The World Order

“History always repeats itself as humanity never ceases to fail. Thus, learn to anticipate the future by studying the past.” – Ray Dalio

During the era of industrial civilisation, the ascension of any global empire to undisputed supremacy required the establishment of dominance across five critical dimensions: industrial capacity, economic impact, technological advancement, military power, and cultural influence. 

The trajectory of ascent typically unfolded in this sequence: the consolidation of industrial capacity, followed by the expansion of economic impact, the advancement of technological capabilities, the accumulation of military power, and ultimately, the exertion of cultural influence. Only upon achieving pre-eminence in all five domains could an empire be regarded as the uncontested leader of the world order.

 

Conversely, the decline of a hegemony is generally marked by the initial loss of industrial and economic dominance, subsequently leading to setbacks in technological innovation, military strength, and cultural authority.

 

The complete erosion of supremacy across these five domains signifies the end of an existing world order and the emergence of a new one.

I. Behind Empire’s Rises And Declines

This is an issue that has been proven by history since humanity entered the industrial civilization. For instance, how did the United States surpass the Britain Empire to become the world leader? It's clear that Britain reached its peak of national power in the early 19th century. At one time, Britain's colonies were located all over the world, controlling 34 million square kilometers of land, accounting for 1/4 of the world. Because these colonies all flew the British flag, the British flag was visible under the sun 24 hours a day. This is the origin of the "Empire on which the sun never sets." In a sense, it was one of the most powerful empires in human history.

 

But when did such a powerful empire begin to decline? Many would say it was during World War I and World War II, but in fact, Britain's decline started much earlier, the two world wars were the result of that decline not the cause. The empire's true decline can be traced back to at least the late 19th century. Because at that time, two major events occurred:

• The first key event occurred in 1894, when the United States’ total industrial output surpassed that of Britain, marking Britain’s formal loss of industrial hegemony. Industrial capacity is fundamentally equivalent to productive power, the ability to secure stable production of goods and services, and latent military power. Once a nation’s industrial capacity begins to decline, a significant deterioration in its military power inevitably follows.

• Therefore, the second major event followed in 1899 – the Second Boer War. The British paid a huge price, ultimately only managing a draw with the Boers, who had a population of only a few hundred thousand, and were forced to sign a treaty. When this news spread, the whole world was in an uproar. The entire world understood that Britain's national strength had begun to decline.

• Here, I'd like to mention in passing that another major event occurred in the world while Britain was fighting the Second Boer War: the United States was quietly developing its industry. In 1900, the U.S. GDP became the world's largest. Britain lost its economic hegemony, meaning that in just six years, Britain successively lost its industrial and economic hegemony, and then its national strength began to decline rapidly.

• This aligns with the famous theory “Liebig's Law of the Minimum" – if a country's overall strength is seen as a wooden barrel with different length planks. The barrel can only hold as much liquid as the shortest plank allows, regardless of how tall the other planks are. When all the planks are intact, the country will be incredibly powerful. But once a plank is missing, it needs to be constantly filled, otherwise the country's strength will be quickly vanished, which it’s the case with the United States defeating Britain.

Britain lost its industrial hegemony in 1894 and its economic hegemony in 1900. Then, after World War I, in 1922, to avoid a naval arms race with the United States, the British acknowledged that the U.S. Navy and the British Navy had equal status. At that point, it can be basically said that from then on, Britain acknowledged that the United States had military power comparable to its own.

After the end of the Second Boer War, as Japan and Russia engaged in the Russo-Japanese War in East Asia in 1904, unrest began stirring within Germany as well. To cope with the potential risk of a European war, Britain, the world's leading power, was forced to join forces with France to jointly contain Germany. Not long after, World War I broke out.

 

It can be said that the main reason for the outbreak of World War I and World War II was that the world's hegemony, Britain, had declined and could no longer maintain the world order, while the emerging powers wanted to divide up the hegemony's colonies, leaving both sides with no option but to engage in a major war.

 

Looking at the technology aspect.  In fact, until 1930, the United States had only four Nobel Prizes in the natural sciences, and the vast majority were still won by Europeans. Therefore, at that time, it was difficult to say that the United States was the world's leading technological power.

 

But no one expected that a sudden change would occur immediately after the outbreak of World War II. A large number of European scientists fled to the United States, and the United States became a world-class technological power overnight. By the 1940s, the United States won more than half of the Nobel Prizes in science, marking Britain's formal loss of technological hegemony.

