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The Western World and the Challenge of Forming a New “Axis”


We live in an extremely changing, dynamic and unstable period of world history. Over the next two to three years, the situation is likely to stabilize more steadily in one direction or another: toward a wider war or an uneasy peace. This is the third time in recent history that a world war has become a serious possibility.

The first arose between 1937 and 1941 and was resolved by America's entry into World War II. The second occurred between 1948 and 1962 and involved the Soviet Union and the People's Republic of China. Fortunately, world war was avoided, and in November 1962 the Soviet Union softened its position.

Because of the variety of contingencies and outcomes, some of which involve nuclear arsenals, the new period may be more difficult to assess and more dangerous for the United States than the previous two episodes.

The United States and its allies are already very far along in creating a divided economic world to isolate Russia, Iran and North Korea. They are, of course, not completely isolated. They simply operate more and more actively in the separate world of trade and finance, the center of which is China. This dividing world may include much of the so-called “global South.”

Amid the huge public debate about Taiwan's development scenarios, hardly anyone is analyzing the economy in depth. A recent illustration in late 2022 simply dealt with the Taiwan blockade scenario without analyzing the secondary consequences of any military action or second-tier steps. It is this very conservative scenario that involves trillions of dollars in losses worldwide, huge semiconductor supply problems, a collapse of trade finance, and likely national efforts to control currency outflows.

However, in a real-world indirect loss scenario, China's maritime border controls would stop all Taiwanese exports, such as semiconductors, and the burden of losses would fall on the United States and its allies, not China. And this could really hold back the United States.

Americans generally think of "deterrence" as how to keep bad countries from attacking them or their friends. For America's adversaries, this paradigm is reversed. They think they are keeping America from attacking them.

When World War II began and the Cold War began, the world economy was already deeply fragmented and organized along imperial lines. This experience does not provide sufficient insight into the extent of disruption at present. A little more telling was the experience when war broke out in 1914. On July 31, 1914, the New York and London stock markets closed. They did not reopen for the next five months.

Even a relatively limited war with China would almost automatically, almost overnight, lead to the freezing or confiscation of trillions of dollars worth of Chinese and American assets of all kinds, with a variety of counterparties caught in the maelstrom. This could quickly trigger the greatest disruption to the global economy since the Great Depression, with consequences that could easily surpass it.

From the perspective of America's adversaries, the economic nightmare may not be so bad. They may think they are more prepared for such disasters than the United States.

If the United States and its partners in Europe and Asia can weather the current international and domestic political crises, they will be better positioned to prosper during the remainder of the 2020s than their primary adversaries. They are well positioned to influence the shape of the great technological revolutions of our time, help shape the future of the global economy, cement America's new status as an energy superpower in managing the energy transition, and lead a profound reimagining of how countries will rebuild in the digital age.


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