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Yesterday in your lecture, you mentioned that the debt service of the US government is now almost as high as its military spending, and is probably going to be higher next year. What worries you more: the high debt or the low military preparedness of the US?
What worries me is that this administration has so underestimated the costs of debt service that it is going to be forced to reduce defense spending relative to gross domestic product. In other words, it’s the relationship between these two things that’s worrying. The more that pressure works, the more the US will fall behind in what is an arms race with China. And that’s the thing that really concerns me. They cannot modernize, for example, the submarine fleet if the real defense budget is declining. That’s the problem, in my view.
Xi Jinping has ordered his army to be ready for an invasion of Taiwan by 2027. How likely do you think such an invasion is in the next 10 years?
I think the invasion scenario is quite low probability because it’s a very hard thing to do. The Taiwan Strait is quite wide, it’s very difficult to navigate. Amphibious landings are pretty much the hardest thing in war. So, I’m not sure that is what’s going to happen. It’s more likely that the Chinese impose a naval blockade on the island, rather than invade it. And that could happen tomorrow. In fact, I think it’s more likely to happen sooner than later. Because right now, the US does not have a good response to that. Whereas 10 years from now, if you think about this from a Chinese perspective, the US might have armed Taiwan sufficiently, or strengthened its submarine fleet sufficiently, that it would be much harder. So, there is a much bigger short-run risk of a blockade than of an invasion. This could happen next year, at the time of the Taiwanese election.
Why would China mount a blockade?
Well, there’s a scenario in which China achieves what John F Kennedy achieved in 1962. In the Cuban Missile Crisis, Khrushchev appeared to blink, as people said at the time, he pulled back from confrontation. And although we later learned that there had been a deal, that the Soviets moved their missiles from Cuba and the Americans removed theirs from Turkey, at the time it looked as if Khrushchev had backed down. And I think from Xi Jinping’s point of view, the best possible outcome would be that he imposes a blockade on Taiwan, insists Taiwan is part of China, which determines who gets in and out of Taiwan, and the US does not successfully challenge that. But, in effect, he would thereby repeat 1962 with the United States playing the part of the Soviet Union. That would be a fantastic outcome for Xi Jinping. It would establish China’s primacy in the Indo-Pacific region, and it would cost almost nothing.
Is that not too risky?
The risk is, of course, as it was in 1962. The naval expedition goes all the way across the sea and breaks the blockade and a war breaks out. And in a war like that it would be incredibly costly and destructive for both sides. But that’s got to be the temptation for China: to find out if the US is bluffing about defending Taiwan. I think it is because it does not have a credible strategy for the blockade scenario.
What would be the right strategy of the US in such a scenario?
My advice to the Biden administration is: avoid this scenario at all costs. Do not put pressure, as you have, on the issue of Taiwan, don’t talk as if you’re moving away from fifty years of ambiguity. Don’t give the Chinese a pretext. The last thing the US should want is a Taiwan crisis. The last Taiwan crisis was in 1996. The US won at that time because it had complete military dominance, and China had to back down. But that is no longer true. If the Chinese impose a blockade, I am very afraid that whoever is President of the US would feel obliged to send aircraft carriers and attack submarines, and we would run the risk of World War Three. I’m very anxious to avoid that.
«The last Taiwan crisis was in 1996. The US won at that time because it had complete military dominance, and China had to back down. But that is no longer true.»
The only way to avoid it is to say to the Chinese that we are not changing the status quo. What was agreed in the 1970s is still our policy. We don’t need to do anything and Taiwan will carry on in this ambiguous position. That is not what’s happening. The US President has suggested, three or four times, an unconditional commitment to the defense of Taiwan. The Chinese regard that as crossing a red line, and in my view, it’s a very dangerous thing for American policymakers to do. Because remember, Xi Jinping regards the de facto independence of Taiwan as the number one reason for having a third term as China’s leader. De facto, it’s an independent democracy, even if the jure, it’s part of China. That is something that the Chinese take very seriously indeed. We underestimate how much this matters to them, and how far they’re prepared to go to prevent Taiwan becoming independent in name as well as in fact.
You make the analogy to the Cuban Missile Crisis. But the economic interdependence between China and the US is much higher than between the US and the Soviet Union during the Cold War. Wouldn’t that suggest that an escalation won’t occur?
The mutually assured financial destruction of both powers will be real if this conflict were to happen. Even before a shot were fired, it would have enormous impacts on both the Chinese and the US economy. The point is that, like mutually assured nuclear destruction, economic interdependence is not a sufficient guarantee of peace. There nearly was a nuclear war over Cuba. And I think it’s possible you could have a conflict over Taiwan, despite the economic or financial consequences. We mustn’t rely on the unpleasant prospect of mutually assured destruction.
Furthermore, this interdependence is under attack by policy. Both sides are trying not to decouple but at least to reduce their reliance on each other. And the more they do that, the greater the friction that arises. Because of course, if you tell the Chinese that you cannot have the most sophisticated semiconductors that are manufactured in Taiwan, you’re essentially raising the stakes. So, the economic interdependence becomes a bone of contention, a cause of friction, rather than a source of reconciliation.
