The latest updates on World Events from Peter Zeihan View this email in your browser At the Edge of Disorder Last week, U.S. President-elect Donald Trump shook the global diplomatic community to its bedrock by throwing the One China policy into doubt, specifically noting, “I don’t know why we have to be bound by a One China policy unless we make a deal with China having to do with other things, including trade.” He expressly linked One China to possible negotiations over the South China Sea and the North Korean nuclear program.



The One China concept is that meaningful, positive relations with the Chinese are predicated on public proclamations that mainland China and island Taiwan are one and the same country, and that Beijing oversees the whole thing. American acceptance of One China is not something that was agreed to lightly, but is instead part of a deeper strategy.



In the aftermath of the Normandy invasion of Nazi-occupied Europe, the Americans drew their Western allies and their major colonies together at Bretton Woods to prepare for the post-World War II (WWII) world. Pre-WWII global commerce was fiercely competitive with all countries using all levers of power to maximize their overall strategic position. Trade, finance, culture, employment, and war were all simultaneously tools and vulnerabilities. Successful states/empires would use all of them to maximize their gains in others. One result was the all-against-all nature of pre-1945 international affairs, ultimately leading to WWII. Mount Washington Hotel in Bretton Woods, New Hampshire At Bretton Woods the Americans changed the nature of the game. From now on the U.S. Navy would guard oceanic commerce for all participants, while the American economy would be opened to all participants. There was, of course, a catch -- you had to join the Americans in their Cold War.



As the Cold War took shape new countries were admitted into the Bretton Woods system. Former Axis. Former neutrals. Developing countries. And finally, China. Unsurprisingly, Beijing insisted the Americans adhere to One China. Under Henry Kissinger’s guidance, the United States willingly and knowingly swallowed One China hook, line, and sinker. Bolstered by China, the Bretton Woods system now presented the Soviets with hostility in all directions. It was quite the strategic coup, and contributed heavily to Soviet overextension and eventually, collapse.



Yet the key factor to remember is that Bretton Woods firmly limited how the Americans could pursue trade. American market access was extended to allies for strategic reasons. Anyone could dump products on the American market, so long as they maintained their position in the anti-Soviet wall.



But the Cold War is over. Bretton Woods has outlived America’s strategic needs, and American trade policy is now evolving to serve America’s economic needs. Trump’s statement on One China is (probably) not an off-the-cuff comment, but instead a true pivot away from Bretton Woods and towards a fundamentally new strategic posture. If the American government no longer views trade as a means to an end, but instead an end in its own right, it can and will begin using issues such as trade access, maritime security, and political positions on issues such as One China to cut different deals. That changes the global strategic picture radically.



China is wildly unprepared for such a shift. Everything about the modern Chinese system was designed expressly for the Bretton Woods system. The economy is export-led. Efforts to drive domestic consumption have largely ended in ignoble failure. The economy is driven by an Enronesque flooding of the industrial sector with subsidized capital. Such growth comes at the cost of sustainability and a functional banking system. China’s strategic position is completely dependent upon the United States offering market access and guaranteeing freedom of the seas for China’s merchandise exports and raw material and energy imports. Remove the economic and strategic cover of Bretton Woods, and it all comes crashing down. Hong Kong Special Administrative Region of the People's Republic of China Even mentally the Chinese are not prepared for change. Since the election, the only American that Beijing has reached out to is none other than Henry Kissinger himself, the only statesman the Chinese respect and trust. But while Kissinger remains strategically brilliant, his connections and advice are firmly rooted -- critics might say mired in -- the Bretton Woods age. Beijing is so in love with its China Rising mantra -- again, made possible by Bretton Woods -- that it just cannot come to grips with the fact that the Americans might now have other plans.



Or that the Americans hold most of the cards. No surprise that Chinese state media’s response to Trump’s offhand statement could best be described as a seizure.



The Chinese are not alone: Like China, modern Germany was expressly designed to maximize exports to the Bretton Woods system to the point that nearly half of German GDP is export-driven. In fact, the entire EU project relies upon the United States market as well as U.S. military protection for commodity import supply lines. Other countries heavily dependent upon global trade include -- but are far from limited to -- South, Korea, Taiwan, Singapore, Thailand, Japan, the oil producers of the Persian Gulf, Egypt, Australia, New Zealand, Brazil, Uruguay, Paraguay, Algeria, South Africa, and Israel. If these countries -- or any others dependent upon trade -- are going to retain market access and maritime trade opportunities, they will need to offer the Americans something in return.

A whole host of countries are utterly dependent upon implicit or explicit U.S. security guarantees. A partial list includes Estonia, Latvia, Kuwait, Lithuania, Poland, Saudi Arabia, Georgia, Azerbaijan, Finland, South Korea, Germany, Romania, Qatar, the United Arab Emirates, Taiwan, Japan, Sweden, Singapore, Croatia, Denmark, the Netherlands, Turkey, and Israel. If these countries are going to retain that strategic cover, they must give the Americans something the Americans find useful.

Part and parcel of the Bretton Woods system is the guarding of energy flows, in particular those out of the Persian Gulf. Remove American guarantees and the countries of the Gulf have to resolve their security issues themselves. That endangers energy flows at the point of production, within the Gulf, at the Strait of Hormuz, and even globally as importers must take supply protection into their own hands.

Of course, there is still a lot of wiggle room in all of this. And regardless it won’t all change (or fall apart) overnight. Some relations (like U.S.-Japan) have more ballast. Others (like U.S.-Australia) are so rooted in cultural, strategic, economic, financial, and political fundaments that they’ll likely survive on their own merits. But for every relationship that looks solid, there are a half-dozen others that just don’t make much sense outside of the Cold War rubric.



A few specific calls on the countries that are not likely to make the cut: South Korea is too exposed (and expensive to maintain) for the Americans to continue a deep relationship.

The United States has been fighting a war of zero strategic relevance in the Philippines for a half century (anyone remember Mindanao?); that’s pointless except as a hedge against China.

Egypt’s descent into impoverished, dysfunctional tyranny means that it no longer is a threat to anyone, much less nuclear-armed Israel.

Syria’s civil war eliminates Damascus as a concern, eliminating any rational for ongoing alignment with Jordan.

Relations with Kuwait, Saudi Arabia, Qatar, and the United Arab Emirates have long been dominated by the concern of oil availability. Because of the shale revolution, the Americans only need that oil to fuel their alliance -- an alliance that now is largely strategically irrelevant.

Subsidizing German, Polish, Baltic, and Romanian economic and physical security only makes sense if the United States wants to risk a ground war with an increasingly insecure (and yet still nuclear-armed) Russia.

Pakistan is nothing more than a giant pain in the ass.

What’s coming can only be described as the opposite of a global order -- a Disorder.



Want to know more about what that looks like? Our next book -- The Absent Superpower: The Shale Revolution and a World Without America -- went to the printer today. It should be available in about two weeks. : )

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