For almost a decade now, the world’s two most powerful countries have been competing over which of them will dominate the world’s most important and dynamic region. America has been trying to remain East Asia’s primary power, and China has been trying to replace it. Their contest is playing out over trade deals and infrastructure plans, in the diplomacy of multilateral meetings, and above all through military gamesmanship in regional hotspots like the South China Sea, the East China Sea and the Korean Peninsula. But all these are really just symptoms of their underlying rivalry.

How the contest will proceed – whether peacefully or violently, quickly or slowly – is still uncertain, but the most likely outcome is now becoming clear. America will lose, and China will win. America will cease to play a major strategic role in Asia, and China will take its place as the dominant power. War remains possible, especially with someone like Donald Trump in the Oval Office. But the risk of war recedes as it becomes clearer that the odds are against America, and as people in Washington come to understand that their nation cannot defend its leadership in Asia by fighting an unwinnable war with China. The probability therefore grows that America will peacefully, and perhaps even willingly, withdraw. Indeed, this is already happening, and Asia is changing as a result. The old US-led order is passing, and a new China-led order is taking its place.

This is not what anyone expected. Seven years ago, in Quarterly Essay 39, I argued that as power shifted from Washington to Beijing, and as China’s ambitions for leadership in Asia grew, America faced a contest in Asia that it would be unable to win outright. Its best option, therefore, would be to negotiate a new regional order, retaining a lesser but still substantial strategic role in Asia that would balance China’s power, limit its influence and prevent East Asia falling under Chinese hegemony.

Many people disagreed. They argued that America’s power would remain so much greater than China’s that it was unnecessary for America to make any such concessions. By holding firm, it could face down China, persuade it to back off and leave American leadership in Asia unchallenged once more.

Alas, my critics and I were both wrong. We were slow to see the growing rivalry between America and China, and we didn’t recognise, or permit ourselves to acknowledge, how serious the rivalry has become, and how badly it has been going for America. That is because we all underestimated China’s power and resolve, and overestimated America’s. Not only is America failing to remain the dominant power, it is failing to retain any substantial strategic role at all. Many expected that China would falter before it grew strong enough to challenge America on anything like equal terms. Instead, China has kept growing stronger – economically, militarily and diplomatically – and America’s resolve has weakened. Now it is China that is facing down America. That was the clear message of Xi Jinping’s remarkable assertion of China’s status and power at the 19th National Congress of the Communist Party of China, in October 2017. The contest is indeed unequal, but not in the way we thought. So we find ourselves in a new Asia, and we do not like it. But that’s the hand history is dealing us, and we must make the best of it.

We in Australia haven’t seen this coming, because Washington hasn’t seen it coming and we have got into the habit of seeing the world through Washington’s eyes. We have been happy to accept Washington’s assurances that it has China’s measure, and Washington itself has been slow to understand how serious China’s challenge has become and how badly it has mishandled the contest.

More broadly, our recent history has left us ill equipped to understand what is happening. The contest between America and China is classic power politics of the harshest kind. We have not seen this kind of struggle in Asia since the end of the Vietnam War, or globally since the end of the Cold War. The generations of politicians, public servants, journalists, analysts and citizens who grew up with power politics and knew how it worked have left the public stage. Political leaders like Menzies and Fraser, Curtin and Whitlam, and Hawke, Keating and Howard; public servants like Arthur Tange; journalists like Peter Hastings and Denis Warner; academics like Hedley Bull, Tom Millar and Coral Bell; and the voters who lived through the wars and struggles of the first three-quarters of the 20th century: they would all find Asia today much easier to understand than we do. We have a lot to learn and not much time to learn it.

And of course it has been harder to acknowledge what has been happening in Asia because it has been so difficult to imagine where it is taking us. We are heading for an Asia we have never known before, one without an English-speaking great and powerful friend to dominate the region, keep us secure and protect our interests. The fear that that this might happen – the “fear of abandonment,” as Allan Gyngell calls it – has been the mainspring of Australian foreign policy since World War Two, and indeed long before. But since the Cold War ended – a generation ago now – we have forgotten those old fears and begun to take American power and protection for granted. We have come to depend more and more on America as its position in Asia has become weaker and weaker. We have been happy to get rich off China’s growth, confident that America can shield us from China’s power. Now it is clear that confidence has been misplaced; we need to start thinking for ourselves about how to make our way and hold our corner in an Asia dominated by China.

