One of the most significant news events this week revolves around Xi Jinping's visit to the USA for the APEC summit in San Francisco. Just a week prior, California Governor Gavin Newsom embarked on a five-city tour of China. During his visit, he explored major cities in the Middle Kingdom, test-drove a self-driving BYD electric SUV (a Tesla rival), and emphasized the potential for a mutually beneficial outcome in US-China relations. Essentially, for a few days, Newsom assumed the role of America's chief diplomat to China. Thanks to Governor Newsom's outreach efforts, Xi Jinping made his way to San Francisco, marking the Chinese leader's first visit to the US in six years.
Another significant event unfolded during the APEC summit, where CEOs of major corporations shelled out substantial sums for the opportunity to engage with leaders in the Asia-Pacific region. Notably, the focal point of interest was Xi Jinping. High-profile figures such as Apple CEO Tim Cook, Tesla's Elon Musk, Blackstone's Steve Schwarzman, BlackRock's Larry Fink, and numerous other Fortune 500 CEOs eagerly attended a dinner, with Xi Jinping as the chief guest. The National Committee on US-China Relations (NCUSCR) and the US-China Business Council (UCBC) co-hosted this exclusive event, representing two major trade organizations dedicated to fostering and maintaining the status quo of US-China relations.
Attendance costs for this prestigious dinner ranged from $2,000 to $40,000, underscoring the immense value placed on these interactions. As I have previously highlighted, Asia's growing prominence in global business is indisputable. The region is rapidly integrating, while Western nations express skepticism about trade agreements. Notably, Asia boasts the fastest-growing rates of mobile internet penetration, mobile services adoption, including mobility and FinTech, and a burgeoning middle-class population. With the increasing importance of this region, there is a growing imperative for American businesses to establish a foothold and forge meaningful connections within Asia.
For corporate America, the People's Republic of China stands out as a pivotal player, unrivaled by any other country outside the United States. Examining the CEOs who sought an audience with Xi, consider Elon Musk as a prime example. The sales figures from the latest quarter, sourced from Tesla's SEC filings, tell a compelling story. Over the past nine months, a noteworthy 22% of Tesla's sales originated from mainland China, positioning it as the second-largest market after the United States. Notably, Tesla's sales in China surpasses those in any other country worldwide, underscoring the nation's immense significance in the company's global market presence (source: Tesla SEC filings).
Indeed, the significance of China in Tesla's operations goes beyond market share. A substantial portion of Tesla's suppliers is based in China, emphasizing the country's integral role in the company's supply chain. Moreover, China plays a predominant role in rare earth mining and production, with the majority of these critical resources sourced and processed within its borders. This unique position establishes China as the primary global hub for rare earth elements, surpassing the capabilities of any other nation, including the United States. This interdependence further underscores the intricate and indispensable ties between Tesla and China in various facets of the company's operations.
Tesla is not impervious to China's dominance in rare earths, and this dynamic significantly influenced Elon Musk's strategic decision to establish a manufacturing presence in Shanghai. The Chinese electric vehicle (EV) battery manufacturer CATL plays a pivotal role in powering Tesla cars. This partnership illustrates Tesla's reliance on Chinese expertise and resources in the crucial realm of electric vehicle battery technology. In this symbiotic relationship, it becomes evident that Tesla, in many ways, depends on China more than China relies on Tesla. The strategic move to set up operations in Shanghai not only allows Tesla to tap into the growing Chinese market but also underscores the necessity of aligning with Chinese suppliers and partners in the electric vehicle industry.
American companies, including KFC, McDonald's, Nike, Apple, NVIDIA, Qualcomm, and others, heavily rely on China, not just Tesla. CEOs sought meetings with Xi Jinping in San Francisco during the APEC summit to strengthen these critical relationships, highlighting the widespread dependency on China across various industries.
It’s not just corporate America. Even the US military is divided on going to war with China. Though Washington neocons want to defend Taiwan from China, the Pentagon and the US Military Industrial Complex are saying, not so fast!!!
The CEO of Raytheon, a major American weapons manufacturer, has cautioned against "de-coupling" and "de-risking" from China. The CEO highlights the challenge of disengaging due to the company's reliance on Chinese manufacturing partners and the supply of rare earth materials. It's a noteworthy scenario: one of the United States' primary weapons manufacturers, tasked with enhancing the strength of the US military, finds itself highly dependent on China, facing difficulties in relocating its manufacturing operations. This situation prompts reflection on the paradox of relying on Chinese supply chains and borrowing from China to confront China, echoing sentiments expressed by analysts like Luke Gromen.
