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Are the U.S. and China “Destined for War”?

Are the U.S. and China “destined for war“? Harvard professor Graham Allison posed that question in a provocative book published last summer. I’ve written previously in this space about Allison’s thesis, but it seems newly relevant in light of developments over the last month, if not the last few days.

The gist of Allison’s argument is that the modern world’s two most powerful nations are stumbling into a “Thucydides Trap.” That’s Allison’s shorthand for the theory of an ancient Greek general who identified sudden, significant shifts in the relative strength of major powers as a primary cause (if not the primary cause) of military conflict. Thucydides, considered by many the world’s first true historian, floated the idea in his chronicle of the Peloponnesian Wars, the series of devastating conflicts between the two most powerful Greek city states, Athens and Sparta, in the fifth century BCE. Thucydides posited that, whatever superficial frictions and flashpoints might be blamed for hostilities between the two sides, the underlying cause of war was the frustration of leaders in the rising power, Athens, and the fear the growing strength in Athens inspired among leaders of the established power, Sparta.

Allison sees the same dynamic in conflicts between a rising England versus the Dutch Republic in the 17th century, a rising Germany versus Britain in the early 20th century, and a rising Japan versus the United States in the 1940s. In his book he argues that Thucydides’ theory perfectly explains the growing animosity between the U.S. and China. Allison doesn’t say war between the U.S. and China is inevitable. But he does argue that, “on the current trajectory, war between the U.S. and China in decades ahead is not just possible, but more likely than currently recognized.”

Allison expanded on those ideas in an appearance at the Asia Society here in Hong Kong in late April. He got a big laugh by observing that, if Hollywood were to produce a “Thucydides Trap” movie depicting the clash of the modern era’s two great powers, Central Casting couldn’t have contrived more perfect antagonists than Donald Trump and Xi Jinping. (Alec Baldwin, call your agent!) The line stuck with me, though, because in the weeks since, the two leaders have seemed to be reading almost line-for-line from the Thucydides script.

As I write this (Saturday night China time, Saturday morning in the U.S.), U.S. commerce secretary Wilbur Ross is dining with Chinese economy czar Liu He in the Diaoyutai state guesthouse in Beijing in a last-ditch effort to forge a U.S.-China trade compromise and defuse a round of tit-for-tat trade tariffs that could affect hundreds of billions of dollars worth of goods and services. The discussions seem unlikely to achieve a breakthrough given that Trump on Tuesday announced that he would proceed with tariffs on $50 billion of Chinese imports and introduce new limits on Chinese investments in U.S. high-tech industries. The U.S. president’s announcement came only days after his treasury secretary Steven Mnuchin declared the U.S. trade war with China to be “on hold.”

Meanwhile at a security conference in Singapore this morning, U.S. defense secretary James Mattis assailed the Chinese government for ramping up its military presence on a string of contested land outcroppings in the South China Sea, decrying the deployment of Chinese weapons there as meant for “purposes of intimidation and coercion.”

A trade war and conflict over the South China Sea are among the possible “paths to war” Allison considers in his book. Others include the collapse of North Korea, conflict involving a third party such as Korea or Japan, and a face-off over Taiwan. Every scenario remains in play.

In other ways, though, Allison’s invocation of Thucydides feels too neat. In the Peloponnesian Wars, the rising power was Athens, an expansionist, freewheeling democracy with an unbeatable maritime fleet, while the incumbent power was Sparta, ruled by an austere and conservative warrior-caste revered for its prowess in fighting on land. And yet, in Allison’s analogy, China is the modern Athens, while the U.S. is the equivalent of Sparta.

And the eventual outcome of the Peloponnesian Wars offers sobering lessons for both Xi and Trump. In the end, Athens, the rising power, was defeated, never again to regain its global preeminence. Sparta prevailed, thanks largely to the intervention of Persia, a reminder—at a time when Trump is imposing tariffs on Germany, Japan, South Korea and Canada—of the value of strategic alliances.

More China news below.

