On Chinese Culture, the Tribute System, the 100 Years of Humiliation, The Art of War, “One China with Taiwan Part of China,” Where We Are Now, and Where We Are Headed
A shorter version of this note first appeared in the Financial Times.
Where We Are Now
I recently spent a month in Asia, including 10 days in China, where I met with senior policy makers in several countries, and I found that over the past few months there has been a big shift in the world order because:
1) The United States’ handling of Iran’s taking of the Strait of Hormuz has led global leaders, especially those in Asia, to conclude that the American public does not have the willingness to endure the discomforts of war and that the US doesn’t have the resources to fight wars on two or more fronts, so it doesn’t have what it takes to fight to maintain its empire. This situation looks a lot like the British handling of Egypt’s taking of the Suez Canal, which signaled the end of the British Empire. More specifically, it is now inconceivable that the American public would support an American military response to Chinese pressures a) aimed at Taiwan or b) against countries that are trying to contain China. This has changed the thinking and actions of leaders in countries that are US allies and that are hosting American bases as a counterweight to China under the assumption that the US will protect them. Obviously, this has big implications for the world geopolitical order, especially for Taiwan, Japan, the Philippines, and, to a lesser degree, other Asian countries. This change has been reflected in the many visits to Beijing by heads of state and their delegations to build tribute-type relationships with President Xi, but the most significant reflection of this shift was President Xi making clear to President Trump, in the form of a veiled threat, that planned US arms sales to Taiwan would not be appreciated by China.
2) It has also become clear that the Chinese are earning huge amounts of money from their exports, which is leading to Chinese companies and policy banks building up huge capital surpluses that give the Chinese very large buying power. This is exerting upward pressure on the Chinese renminbi relative to the US dollar. Also, the use of the renminbi for trade and capital transactions is growing quickly relative to the US dollar, and China’s banks, capital market companies, and capital markets themselves are becoming strong competitors to their American counterparts at a time when the Chinese are understandably reluctant to accumulate American assets that can be sanctioned. We are certainly seeing China’s economic and financial powers growing rapidly.
Because most countries’ leaders now believe these two points to be true, we have been seeing several world leaders, in addition to President Trump, paying visits to President Xi to build good relationships and do deals (i.e., to “pay tribute”), and we are now seeing a softer tone and more cooperation coming from the Trump administration (e.g., reflected in Defense Secretary Hegseth’s speech at the Shangri-La Dialogue and a US visit by the Taiwanese Kuomintang political opposition party head, who is in favor of much closer relations with China). Based on these developments, I think we are in the very early stage of a shift to a tribute-system-type order in the Asia region and even beyond.
As a global macro investor who needs to understand how the chess pieces (or Go pieces) are moving and what will probably happen, and as someone who strives to improve mutual understanding, especially between the US and China, I believe that it is essential to understand what China will do in light of this and how things will go. From myvisiting China for over 40 years, having gotten to know and learn from senior Chinese leaders over those many years, and having studied Chinese history going back to its unification in 221 BCE, I have come to believe that understanding the Chinese leaders’ perspectives, what is now going on, and what is likely to happen requires understanding eight things:
1) Chinese culture
2) The tribute system
3) Chinese thinking about the “art of war”
4) The 100 Years of Humiliation
5) The view that “there is one China and Taiwan is part of China”
6) The change in relative economic and military powers and geopolitics from 1945 to the present
7) The political and personal views of President Xi and President Trump in the context of the changing world order and the changes that lie ahead
8) Where the current economic, political, geopolitical, technological, and acts of nature influences are—and where they are headed
Based on my understanding of these things, to summarize my view in one sentence:
I believe we should expect that the Chinese culture and President Xi’s leadership—together with China’s increased economic, military, and geopolitical powers and political realities in both the US and China—will lead to the rectification of the 100 Years of Humiliation through China becoming strong and largely self-sufficient, through its increasingly exercising its sovereign authority over Taiwan (where most of the world’s AI chips are produced) and asserting itself over opposing countries using techniques of pressure and deception described in The Art of War without initiating head-on military attacks, and through the emergence of a modern-day version of the tribute system, with significant progress toward all this coming while President Xi is in office.
As promised, that was one sentence, though a long one.
In the rest of today’s note, I will first describe these eight influences and the impact I expect they will have on Chinese thinking and actions. I believe that it is very important to understand them. Then I will cover what I think is likely to happen.
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