions have called non-aligned counties, and the Economist even went so far as to count out 25 of them, the biggest of the nonaffiliated nations, to designate the T25, for "transactional 25", the idea being that they're not glomming on to either polar alliance, and instead willing to deal with both, but on a transactional, rather than an ideological basis.
Which is a fairly brave and tricky balance to try to strike, and one that makes a lot of sense for some nations that consider the West to be too powerful and at times hypocritical and abusive of its leading position in the world, but who also worry about the East taking too much power and dominating other nations in various ways.
This is not a stance or explanation that will go over too well with die-hards on either side, but it makes sense from the standpoint of someone who isn't nationalistically or otherwise born into one camp or the other, but who might do well for themselves by playing both sides of the conflict, as many nations are prone to do when conflicts arise that they're not latently a part of.
There tends to be pushback against nations, like those in the T25, from those in the polarized sides of the grander conflict, however, so it's a tough line to walk, and can sometimes strain relationships, including military and financial relationships, as one side or the other applies pressure to get more nations on their team, which in turn can fray those relationships, or in some cases bring in more, but less-willing partners.
De-Dollarization refers to the push by some nations to replace the USD as the global currency of choice for all sorts of transactions, including between non-US nations, and especially for commodities, reserves, and trade-agreements.
The USD has this pride of place because it's so secure and holds its value well compared to essentially every other currency on the planet, and because the US was able to insinuate itself throughout the global economic system, and all the bits and pieces that tie the global economy together, following WWII, and that dominance only increased with the establishment of the Bretton Woods system, which defined all sorts of new rules for financial dealings between many of the world's largest economies following the world's shift away from the gold standard.
This system has long worked pretty well, as it basically establishes a standard way for nations to deal with each other and put prices on things, which makes forming new economic relationships a lot easier and more streamlined, but it also gives the US outsized influence over nations using this standard, which includes the power to punish governments the US doesn't like, like Iran and Cuba, both for a long while, and right now, Russia, too, by implementing sanctions that are in part supported by the world's adherence to this system.
So there's an effort right now, mostly by Russia and China, to shift the nations in their spheres of influence away from the USD and toward something else—Russia would of course prefer the rouble, but China, which holds a lot more cards than Russia right now, is keen to use the yuan, and they've been able to get Russia and other nations that've been economically hampered by the US because of that control the US has on this system, to shift over to using the yuan in some cases and for some trade agreements, as well.
There's a parallel effort by Brazil's President Lula, reinforced during a recent trip to China, to figure out a new system using a different currency throughout the so-called BRICS nations, which includes Brazil, Russia, India, China, and South Africa—five of the most prominent and powerful nations that are not in the US's larger sphere of influence.
If such a shift occurs, and this approach can scoop up more global trade than it has, thus far—which is almost nothing, at this point, compared to the trade still conducted in USDs—that would put a bit more power and influence on China's side of the docket, but it would mostly serve to drain influence from the US, as it would have fewer buttons to push and levers to pull when it wants to punish foreign governments non-militarily.
And the final primary theme I want to address here is Decoupling, which in this context refers to the unraveling of the globalization-based world order we've lived under since the Cold War, but especially since right after the Cold War, as the Iron Curtain fell and the Soviet Union disappeared and everyone started more or less playing the same economic game.
Globalization has connected the planet in so many ways, and enabled a lot of the enrichment, including arguably negative things like the mass centralization of wealth in fewer hands, but also the arguably positive things like the huge reduction in global extreme poverty that we've seen over the past few decades.
Many of our modern technological marvels are reliant upon this network of trade relationships, and although there's still plenty of violence in the world, we've seen a lot less large-scale violence, and some have attributed this to these relationships, as it's just a lot more profitable almost always to trade with your neighbors rather than going to war with them; the incentives have shifted as the world's become more interconnected.
The grand unraveling of things, then, this Decoupling, is expected to change a whole lot about how the world works, creating more silos, more of a gap between the nations on the opposing sides of this conflict, more opportunity, perhaps, for the T25 and other un-aligned or less-aligned nations, to serve as intermediaries between the two sides, and to profit from working with both sides, as well, and a lot of wealth left on the table because of all the replication and inefficiencies that tends to occur when you've got two sides attempting to do the same thing without working together.
The International Monetary Fund has already indicated that global growth is on the decline, because of the moderate unraveling that's already happened, due to the US's low-key trade war with China, and Russia's invasion of Ukraine.
As these fractures increase, the cost, to everyone, is also expected to increase: the IMF says trillions of dollars of future economic output are at risk because of the emergence of competing geopolitical blocs, and that includes the East-West blocs, but also, for instance, policies in the US that favor locally mined and refined raw materials and locally manufactured finished goods, over those made in China or South America or the EU; and we're seeing a lot more of that sort of thing, as the renewable energy-based economy starts to take shape, and all sorts of new materials and goods become vital to what comes next; governments are trying to lay claim to these resources and the capacity to work with them, and that economic land-grab is causing more economic fractures, which could become giant gulfs, over time.
It's more profitable for everyone to not divide the world up in this way, then, but historical traps and modern ideologies seem to be nudging us in that direction.
