With the return of Donald Trump to the White House, countries around the world are girding for revived tensions between the U.S. and China.
For decades, countries found it possible to work with both sides, particularly in Asia: Governments could trade with China while relying on the U.S. for security. But now, less powerful nations may find it tougher to navigate a more tense international system, author Robert Kaplan said in a late January interview with Fortune.
“Great powers in decline can tend to be very aggressive,” Kaplan explained. “For decades, countries like Singapore and Australia and others were able to essentially get rich off China, and be protected by the U.S. Navy. They didn’t have to choose.”
Several countries are already trying to hedge against Washington, as countries like Thailand, Malaysia, and Indonesia try to join organizations like the BRICS, an international grouping viewed as a counterweight to Western-led countries.
Other world leaders, like Singapore Prime Minister Lawrence Wong, have warned against being forced to choose between Washington and Beijing.
Yet Kaplan argues that “smaller countries may have to choose. That gets very difficult.”
Decline in China … and the U.S.
In his most recent book, Waste Land: A World in Permanent Crisis, published earlier this year, Kaplan makes a provocative argument about the international system: that the world’s three great powers—the U.S., China, and Russia—are all in “decline.”
“You have a world where great powers, who normally provide some degree of global order, are getting weaker and weaker, and are less and less able to do so,” Kaplan said.
When it comes to China, Kaplan criticizes what he sees as a shift in governance style between President Xi Jinping and his predecessors, like Deng Xiaoping, the Chinese leader credited with starting the reform process that put the country on a path to becoming today’s economic powerhouse.
“Deng Xiaoping and his successors were conservative, risk-averse, collegial authoritarians who believed in a significant measure of capitalism in their system,” Kaplan says. Deng “kept politics autocratic, but opened up the economy so you had stability and growth.”
But Kaplan argues that China, under Xi, has taken a heavier hand in the Chinese economy. “The problem with Xi is China has a very complex economy—part capitalist, part autocratic—and yet you now have Leninist autocrats making the most complex financial decisions. That cannot end well.”
China’s economy is stumbling after the COVID pandemic. Domestic consumption is not growing as fast as hoped, putting the world’s second-largest economy at risk of deflation as shoppers hold back. An extended property crisis is also weighing on growth.
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Some economists also blame a brief crackdown on China’s private sector, particularly its big tech companies, for the slowdown in growth. In 2020, officials derailed the IPO for Ant Group, Alibaba’s fintech affiliate, in part owing to public comments from founder Jack Ma that criticized regulators. That spurred a series of new regulations that drastically slowed the pace of IPOs, wiped out entire industries, and slapped massive fines on giants like Alibaba and Tencent.
Still, Kaplan isn’t just focused on Chinese decline. The writer also criticized the Trump administration’s plans to whittle down the size of the U.S. government. “We’re talking about hundreds of people who essentially run the American empire, who deal with crises in 50 countries in the world on a given day,” he said. “This is ending under Trump, as he guts the bureaucracy, and this will lead to a silent decline in American power.”
Since Fortune’s interview with Kaplan, the Elon Musk–led Department of Government Efficiency has embarked on a massive cost-cutting drive across the U.S. government, targeting the United States Agency for International Development (USAID) in particular. Musk has accused the organization of massive fraud. Yet experts worry that a halt to USAID’s work puts global health initiatives at risk, harming U.S. soft power and damaging the country’s interests.
How businesses should think about conflict
For now, stock markets appear to be largely shrugging off the potential for renewed international tensions. Indexes in both the U.S. and Asia haven’t shifted much in the aftermath of Trump’s election in November, or the introduction of new tariffs on China last week.
Tensions, and even limited conflict, haven’t done much to significantly shake investor confidence, Kaplan says. “Financial markets have impressively priced in wars in the Middle East going back to 2003 through the invasion of Ukraine. It hasn’t really affected stock markets around the world,” he notes.
Yet he’s worried that a truly systems-level conflict—like “a war between the U.S. and China”—would have a “devastating effect on financial markets and supply chains.”
Business leaders routinely express concern about an open conflict between the U.S. and China, particularly over the island of Taiwan, a self-governing democracy that Beijing considers to be part of the country. Taiwan is also home to the world’s leading producers of semiconductors, a key strategic commodity.
“Asia really is the most important part of the world,” Kaplan says. “Global business has to hope that the U.S.-China rivalry can be reasonably contained, so that it does not lead to all-out hostilities.”