That is what this essay is about. It looks first at how America is losing the contest with China, and then at Australia: how we have responded to the US–China contest so far, why we have got it so wrong, and what we can do now to manage the new reality we face.

Asia became largely free of power politics in 1972, when China stopped challenging America in the region. Now the power politics has returned because China has reversed course and started to challenge America again, and the two countries confront one another in a classic contest between a rising power that wants to take over the regional leadership and a declining power that wants to hold on to it.

Which country ends up as the leading power in Asia will depend on the issues they can each persuade the other they are prepared to fight over. To preserve its leadership, America must persuade China that it is willing to go to war to resist China’s challenge. That doesn’t mean it has actually to fight a war, only that it must persuade China that it is willing to do so. China has to show that it is willing to fight to depose the United States. It is doing this now by the classic power-political ploy of salami-slicing. The aim is to test America’s resolve over a series of issues of little intrinsic worth, which on the face of it do not seem worth fighting over. But while each slice of the salami might be insignificant, Washington looks weak if it can’t or won’t stop China taking one slice after another, and China by contrast looks strong and resolved. This undermines the credibility of US leadership, as regional countries lose confidence that Washington will support them if the next slice of the salami is them. China’s influence is correspondingly enhanced, as its neighbours grow less willing to defy it. This is what’s happening in the South China Sea today. It has very little to do with questions of sovereignty over reefs and rocks, or who has rights over which areas of ocean. Nor does it have much to do with arcane questions of international law. These substantive questions merely provide the setting for Washington and Beijing to display their strategic resolve, and to put their rival’s to the test. By deploying their militaries to the contested area, both America and China are signalling their willingness to use force to win the point and to demonstrate that the other is not. America has hoped to show that China will back off rather than risk a confrontation, and China hopes to show that it will be America that backs off. This is pure power politics at work. And so far, China is winning.

Of course, neither side wants a clash, let alone a major war, because both understand that even so great a prize as leadership in Asia would not be worth such a massive disaster. But that doesn’t stop them playing power politics, because each side believes it can get what it wants without a war, because the other will retreat to avoid one. The Chinese seem convinced that America will surrender regional leadership rather than risk a war with China, and the Americans have been equally sure, at least until recently, that China will drop its challenge and go back to accepting US leadership rather than risk a war with America.

Sometimes this kind of gamesmanship works: one side or the other decides the game is not worth the candle and backs off, or each side comes to accept the other’s key interests and they reach a modus vivendi. That is why war is not inevitable between a rising power and an established power. The idea that it is – that an iron law of history dictates rising powers always fight established rivals, so that China must end up at war with America – has been about for many years, and has been expertly analysed recently by American political scientist Graham Allison. A famous line in Thucydides’ account of the Peloponnesian War is often mistranslated to say that the rising power of Athens challenging the established power of Sparta made war “inevitable”. In fact, Thucydides’ subtle and elusive Greek expressed a much more sophisticated and accurate judgment: that the rivals were trapped in a situation that made it hard for them to escape war.

History bears this out. War might not be inevitable, but it is a very serious risk. Even when neither side wants war, miscalculations can easily happen. Each side tends to assume that its resolve is stronger than its rival’s, so is tempted to push ahead into a confrontation, believing the other will back off. Then the confrontation escalates, the rhetoric intensifies, and the stakes grow as the costs of backing down increase. Each side can quite quickly reach the point where backing down looks worse than going to war, and a war starts that no one wants.

That is what happened in 1914. People often talk about the obvious parallels between Europe then and Asia today, as a rising power confronts a long-established leader. But the more important parallel is less obvious. War came in the last week of July 1914, when decision-makers in the key capitals – Vienna, St Petersburg and Berlin – believed they could prevail over their rivals because they assumed their opponents would back down. But they were all wrong: no one backed down, and by the time that became clear, each power was too committed to step back. They all reluctantly went to war because the national humiliation of retreating at that late stage appeared even worse.

This is the danger we face in Asia today: that both Washington and China, neither of them wanting war but each underestimating the other’s resolve, will allow a crisis to escalate to the point where they each face a disastrous choice between war and humiliation, and both choose war, just as Europe’s leaders did a century ago.

This is an edited extract of Hugh White’s Quarterly Essay 68, Without America: Australia in the New Asia, available now.