Indeed, it's not confined to weapons manufacturers. The US Air Force conducted a war game simulating a potential conflict with China in the South China Sea, and the results were disconcerting for the US. According to the Pentagon, the simulation indicated a scenario in which the US would face swift defeat with substantial damage to its military assets. This assessment underscores the complex challenges and potential vulnerabilities the US military could encounter in a conflict with China, prompting a reevaluation of strategic considerations in the South China Sea region.
China is also one of the most integrated global economies. As you can see below, in 1980 the US was the largest trading partner for the majority of the world. Now the tides have changed, where China is the most important trading partner for majority of countries globally.
For numerous countries, particularly those in the global south, China stands out as the paramount international investor. Its influence spans across diverse sectors, from Australian commodities and Saudi oil to German automobiles, making China the foremost market for many nations. This pivotal role explains the keen interest of numerous US CEOs in securing meetings with Xi Jinping—they recognize China's central position in the global economic landscape and the substantial impact it has on various industries worldwide.
In contrast to the dynamics of the old Cold War, Washington's current foreign policy appears significantly off-kilter. In the past, Nixon's approach towards engaging with China was a strategic move aimed at distancing Mao's China from the Soviet Union. However, owing to Washington's misguided foreign policy decisions and missteps in West Asia and Eastern Europe, a new alignment has emerged. Presently, three formidable powerhouses—Iran, Russia, and China—find themselves on the same page, collectively standing against the Western-led "Democracy" block led by the US. This shift underscores the complexity and consequences of contemporary geopolitical decisions.
China's influence is not confined to global macroeconomics, emerging technology, and military might; it has also evolved into a diplomatic powerhouse. Notably, China played a pivotal role this year in brokering peace between Saudi Arabia and Iran. Moreover, amid the Israel-Palestine crisis, all Arab nations are turning to Beijing as the hub for seeking a diplomatic solution and fostering peace in the region. This marks a significant departure from the past when the US traditionally assumed the role of chief diplomat and peacemaker. In the contemporary geopolitical landscape, China has emerged as the primary leader for global diplomacy and peace, particularly in the eyes of nations in the global south.
In a sense, the US has become the USSR during the second Sino - US “cold war” rivalry. With a bloated military budget, hollowing out of the manufacturing sector, less trade integration globally, and the goal of spreading the ideas of Western liberalism globally, the US has become the enemy it once feared it would become. What unfolds is a historic shift of power, echoing the transitions from the Dutch to the British and then to the Americans. Presently, the US and China find themselves in a Thucydides Trap, a unique and potentially perilous historical pattern where an existing power and a rising power clash, posing complex challenges and uncertainties for global dynamics.
China is following the US playbook in the early 1900s. During that time, while European powers were entangled in alliances and embroiled in World War I and II, the United States initially remained on the sidelines. America eventually entered WWII during its final stages, emerging as the last standing global superpower when much of the world lay in ruins or was transitioning away from poor agrarian societies. Similarly, today, China is on the sidelines observing the United States grappling with conflicts in West Asia and Eastern Europe, strategically positioning itself to potentially ascend as the preeminent global superpower in the aftermath.
One silver lining during these dark times is that the Pentagon and Military Industrial Complex know they cannot win a war against China in the South China Sea. Wall Street and corporate America are keen on further investment and expansion into China. Even in Taiwan, nearly half of the population is averse to war with the mainland, given the deep economic and cultural ties between the island and mainland China. One last point I will make is that I was listening to the Manifold podcast hosted by Michigan State Physics Professor Steven Hsu. He interviewed former US Navy War College Professor and military analyst Lyle Goldstein. In his class, he had several Navy officers from the Taiwanese (Republic of China) Navy. According to Professor Goldstein, he asked what would he and the rest of the Taiwanese military do if China invades? The officer’s answer was simple, they will all surrender! Unlike Ukrainians, Taiwanese will not be cannon fodder for Washington in the Pacfic. With all of these facts, I do not believe a conflict will happen. But again, with Washington, you just never know.
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