There's still a chance common causes, perhaps extrinsic ones, like the challenges we face from a changing climate, or the pursuit of knowledge and know-how out in space, could bring us back to the same table and incentivize us to work together, despite our many and important differences.
But the momentum, at the moment, seems to be behind a grand fracturing of some kind, and a lot of what's happening in the world right now—from the splitting of the internet into multiple splinternets, to China investing a huge amount of time and resources trying to make peace in the Middle East—are atomic units of this larger realignment.
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Show Notes
https://www.axios.com/2023/04/18/the-global-economys-fractured-new-normal?stream=world
https://finance.yahoo.com/news/dollarization-started-odds-chinas-yuan-020938603.html
https://www.economist.com/international/2023/04/11/how-to-survive-a-superpower-split
https://www.cfr.org/blog/making-sense-minilateralism-pros-and-cons-flexible-cooperation
https://www.reuters.com/world/foreign-ministers-iran-saudi-meet-china-2023-04-06/
https://www.cfr.org/in-brief/putin-xi-summit-reinforces-anti-us-partnership
https://apnews.com/article/russia-ukraine-war-draft-mobilization-conscription-notices-bf18ad64dd08c9d11aab2e222cabfee9
https://www.washingtonpost.com/world/2023/04/14/gloom-united-states-outlook-ukraine-russia-outcome-leak/
https://www.foreignaffairs.com/ukraine/russia-richard-haass-west-battlefield-negotiations
https://noahpinion.substack.com/p/2023-is-when-the-empires-strike-back?publication_id=35345&post_id=114248250&isFreemail=true
https://www.pekingnology.com/p/xi-tells-macron-on-camera-we-are
https://www.nytimes.com/2023/04/13/world/africa/russia-africa-disinformation.html
https://www.politico.com/news/2023/04/14/world-financial-leaders-unity-imf-world-bank-00092058
https://www.cnbc.com/2023/04/11/imf-world-economic-outlook-april-2023-weak-growth-forecasts-inflation-high-until-2025.html
https://www.semafor.com/article/04/12/2023/middle-easts-shadow-war
https://foreignpolicy.com/2023/04/03/chinas-neighbors-are-eyeing-up-yuan-as-banking-worries-spread/
https://archive.ph/zlitb
https://www.visualcapitalist.com/de-dollarization-countries-seeking-alternatives-to-the-u-s-dollar/
https://www.semafor.com/article/04/12/2023/semafor-world-economy-summit-ex-sec-pritzker-says-decoupling-from-china-is-extremely-dangerous
https://12ft.io/proxy?ref=pro&q=https://www.barrons.com/news/azerbaijan-arrests-six-over-coup-plot-blamed-on-iran-ffaf80be?stream=world
https://www.wsj.com/articles/india-china-population-economy-9dd7bf27?mod=djem10point
https://www.axios.com/2023/04/13/poland-pm-questions-france-germany-ukraine?stream=world
https://en.wikipedia.org/wiki/Second_Cold_War
https://www.politico.eu/article/ukraine-formal-application-join-nato/
https://www.ft.com/content/c37ed22d-e0e4-4b03-972e-c56af8a36d2e
https://www.nbcnews.com/news/rcna78057
https://www.csis.org/analysis/why-did-china-help-saudi-arabia-and-iran-resume-diplomatic-ties
https://apnews.com/article/china-iran-saudi-diplomatic-relations-beijing-d12dc5dc4049052c6228caceaa2a2b9f
https://www.mei.edu/publications/two-years-what-state-abraham-accords
https://www.bbc.com/news/world-middle-east-42008809
https://www.al-monitor.com/originals/2023/04/cia-director-visited-saudi-arabia-aired-frustration-over-iran-syria-thaw
https://www.wsj.com/articles/iran-agrees-to-stop-arming-houthis-in-yemen-as-part-of-pact-with-saudi-arabia-6413dbc1
https://www.aljazeera.com/news/2023/4/14/hundreds-of-war-prisoners-exchanged-between-houthis-saudi-arabia
https://apnews.com/article/boeing-saudi-arabia-airplanes-economy-aa1d24b901aa0c4bc15d0c4d82c80561
https://apnews.com/article/saudi-arabia-china-iran-boeing-biden-d1aad0d6aae71993d7bc7e6336006a72
https://www.nytimes.com/2023/04/11/world/europe/macron-china-allies.html
https://www.aljazeera.com/news/2023/4/11/brazils-lula-heads-to-china-hoping-to-boost-trade-investments
https://www.bloomberg.com/news/articles/2023-04-13/lula-supports-brics-currency-to-replace-dollar-in-foreign-trade?cmpid=BBD041323_BIZ#xj4y7vzkg
https://archive.ph/Q7Jr7
https://nationalinterest.org/blog/lebanon-watch/saudi-arabia-has-become-next-tech-battleground-206286
https://www.al-monitor.com/originals/2023/04/jordan-proposes-syria-peace-plan-during-arab-fm-saudi-meeting
https://www.energyflux.news/p/zombie-gas-pipelines-taunt-pakistan
https://www.economist.com/finance-and-economics/2023/02/02/china-is-paralysing-global-debt-forgiveness-efforts
https://apnews.com/article/china-taiwan-weapons-germany-ukraine-2a51d2c64c12fca75683d20fbafba475