 

The rest was easy. With the rapid rise of U.S. national power, the U.S. dollar quickly replaced the British pound as the world's currency. American Hollywood and Hippie culture also rapidly became global trends. From then on, the United States officially completed its comprehensive surpassing of Britain, becoming the new generation of hegemony.

 

It’s worth noting that the United States replacing Britain was not achieved overnight. It not only required decades of time but also historical opportunities to bring about a turning point and ultimate success.

 

II. Challenged the New King

When the United States became the world's new leading power, it also encountered many challenges over the decades. However, the emergence of any potential peer competitor has been met with determined US efforts to suppress it. Historically, the United States has neutralised four attempts:

• The first was Britain itself. Although weakened, Britain still had a substantial foundation and could be considered the "world's second largest leading power." However, the United States and the Soviet Union quickly joined forces to dismember the former suzerain state, calling for national self-determination, national independence, and opposition to colonialism. The most well-known event at that time was the intervention in the Suez Canal crisis. Under the joint pressure of the United States and the Soviet Union, Britain's international standing plummeted. Although it remained one of the five permanent members of the United Nations Security Council, it was never able to regain its former glory.

• The second was Japan. In the 1980s, Japan's total economic output was second in the world, its industrial product exports were first in the world, and "buying up America" became Japan's slogan. The essence of the Plaza Accord launched by the United States was to improve the U.S. international balance of payments. During this period, the following also occurred: In 1981, the United States required Japan to voluntarily limit automobile exports; in 1983, a 45% heavy tax was imposed on Japanese motorcycles; in 1986, the price of Japanese semiconductor exports to the United States was restricted; in 1987, a 100% tariff was imposed on Japanese-made televisions and computers. In short, following a series of combined measures, the Japanese economy was effectively brought to collapse. 

• The third was the former Soviet Union. For the Americans at that time, the Soviet Union was their most powerful opponent. From the moon landing to the Strategic Defense Initiative (Star Wars Program), and through a calculated interplay of deception and genuine pressure, the United States ultimately dragged down the Soviet Union. In 1991, the Soviet red flag fell, and the Soviet Union ceased to exist.

• The fourth is the European Union. Back then, in order to strengthen their discourse of power in the international community, European countries not only established the European Union, but also launched the Euro after the establishment of the European Union, posing a challenge to the US dollar. Of course, the United States would not allow this. From the Kosovo War to the Iraq War and then the Russo-Ukrainian War, the United States has played, to varying extents, a behind-the-screens role. Combined with internal divisions within Europe, the perceived threat of the European Union was minimised.

After successively defeating four opponents, a new challenger has now emerged – China.

 

III. China – The New World Order?

However, China is significantly different from the previous four opponents: China has a substantial economic scale, near parity with the US in key fundamental metrics, and it can also coordinate the entire country as a single entity, the people are obedient, and resources can be efficiently allocated, so they can better overcome crises.

 

The rise of any empire requires two key undertakings:

 

First, solving internal problems.

 

China's biggest problem is insufficient domestic demand, high debt, and huge deflationary pressure. Looking back at the process of America's rise, in the industrial era, the United States not only had the largest industrial capacity but also the world's largest consumer market. Therefore, most of its capacity was absorbed by the United States itself. It was a typical domestic demand-oriented economy. In other words, America's domestic circulation worked very successfully on its path to becoming a superpower.

 

We need to dive deep into the reason why domestic demand in the United States was so robust. Besides having the largest population among western countries, the US also long enjoyed the highest per capita income level in the world, abundant resources, and a relatively reasonable distribution of wealth. In other words, the US was very willing to distribute the benefits of economic growth among its own people. Not only that, the US was also willing to extend economic advantages internationally, driving a group of allied nations onto the fast track of economic development. In contrast, late-industrialization countries like Germany and Japan, constrained by resource scarcity, limited domestic markets, and a lack of overseas colonial markets, quickly encountered bottlenecks in industrialization, which is why they chose to challenge the world order through war.

 

Unfortunately, many nations have emulated the United States' economic development model without adopting its approach to domestic and international wealth distribution or its strategies for expanding internal demand. This latter aspect may represent the crucial essence of genuine economic advancement.

 

From a nation’s competitive advantage point of view, China has huge potential. China has a population of 1.4 billion. Even if the consumption power and consumption quality increase by only a few percentage points, it will be very considerable. If it increases by 30%, China will become an indisputable global superpower by consumption. At the 2023 Financial Street Forum, it was said that there are still 300 million people in China who have not accessed the internet, 500 million people who lack access to flush toilets, and 1 billion people who have never been on a plane (Liu Shijin, a member of the Monetary Policy Committee of the People's Bank of China). Although the precise accuracy of this figure is uncertain, it undeniably signifies a vast untapped demand opportunity.