From that perspective, decoupling actually becomes quite risky…
Yes, it becomes risky in two ways. Firstly, it creates frictions. The second problem is that the more you decouple, the less you risk from conflict. And if you imagine a complete decoupling where there’s no longer any US investment in China, there’s no longer any Chinese investment in the United States, and trade between the two is reduced, then they are in fact in a position to fight World War Three.
You made a bet four years ago with Justin Yifu Yin that China will never overtake the US in terms of GDP. How confident are you now that your prediction is right?
I’m pretty confident because the Chinese economy is grinding to a halt. And they don’t have a solution to the reasons for its slowdown. There is a fundamental problem in China’s real estate sector, which is about a third of its economy. There’s a demographic problem, the workforce is shrinking, and consumers are saving, not spending. And so the growth rate right now is probably in reality much closer to zero than to 5%. So, if I’m right, and China is heading for Japan’s situation in the 1990s, if the US continues to grow, which seems plausible, then I should win the bet. But I think we set the timeframe of 10 years, if I remember rightly, because “never” is not a good timeframe for a bet. So, I think I’m on track to collect that money from Justin Yifu Lin, because I don’t see any way out of China’s low growth trap.
That doesn’t mean that the US’ economic situation is great.
It’s not. The problem with the situation in the US is that they have overheated the economy through fiscal and monetary channels. The monetary policy has tightened, the fiscal policy has not. There’s going to be a reckoning. Next year, I think there’ll be, if not a recession, then a slowdown that will be quite palpable. So, I don’t think the US is going to carry on the way it is at the moment. But that recession, if it happens, will be quite short. After a decade of somwwhat slow recovery from the financial crisis, the US economy is in a better state than it was in 2009. The balance sheets of the banks, of the households, are in a stronger state, the problems are quite concentrated in office and commercial real estate. So, I don’t think the US is heading for ten years of zero growth, whereas I think China might be.
Getting back to the Second Cold War, as you call the current conflict between the US and China: Do you think that the war in Ukraine has encouraged China in this arms race and competition with the US?
thing about a war like the one in Ukraine is that it reveals a lot about the other side’s capabilities. Hence, China has had a chance to see very clearly what the US can do for an ally, which is what Ukraine has become. It has also revealed that the US does not have great stockpiles of certain weapons which have been used in Ukraine. It’s also allowed China to see that a conventional invasion is really hard. The Russians clearly overpromised and under-delivered. It exposed the real shortcomings of certain aspects of the Russian military.
The People’s Liberation Army is probably not much better in terms of combat readiness than the Russian army and might even be worse, because at least the Russians have fought some wars since 2008. The Chinese haven’t fought a war since the end of the 1970s. So it’s probably focused Chinese minds on what they have to do to be ready for any kind of conflict. That’s why the blockade scenario is plausible because that’s something they can do. Though, of course, the gamble there would be that if the US retaliated and sent an expeditionary force, China might find itself in a big war that it’s not ready for. This is the dilemma that Xi Jinping faces. He would be gambling that the US will not go to war. That’s a big gamble.
In general, what’s the most sustainable change that the Ukraine war has produced?
It revealed that the European economy did not need to rely indefinitely on Russian natural gas, and that there were alternative ways for Europe’s energy system to work. Most people thought that would be much harder than it actually was last year. I think one has to recognize that the prediction that sanctions would cripple Russia was wrong, that the Biden administration exaggerated what the sanctions could do, because there have been lots of ways around the sanctions, particularly for the Russian exports of oil and other products. So we shouldn’t exaggerate just how much there has been a decoupling of Russia from the world economy, though there has been quite substantial decoupling of Russia from the European economy. And that looks like it won’t be reversed anytime soon.
How do you view the opposing parties in this war as a historian?
If one looks at who’s made meaningful contributions to the Ukrainian war effort, it’s an interesting list of countries. You could use terms from geopolitics, like ‘the Rim’, because it’s Western Europe, the United States, Canada, Australia, New Zealand and Japan, which is sort of the rim of Eurasia. And on the other side is essentially Russia and China and Iran. So in a piece a few months ago I said it’s like something out of the old geopolitics literature, akin to ‘Rimland versus Heartland.’
Is that Rimland the West?
‘The West’ is a nebulous term. It’s more akin to the US Cold War alliance system. But there are some notable missing players. The Middle East is essentially not playing a role, neither is Israel. Then you have a whole bunch of countries that are non-aligned, if not actually siding with Russia, in Africa and South America. So, the map of this war is a very revealing one, it tells you that the transatlantic relationship still functions, that a Russian threat will bring NATO back together. The problem, of course, is that if American politics goes in the direction of a second Trump term, that transatlantic relationship will suddenly be very vulnerable. So the war has united the West for now, but fast forward to January of 2025 and it might look very different.
If we look at other countries, Germany has backpedaled on its commitment to reach the NATO target of 2%. Was the famous ‘Zeitenwende’ of Olaf Scholz just a PR stunt?
