Niall Ferguson on Cold War II: The Threat of Communist China, By Richard Miller (London)

In the insightful interview of leading historian Niall Ferguson by UnHerd's Freddie Sayers, the point was made that the US was beginning to resemble the former USSR. The next question is where communist China fits into the picture here. Ferguson is clear that there is a Cold War II between the US and China, which can easily become a hot war over the Taiwan issue, and Ferguson compares this situation to the Cuban missile crisis of 1962. Only here China can blockade Taiwan, causing a crisis with computer chip delivery to the West, an industry which was foolishly centred in Taiwan, as if the day of final conflict would not come.

A US-China war will be a severe challenge for the US given its lack of manufacturing capacity; at present China is a manufacturing superpower with today the manufacturing value added of China being twice that of the US. Already with the war in the Ukraine, the US has discovered its weakness in manufacturing hardware.

The solution offered by Ferguson is instructive since he acknowledges there will need to be reshoring, a return of manufacturing to the US, which left because globalist corporations made more profit by building factories in China. But, like most academics, Ferguson is a free trader, and believes in the system of Adam Smith, which would be fine if that sort of world still existed. He has no real response to China's hard-ball strategies, and violations of its World Trade Organization obligations. It is clear that American survival will depend upon rebuilding the Taiwanese chip factories in the US. Free trade led to these plants going off shore, so it will not be a solution. Either the government acts as the Chinese government does on strategic resources, or it simply surrenders to the communists, and dies with its free market T-shirts on!

Freddie Sayers: So the flip side of this argument is, where China has the rival pole in what you describe as the new Cold War, where they sit. Because a- again, a lotta people would say... I understand the parallel with, with Brezhnev and Biden and so on. But realistically China is literally a communist state, to live there under a surveillance state as they do, with much fewer freedoms than even modern America, it's just, it's just not sensible to say that they are less Soviet than the US. What, what's the case there? How does, how does China fit into that picture?

Niall Ferguson: Well, if you think about Cold War II as being between two superpowers, there only are two, in terms of AI or quantum computing, that are engaged in an ideological competition, a geopolitical competition, a technological competition, I think that's been going on now certainly since 2018 when Americans woke up to what China was trying, uh, to do. Then the point I would make is that in Cold War II, uh, the Chinese have the upper hand in a number of important ways. For example, if there were a conventional war over Taiwan this, this week, which is possible. I mean, Chinese could blockade Taiwan any point. Uh, the United States would be in a meaningful disadvantage. And the way I like to put this is, that it would be like the Cuban missile crisis in reverse. It would be the Taiwan semiconductor crisis, only in this crisis, unlike in 1962, it would be the other side that got to blockade the island near their coast and it would be the United States that would have to send a naval expedition across the ocean. Which is what Khrushchev had to do in '62.

So that in that sense, there's this strange mirror image quality where any crisis over Taiwan is, is the Cuban missile crisis in reverse and the US president gets to be Khrushchev, where you have to choose between, "Am I gonna run the blockade and cause World War III? Or am I going to compromise?" Which is what Khrushchev in the end chose to do.

Freddie Sayers: And you think the A- the American military power... literally, were that conflict to get hot-

Niall Ferguson: Yeah.

Freddie Sayers: ... is less strong than we might think?

Niall Ferguson: Much less. Because, for example, in a recent CSIS war game the United States ran out of a particular kinda precision missile, anti-ship precision missiles in a week. The, the, the Chinese have much deeper stockpiles and much broader production facilities for almost any item of hardware that you might name, from drones to nuclear reactors. The Chinese are the manufacturing superpower. Just to give you an illustration, 20 years ago manufacturing value adage, which pretty good measure, uh, in the US was twice that of China. Today manufacturing value added is in China twice that of the United States. So there's been a complete reversal of manufacturing capability. And what we've learned from the war in Ukraine, which I think we'll probably get to in a minute, is that in a conventional war you have to be able to mass produce all kinds of hardware, uh, including artillery shells, uh, as well as drones. And Russia has an advantage there and it's actually quite a struggle to keep pace with, uh, what the Russians, the Chinese, and the North Koreans, and the Iranians could put into the battlefield.

In a war between the US and China, the disparity would be very serious. I was very struck the other day when the new commander of Indo-Pacific Command, who's just, uh, come in, gave an interview to The Washington Post in which he said, "Well, if this war happens, my job is t- is to turn the Taiwan Strait into a hellscape with unmanned..." uh, he implied drones, sea and air drones. "And that will buy us a month and then the rest of our plan can happen." And to me it was extraordinary that, A, he gave the interview and, B, that it was such a, an unconvincing scenario that he presented, uh, to, uh, the press. I think there's a bluff here. The United States has tried to talk tough on Taiwan, particularly Joe Biden's administration, at a time when it's much less able to deter China than it was, say, in the 1990s when the last major Taiwan Strait crisis happened.

