604.685.1096 wealthinfo@zlc.net Client Login Home About Us Wealth Solutions Resources Blog Contact Strategic Decoupling Of China May 12, 2020ArticlesNo comments If there is one big issue that may arise from this crisis it would be China’s role in the world. COVID has sharpened the focus on supply lines for international companies. North American firms are, not surprisingly, concerned about access to products and components coming from the shuttered Wuhan region. COVID concerns are on top of issues created by President Trump’s trade war with China. The focus of the trade war was America’s negative balance of payments with China, the protection of US manufacturing jobs, and China’s casual approach to protecting American intellectual property. Sino-American relations are tense and seem to be trending in the wrong direction. Trump referred to COVID-19 as the Chinese Virus, something China is not happy about, and there are significant concerns around how China has handled the outbreak. Are America and China in a Thucydides’ Trap? In 2017, Harvard University academic and author Graham Alison wrote Destined for War, Can America and China Escape the Thucydides Trap. The Thucydides Trap, according to Alison, is “when one great power threatens to displace another, war is almost always the result”. Alison is referencing the ancient historian Thucydides’ text, History of the Peloponnesian War, where he outlined that the rise of Athenian power caused Sparta to attack. On April 6, 2017, on the occasion of U.S. President Donald Trump’s meeting with Chinese President Xi Jinping, a full-page paid opinion advertisement in the New York Times, stated, “Both major players in the region share a moral obligation to steer away from Thucydides’ Trap”. Are America and China in a Thucydides’ Trap? It is worth reading this summary written by Alison in the Atlantic on September 15, 2015: “The defining question about global order for this generation is whether China and the United States can escape Thucydides’s Trap. The Greek historian’s metaphor reminds us of the attendant dangers when a rising power rivals a ruling power—as Athens challenged Sparta in ancient Greece, or as Germany did Britain a century ago. Most such contests have ended badly, often for both nations, a team of mine at the Harvard Belfer Center for Science and International Affairs has concluded after analyzing the historical record. In 12 of 16 cases over the past 500 years, the result was war. When the parties avoided war, it required huge, painful adjustments in attitudes and actions on the part not just of the challenger but also the challenged. Based on the current trajectory, war between the United States and China in the decades ahead is not just possible, but much more likely than recognized at the moment. Indeed, judging by the historical record, war is more likely than not. Moreover, current underestimations and misapprehensions of the hazards inherent in the U.S.-China relationship contribute greatly to those hazards. A risk associated with Thucydides’s Trap is that business as usual—not just an unexpected, extraordinary event—can trigger large-scale conflict. When a rising power is threatening to displace a ruling power, standard crises that would otherwise be contained, like the assassination of an archduke in 1914, can initiate a cascade of reactions that, in turn, produce outcomes none of the parties would otherwise have chosen. War, however, is not inevitable. Four of the 16 cases in our review did not end in bloodshed. Those successes, as well as the failures, offer pertinent lessons for today’s world leaders. Escaping the Trap requires tremendous effort. As Xi Jinping himself said during a visit to Seattle on Tuesday, “There is no such thing as the so-called Thucydides Trap in the world. But should major countries time and again make the mistakes of strategic miscalculation, they might create such traps for themselves. The rise of a 5,000-year-old civilization with 1.3 billion people is not a problem to be fixed. It is a condition—a chronic condition that will have to be managed over a generation. Success will require not just a new slogan, more frequent summits of presidents, and additional meetings of departmental working groups. Managing this relationship without war will demand sustained attention, week by week, at the highest level in both countries. It will entail a depth of mutual understanding not seen since the Henry Kissinger-Zhou Enlai conversations in the 1970s. Most significantly, it will mean more radical changes in attitudes and actions, by leaders and publics alike, than anyone has yet imagined.” We will recover from the virus, but our relationship with China may be very different going forward. KEEP IN TOUCH If you have questions or comments, please feel free to any member of the ZLC Wealth service team. • Jon McKinney, Tom Suggitt, or Josh Brown (Portfolio Managers) • Grace Gumban (VP of Administration), or • Lisa Der (Account Manager) We’re here to help in any way we can. Kind regards, -The ZLC Wealth Team DISCLAIMER: This newsletter is solely the work of the author for the purpose to provide information only. Although the author is a registered Investment as a Portfolio Manager at ZLC Wealth Inc. (ZLCWI), this is not an official publication of ZLCWI. The views (including any recommendations) expressed in this newsletter are those of the author alone, and are not necessarily those of ZLC Wealth Inc. 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