 

As for how China should overcome the current challenges, no one can give an accurate answer.

 

Second, the need for an external demonstration of strength

 

In fact, a "performance" is needed. Most people in the world, including the Chinese themselves, are largely unaware of China's true strength today. The trade war has just provided China with a "stage" for this performance, and this stage may be a historical opportunity.

 

In describing the current US-China confrontation, the US appears to seek a swift resolution, while China is resolved to a protracted engagement. The US leverages its currency and fiscal policy tools, whereas China wields its manufacturing prowess. While the US can impact Chinese earnings, China possesses the capacity to disrupt critical supply chains. The current dynamic represents a direct and unavoidable confrontation.

 

Looking back at history, in fact, China shouldn't be what it is today. Many economists often say that China's development speed defies common sense. According to World Bank standards, it took Britain 200 years, the United States 120 years, South Korea 40 years (with a small economic scale and US aid) for their annual per capita GDP to rise from $300 to $10,000. Conversely, China achieved this in just 25 years. Continued advancement from this point presents challenges of enormous difficulty, with complexity increasing exponentially.

 

Looking back at 1949, China's per capita life expectancy was only 35 years, there was only one hospital bed for every 50,000 people, and only 0.07 bicycles for every 10,000 people. The country's steel output was less than 160,000 tons, a fraction of India's output. The industrial base lagged behind even impoverished African nations, necessitating the import of basic items such as iron nails. More than 80% of the population was illiterate, and its foreign exchange reserves were almost zero. This war-torn agricultural country, nearly destroyed by years of conflict, embarked on its development from a weak economic base, enduring Soviet betrayal, a decade of internal turmoil, and two wars. Yet, who could have imagined that this nation would become the United States' rival within 70 years? Such a turnaround is virtually unprecedented in human history.

 

China's future strategic blueprint includes the "Made in China 2025" initiative, which outlined a three-stage development trajectory a decade ago. 

• The first stage, targeting a substantial improvement in overall manufacturing quality, significant enhancement of innovation capabilities, and a notable increase in overall labour productivity by 2025, this appears to have been largely achieved.

• The third stage represents a long-term vision aligned with the centennial of the People's Republic of China, so it is too early to comment on it.

• The key is the second stage, which envisions that by 2035, a decade from now, China's manufacturing sector will reach the mid-range of the world's leading manufacturing powerhouses, achieving comprehensive industrialisation with the aim of joining the ranks of moderately developed nations.

So far, there are 37 United Nations-recognized developed countries in the world. The standard for developed countries is a per capita GDP of 25,000 US dollars. If China reaches this standard, that is, the total GDP will reach 35 trillion US dollars, which will be a very terrifying figure. Of course, the prerequisite is that China needs to achieve an average annual economic growth rate of about 5% to achieve this goal. At present, it seems very difficult.

 

China does not have the old wealth to rely on like Europe and the United States, nor does it have mines at home like Middle Eastern countries, and it is even less likely to lie flat like South American countries. It is also impossible to be like Japan and South Korea. As we have said, for big countries, there is no right to kneel. When the Soviet Union disintegrated, the newly appointed Yeltsin endured Clinton's ridicule, thinking that he could integrate into the West. But the economy collapsed rapidly. The stock market plummeted from the trillion-dollar level to 5 billion US dollars, and decades of accumulated wealth was sold off cheaply.

 

Therefore, China either rises or declines. There is no other way. 

 

However, broad economic growth benefits all participants. China's role as a global manufacturing hub generated the capital necessary for its economic ascent. Further progress necessitates industrial upgrading, a trajectory that directly challenges established economic interests and elicits strong resistance. Obama once said in an interview “if over a billion Chinese citizens having the same living patterns as Australians and Americans do right now, then all of us are in for a very miserable time. The planet just can’t sustain it”. 

 

Currently, both major Eastern and Western powers are systematically implementing measures, sequentially deploying all policy instruments short of direct military conflict. This includes not only preparing their domestic populations across all social strata for potential conflict but also pre-emptively assessing the feasibility of decoupling and evaluating the resilience of social production and consumption under conditions of national mobilization.

 

Our generation is witnessing this, and perhaps will eventually be drawn into it.