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  • Writer's pictureRichard Murff

Containing China

We can't... we may not need to.



Part Four

In 1946 an obscure US diplomat stationed in Moscow named George Kennan sent a 5,000+ word cable that became known as the “long telegram.” It argued that the Soviet Union would collapse under the weight of its own history and internal contradictions. All the United States needed to do in order to triumph over the communist system was keep it broadly contained. Washington sorts tend to like short, broad strokes, nor can they leave well-enough alone. Somehow, policy makers shagged the concept into the “domino theory” that convinced everyone that the hinge of the free world was an unwinnable colonial war over a backward, feudal scrap of Indochina. Later, Kennan was at pains to point out that he hadn’t said that at all.


In the face of a superpower rivalry that would rather see the other dead, Keenan’s original concept of “containment” is back in vogue. Beijing openly accuses the United States of attempting to contain China, which would be more offensive were both President Biden and the secretary of state openly admitting it.

 

So ... how the hell do we contain China?

 

When Keenan wrote the long telegram, the United States accounted for some 50% of the world’s GDP and dwarfed the Soviet Union’s economy. Even then, Washington knew it needed to allies bought with the Marshall Plan and a global security blanket. Now US share of global GDP (weighted for PPP), is 15.8%, compared with China’s 18.8%. What this means practically is that the United States can’t unilaterally contain China – not economically at least – to pull it off we need to have Europe’s 14.8% share and, ideally, India’s 7.8% on our side. It’s not at all clear that we do.


That 100% tariff on Chinese EVs that America was never going to buy in the first place may be getting all the headlines, but measures like prohibiting the sale of high-end chips and technology will do more harm for what China wants to achieve. Other measures, like those on green technology, will annoy Beijing, but are chapping European rear-ends as well. It’s hard to get a buy-in from allies when our tariffs are screwing them nearly as bad as our rivals. On the off-chance that Washington realizes that US economic and foreign policy interests are the same, we might be able to pull it off.


As Keenan argued in 1946, other than keep free markets open between allies, we don’t actually have to do much of anything for the system to ultimately collapse. Still, containing China, if it can be done, is going to hurt worse than boxing in the Soviets which had a completely isolated economic system. The interdependence brought on by a globalization means that the more tariff pressure placed on Beijing, the greater will be the counter-pressure from the world’s manufacturing hub and biggest exporter. The resulting trade wars and friend-shoring will be wildly expensive for pretty much everything. And that’s after it wrecks the supply chain.


The good news is that, like the USSR, China envisions being the anchor of its own bloc of nations to displace the West’s markets and influence – but BRICS or the “Global South” lacks any sort of cohesion or consensus. They all seem to hate each other. All those Road and Belt Initiative loans to developing countries was supposed to buy influence in markets. But as those loans turn bad, unless the IMF bails them out, Beijing will be faced with either repossessing entire countries, or eating the loans.


China’s political alliances aren’t much better. Russia and Iran are increasingly isolated and exposed to regime collapse. A fact being exploited by non-state actors that Beijing simply doesn’t understand (neither does Washington, for that matter). North Korea, for its part, made itself obvious earlier this week not with another nuclear test, but by floating bags of trash and poo to the south tied to balloons. That’s how you build a pledge class, not a world power.


Domestically, China’s labor costs are rising faster than any industrialized nation – triggered by the economic boom of the last 20 years, and will be made worse by the demographic collapse coming in the next 20. It is only maintaining its manufacturing edge with massive, unsustainable government subsidies. Xi’s fundamental misunderstanding of the free market demographics likely means that his policies will keep lurching from one half-baked scheme to another. The man may very well have a lifetime grip on power, but in his 70’s, and that lifetime won’t last forever. He interrupted the regular transfer of power to make himself a cult of personality, so without an heir apparent, the question of succession will probably get very messy.


Mind, China is a big country and a massive economy and anything that size is fundamentally stable. Up to a pint. As Beijing finds itself increasingly isolated, trying to corner the market in a world with plenty of other back-waters to take up cheap manufacturing, the boom can’t last forever.


So how do the US contain China? The short answer is that it doesn’t, not alone at any rate. Whether the US wants to admit it or not, it hasn’t got the heft to bend the entire world to its will. The good news is that we may not need to. Which raises the more intriguing question, how to make money with the big pagoda collapses?


 

Part Four: Containing China


 

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