We're at a relatively early stage of Cold War II. The Korean War analogy is Ukraine, which was the first big... uh, Korean War was the b- first big conventional war of Cold War I. That, I think, is what Ukraine is. But if we then go to our Cuban missile crisis, I think we will be exposed as being quite vulnerable. And you don't wanna be the Commander in Chief sitting in the Situation Room, realizing that your choice is, uh, World War III, which you might lose, having to go nuclear if you start to lose, if the aircraft carriers are sinking in the Taiwan Strait, or capitulation or some kinda deal that makes you look weak. That's what I'm really getting at.

Freddie Sayers: Do either side of the political argument in the US have the answers do you think? I mean, what, what... I suppose that you would need to counter what you're describing-

Niall Ferguson: Yeah.

Freddie Sayers: ... is a kinda massive uptick in industrial capacity. Um, I suppose reshoring, that kind of thing. What is the, the Niall Ferguson prescription to, to re-level the balance?

The US Federal Budget Deficit

Niall Ferguson: Part of the problem is that the US fiscal position is, uh, in a pretty, uh, dire state. Uh, you have a deficit at the moment that the Congressional Budget Office puts at around seven or 8% of gross domestic product, that's at pretty much full employment. Uh, i- if there were a recession you could imagine that going significantly higher. And that means that if you look at the Congressional Budget Office projections, the resources available for defense are going to decline over the next, uh, 20 or 30 years and the US defense budget's gonna go down to something more like a European level of two-point-something percent of GDP. So the US is on a very bad fiscal path and it is not all the fault of Joe Biden because the bad fiscal path goes back several administrations really. It goes back to George W. Bush. There's a big fiscal problem that nobody wants to talk about. Donald Trump doesn't wanna talk about, Joe Biden doesn't wanna talk about it too. The parties have basically agreed that deficits don't matter, but they do and they will turn out to matter a lot now that interest rates have gone up and the Fed is not about to get them back down to where they were, uh, before the pandemic.

So I think that's the binding constraint, whoever is president is gonna discover that the resources available, uh, to beef up, uh, the US military aren't there because they've been diverted, uh, into these non-discretionary welfare programs. Of course, both sides talk about reshoring, both sides have become protectionists. They've both now embraced industrial policy and going after China's reliance on semiconductors.

Freddie Sayers: Are they good things?

Niall Ferguson: Well, I think-

Freddie Sayers: That you've just listed?

Niall Ferguson: ... some yes and some I'm skeptical about. I'm old enough to remember the 1970s.

Freddie Sayers: Mm-hmm.

Niall Ferguson: You got to the 1970s by thinking that the government should make decisions about the allocation of capital. And so I'm somewhat skeptical about, uh, what's being done in the name of the so-called Inflation Reduction Act. I'm not a fan of, of, of protectionism, I'm a free-trader. Adam Smith-

Freddie Sayers: Even with-

Niall Ferguson: ... uh-

Freddie Sayers: ... China, your direct competitor in this?

Niall Ferguson: I th- I, I don't think tariffs are the way to deal with China's repeated violations of its World Trade Organization obligations. I'm skeptical that breaking up the WTO is the way to do it. So I'm a dissident on these issues, I adhere to Adam Smith principles. Sorry, can't help it. Scottish enlightenment has its legacy. But I think it will be clear that there are problems with this kind of intervention, particularly when it relies heavily, uh, on the central government, uh, having the ability to spend money, uh, on building, uh, semiconductor manufacturing plants in Arizona. The one thing I think is right is the, the Trump administration was more effective in deterring adversaries than Biden has been. And this doesn't really call for additional resources, it just calls for a different stance towards the adversaries. And I think part of the problem with the Biden administration has been they, they, they de-escalation when they should say deterrence. And this posture of de-escalation has actually led to us failing to deter the A- the Taliban in Afghanistan, Putin in... with respect to Ukraine. We've certainly failed to deter Iran in the Middle East. And I worry that deterring, uh, China over Taiwan is not going well either.

Trump vs Biden on Foreign Policy

So I think one could argue that a more muscular approach, uh, to foreign policy, would be, uh, preferable to this constant attempt to de-escalate, which I think just invites the axis of ill-will, China, Russia, Iran, North Korea, to push the envelope further.

Freddie Sayers: So to spell it out, does that mean that you think, uh, President Donald Trump would be better or preferable than a President Biden, to deal with this imbalance?

Niall Ferguson: On foreign policy there's no question that Trump was better than, than Biden. I think Biden's been quite disastrous as a foreign policy president. The way I put it at the beginning of the year was, this election is empire or republic. If you're worried about the empire, then you should probably incline towards Trump. If you're worried about the republic, that's a little hard to do because it doesn't seem like Trump is overwhelmingly respectful of the Constitution. On the other hand, is Biden? Are the democrats really respectful of the Constitution? I think the Constitution protects the republic better than anything protects American global power. And I think American primacy is very vulnerable if there is another four years of Biden-Harris, which of course, uh, it's better to [inaudible 00:20:56] start to believe that Joe Biden's really making the decisions even up to the midterms if he's re-elected." 



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Friday, 19 July 2024

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