Video: War With China Would Trigger Economic Collapse Far Worse than 2008 billj 02.02.17



Nope, this isn’t some “the crash is coming, buy gold!” piece on a right-wing news site. New America (formerly the New America Foundation) is a mainstream, leftyish DC think tank that boasts Google’s Eric Schmidt as the chairman of its board of directors. Even before Trump won the presidency and the US vs China saber rattling escalated, the group had a warning for America: we’re on the precipice of an “industrial crash” that could precipitate a financial collapse that makes 2008 look like a picnic.

In September, well before Trump swept into office and turned up the heat on China, the foundation hosted a conference entitled Trade, War, and China in the 21st Century. You can view all the panel talks online, but the one I want to focus on is the one called “Industrial Interdependence and War.”

The question raised is, what would happen if there’s a conflict in the South or East China sea?

Panelist Barry Lynn, author of End of the Line: The Rise and Coming Fall of the Global Corporation was clear that it could be catastrophic for the US.

“Maybe it’s not even a hot conflict, but any kind of conflict that would result in the disruption of trade flows in the South China Sea [or] the East China sea would result in one of two things: either economic catastrophe–a cascading collapse that would make the 2008 breakdown in finance look like a minor event–or it would result in a political humiliation of the first magnitude, because someone would have to give.”

Too Much of a Good Thing

The reason such a conflict would spell disaster has to do with the current structure of the global supply chain. The supply chain is highly efficient–indeed, it’s too efficient–which means two things: 1) most global manufacturing depends on a few key components that are made in one place (i.e. there’s no redundancy for sourcing these components), and 2) there’s no storage of critical components anywhere in the pipeline because all delivery is “just-in-time.”

As the supply chain gets ever more efficient, it further eliminates redundancy of sources and costly warehousing of goods, but redundancy and reserves are exactly what you need in an emergency–the old military and prepper maxim “one is none, two is one.”

What all of this boils down to is that a geographically isolated event in the wrong place, like an earthquake, tsunami, war, or bankruptcy of a critical company, has the potential to “crash” the global system and cause the production and shipment of everything from electronics to pharmaceuticals to military hardware to grind to a sudden halt.

Many of the single points of failure in this globally interconnected system reside in China, Taiwan, and Japan. So anything that disrupts trade in the region could force factories across the globe to pause production, which would lead to a cascading series of bankruptcies, layoffs, and shortages of just about everything we depend on for modern life.

On the Precipice

The subject of how close we are to some sort of very serious conflict with China came up in multiple panels, and the conclusion was that we are “on the precipice.” We’re very, very close, and this was before the election of Trump and the recent escalations.

Barry Lynn made the case that the US/China relationship is unbalanced–China sends us goods (after having stolen our intellectual property, of course), and in return we send them paper IOUs.

“We need China more than China needs us,” said Lynn. “If there is a conflict, the question always comes down to who says ‘uncle’ first. So there might be a temptation by the Chinese to threaten to pinch off these [trade] flows to change the balance of power in the region.”

Lynn also suggested that there is a real chance that this very complex system will crash as a result of a mistake or miscalculation, either by the Chinese, the Japanese, the Taiwanese, or the US. The system is too complex and nobody really understands how all the pieces fit together, which means that military or even policy actions that seem targeted and specific could have dire unforeseen ripple effects that down the whole system.

Panelist Shane Harris, author of @War and correspondent for The Daily Beast, laid out a scenario in which an escalating cyber conflict brings about such a crash.

“The risk of cyber becoming a primary means of conflict in such a situation is very very high,” Harris explained.

“As you see these naval confrontations, there is a great incentive for both sides to start using cyberspace to poke at each other and doing things short of a full-on hot war. We know that, and the Chinese know that. The problem is that we don’t have a real understanding with the Chinese military of what constitutes a minor cyberattack or what signals that they’re about to go full-on with kinetic war. And that’s a huge problem in trying to avert something ugly.”

So What Does War with China Look Like?

The above can help us envision what war with China would look like, a war that Trump advisor and now National Security Council member Steve Bannon has indicated that he considers inevitable.

Basically, it would probably look like the greatest economic collapse the world has seen in the modern era. The global supply chain would grind to a halt, which would mean that retail sales would drop off a cliff. Depending on the length of the stoppage, bankruptcies would begin to take out parts of the supply chain (the entire thing runs on short-term credit), doing even more damage via job losses, component shortages, and mass layoffs. It would quickly begin to feed back on itself until the entire global economic system had finished imploding.

Ultimately, the 2008 Lehman crash would be a walk in the park compared to the massive damage even a conventional (and cyber) conflict with China would probably do to the US. And all of this is assuming that the conflict doesn’t go nuclear. If nukes are involved, then of course we’ll have much bigger problems than economic devastation and lack of access to basic goods and services.