I never quite believed in it because, at heart, Germany hasn’t really reached ‘eine Wende.’ ‘Die Wende’ is a term that resonates with me because that was the word that was used in about 1989 to 90. That was a true turning point in German history. This feels less profound, and it’s been forced on Germany by Russian aggression and the impossibility of sustaining that relationship with Russia that that goes back to Ostpolitik.
What, then, is Germany’s problem?
The problem for Germany is not really that Russia is no longer a reliable source of natural gas. The problem for Germany is China. Many German businesses convinced themselves in the last twenty years that their future was exports to China, then even outsourcing of production to China. The internal combustion engine is something that Germans are really good at making. But it looks like we are going to condemn it to extinction in order to make people drive electric vehicles. And that’s terrible news for the German economy because the Chinese can make electric vehicles way cheaper than anybody else and the European Union doesn’t really have a coherent strategy for dealing with the mass influx of cheap Chinese EVs.
I’ve been warning about this for some time because I think that this will be like the great Japanese vehicle Invasion of the 1970s and 80s. It’s going to be very difficult for Europeans to deal with that, unless they, in effect, copy the American approach, which is just to have tariffs. That would be very hard to do, especially as many of the EVs are European brands that are being built in China. This is where the ‘Wende’ has a real dilemma. I don’t think Germany is psychologically ready to turn away from China, nor are the Germans ready to be on the side of the US in a crisis over Taiwan. There’s still a strong hankering in Germany for things to go back to the way they were – and I don’t think they can. In that respect, Olaf Scholz has not really presided over ‘Zeitenwende.’
What about Switzerland? It has softened its neutrality in the wake of the invasion of Ukraine, but was still criticized for not helping the country enough. Has neutrality become impossible?
The great risk for Switzerland is to become, in the eyes of the world, de facto a member of the EU and de facto a member of NATO, without actually being a member in either case. That seems like a bad place to be because you don’t get any of the benefits of membership, but you get the costs of not being seen as neutral. Singapore is stealing your clothes in a sense, because in Cold War Two it makes more sense to use Singapore as a neutral economy than Switzerland. This is a really difficult dilemma. It’s the same problem that Britain encounters since Brexit, which is that the European Union is so large, that it’s very hard not to abide by at least some of its regulatory system. In the case of an event, like the Russian invasion of Ukraine, it was very difficult for Switzerland to say, “Sorry, we can’t help, we’re neutral,” when Zelensky, with help from his allies in the West, was doing such a good job of portraying Ukraine as the hero and indeed victim of Russian aggression. I don’t think there was an alternative, really.
But I’m struck by how Israel has played this because Israel is in effect neutral. The reason for that is that they cannot antagonize Russia, because Russia is a player in Syria. And as somebody explained to me recently, Russian air defense systems in Syria can track every Israeli plane that takes off. So, Israel has done it: It doesn’t support Ukraine and tries to stay on the right side of Russia. It somehow pulled that off. And I wonder if Switzerland needs to accept that it won’t be popular, but that it may be better to be neutral than to be popular.
How does artificial intelligence change the dynamics of the Second Cold War?
AI, unlike nuclear fission, has multiple uses. Nuclear fission could either blow things up or generate electricity, and that was it. It will be very difficult for us to restrict the development and application of AI in the ways that we restricted nuclear fission. The genie is out the bottle. There are a lot of different ways that AI can now be used and pretty much no way of stopping it. Thus, if somebody out there is using AI to develop biological weapons that can target specific genetically defined groups, I really don’t know how you stop that. We need to acknowledge that something very different is now going on that will be transformative for everything from weapon systems to biological research, to the way that we research and write. This applies to a journalist as much as it does to a historian.
I just read Mustafa Suleyman’s new book. He’s one of the DeepMind founders. I came away thinking that there is no way of preventing the rapid proliferation of not just large language models but all kinds of artificial intelligence. The good things like AlphaFold will probably be more or less counterbalanced by the bad things like new forms of biological weapons. It’s a new world, and, in a sense, it’s a more dangerous world than that which Robert Oppenheimer gave us, because we just don’t know how to restrain or prevent proliferation. We don’t have any framework for containing this technological revolution. That’s the sad reality. There was a chance, but I think that chance was lost in the last couple of years when Sam Altman decided to unleash ChatGPT or when Facebook let Llama out into the wild. Hence, the opportunity to proceed more carefully has gone.
But you still call for arms negotiations between states in relation to AI?
Because you definitely can try. Remember, there are two superpowers in AI. It’s not going to be Europe that develops the most powerful AI. Instead, it will be either China or the US. There are things they should be talking about. Weapon systems, for example, should not have AI-enabled triggers. It won’t completely put the genie back in the bottle, but it can at least confine the space in which the genie flies around. It’s worth having those conversations, if only because détente needs to be about real things. You can’t just have a détente about the weather, you have to make it about things both sides care about.
Right now, the Chinese must feel that they’ve fallen behind and therefore they have every incentive to have a conversation about AI arms control. To me, the most obvious example of this is that you need to reinforce the restrictions on biological weapons research. We caught the Chinese engaged in human genetic engineering, and shut that down just a few years ago. I have to really emphasize the extremely taboo nature of research in biological weapons. Using AI in that field should be an international crime. It won’t be perfect, but it’s better than doing nothing.