Clay Chandler
@claychandler
clay.chandler@timeinc.com

Economy and Trade

A lukewarm welcome. Close to 230 Chinese A shares were included in MSCI’s emerging market’s index yesterday. The A shares are being introduced to the index in two stages, with the second step coming in August. Upon completion, China will occupy 42% of the index. Yesterday’s debut was largely seen as symbolic, as markets in China didn’t react strongly to the news and most of the included stocks declined. CNBC

On again, off again. The trade war is back on, as President Trump announced plans to slap a 25% tariff on $50 billion of Chinese imports. China’s commerce ministry criticized Trump for “contradicting” agreements made during recent trade discussions. This same week, China’s state council announced it would cut import tariffs on a range of consumer products by as much as 12 percentage points. South China Morning Post

The visible hand. Traders claim that Chinese regulators are increasingly influencing the Chinese stock market to make it appear less volatile. Brokers may be instructed not to make disruptive deals during politically sensitive times and are occasionally contacted directly if they are about to act against government wishes. The interference has created a market that doesn’t reflect the whims of supply and demand. Wall Street Journal

New York, New York. Tencent is preparing to list its music venture in New York in a $30 billion IPO. The choice of New York is a blow to Hong Kong, which had hoped its recently relaxed regulations would inspire more Chinese tech companies to float on the market. Tencent dominates 78% of the Chinese music streaming industry having signed a number of distribution agreements with Western labels. Financial Times

Tech and Innovation

Smart money. SenseTime has accumulated over $1 billion of funds in a little under two months, becoming the world’s most valuable AI start-up. The tech firm raked in $620 million in C+ fundraising this week and accrued $600 million in C round funding last April. The group will use the capital to expand overseas. TechCrunch

Blockchain backing. President Xi included blockchain in a list of “breakthrough” technologies during a speech at the Chinese Academy of Sciences. The comment reaffirmed China’s interest in the tech behind Bitcoin despite the Party’s frequent crackdowns on cryptocurrencies. Coindesk

Meals sans wheels. Food delivery app Ele.me gained government approval to run the country’s first real-time drone delivery routes. The 17 flight routes are all in Shanghai’s Jinshan Industrial Park. The drones will not deliver food directly to customers but will facilitate the transfer of orders between couriers, taking control for 70% of the route. TechNode

Beyond self-service. This week saw a slew of news regarding AI-powered retail. Alibaba opened its first co-partnered “new retail” megastore in Beijing, teaming up with sports retailer Intersport. Tencent and Wanda formed a joint venture to develop “smart retail” in combat against Alibaba’s model. Meanwhile JD.com has strengthened its ties with the military by opening an unmanned convenience store on a PLA base. TechNode

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Politics and Policy

Water fight. Chinese war ships were sent to challenge two US Navy vessels that were performing FONOP operations in the South China Sea. China’s National Defense Ministry said that the US had “gravely violated Chinese sovereignty”. The next day, Defense Secretary Jim Mattis retorted that the US would continue to confront China’s militarization of the disputed region. Reuters

Visa review. The United States announced it would be cutting visas for Chinese students studying subjects vital to China’s “Made in China 2025” plan. Graduate students in fields like robotics, aviation and high-tech manufacturing may have their visa’s capped at just one year in a bid to defend intellectual property. Associated Press

Total wipeout. The Iranian petroleum minister warned France’s Total that it had 60 days to secure support from the US or else Iran would transfer its share in the South Pars gas fields to the China National Petroleum Corporation. Iran has increasingly turned to China for support following the reimposition of US sanctions. Iranian president Hassan Rouhani will be hosted at a security summit in China this month. Al Jazeera

The sanction shuffle. In an apparent move to appease the Trump administration, ZTE replaced a number of high level executives this week. Chief technology officer, Xu Huijun, and director of corporate operations, Huang Dabin, have both been reassigned. Meanwhile ZTE’s former party secretary, Fan Qingfeng, has been replaced by Tian Dongfeng, the head of an aerospace think-tank. Bloomberg

This edition of CEO Daily was edited by Eamon Barrett. Find previous editions here, and sign up for other Fortune newsletters here.