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Will Xi move on Taiwan? History warns he might: Niall Ferguson

Thought Leader: Niall Ferguson
September 10, 2021
Source: Link

WASHINGTON — The abrupt U.S. withdrawal from Afghanistan, and the American public’s quickly fading support for military endeavors in the greater Middle East, could send the wrong message to Beijing and push it to take action in Taiwan, historian Niall Ferguson told Nikkei in an interview.

Ferguson, a senior fellow at the Hoover Institution at Stanford University, said big wars usually happen when the aggressor “thinks that time is not on its side and that it’s better to act sooner rather than wait.” The Biden administration’s abandonment of Afghanistan could be interpreted as an unwillingness on the part of the U.S. to engage in overseas wars and could change Chinese President Xi Jinping’s risk calculations, Ferguson said.

Edited excerpts from the interview follow.

Q: What is the significance of these past 20 years?

A: Twenty years ago, it seemed obvious that the period that Francis Fukuyama had called “the end of history” had ended, that the period of post-Cold War “irrational exuberance” had ended, and the United States embarked on a doomed enterprise, which was to try to do more than merely depose hostile regimes in Afghanistan and Iraq, but to actually build nations there.

And, 20 years ago, it was pretty obvious that that effort would fail. The reason that it’s not going to work is primarily domestic, in fact almost entirely domestic.

There were three deficits that prevented the U.S. being a successful overseas empire. No. 1, the manpower deficit. Americans do not want to spend their lives in places like Iraq and Afghanistan. Even the military do short tours of duty, of maybe six months.

Historian Niall Ferguson calls the current Chinese model of governance — centralization of power in a small number of people and reliance on surveillance and propaganda — an unsustainable enterprise.

Secondly, a fiscal deficit that was already a problem 20 years ago but has only become a bigger problem. And thirdly and most importantly, an attention deficit. The American public was very indignant after 9/11, but that indignation faded, as was predictable, after about four years. The popular support for the war on terror had faded. All of that was completely predictable at the outset.

I think it was all a huge distraction from the reality that the Cold War wasn’t over. The reason it wasn’t over was that history didn’t end in 1989; it kept going, because of Tiananmen Square and the triumph of the Chinese Communist Party. Because the Chinese Communist Party survived 1989, the Cold War wasn’t over. So, there was this enormous distraction that the Islamists created that absorbed our attention, our resources, and it turns out that it was really — it was a detour. The big issue was the rise of China.

Q: How do you see the Biden administration’s decision and execution of the withdrawal from Afghanistan?

A: Two thoughts. First, you can leave a foreign country behind in an orderly way. Ask the British Empire, which mostly ended its colonial occupations in an orderly way. There has to be some reason why Saigon 1975 and Kabul 2021 were such a mess. And this seems to be an intrinsically American problem: an inability to exit cleanly.

The Americans are bad at this, it’s clear. The explanation is that because domestic support for these endeavors fades so quickly, there isn’t really the will or state of mind to do it in an elegant and organized way. Basically, you turn off the resources. That’s what happened to South Vietnam. It’s what happened to the Afghan government. You just turn off the support, and then you’re sort of surprised and shocked when everything falls apart.

But there’s a second thought that crosses my mind. Disasters get blamed on presidents and prime ministers, but often the point of failure is further down the chain of command, because presidents aren’t, by and large, micromanagers. Somebody, somewhere, took the decision to abandon the Bagram Air Base.

This was an amazingly stupid thing to do because you then became entirely dependent on Kabul International Airport. You’d had this huge, very defensible, large-scale base that had been central to the entire operation, and I would like to know who it was who signed the order just to abandon it.

As is always the case in American foreign policy, there were heated arguments and, of course, the military opposed many of the decisions. The special forces commander opposed the withdrawal of the special forces. They were all withdrawn before the civilians. Again, a crazy decision, because you would really want to keep special forces in place until the last minute, that they’re the people you would want to have there until the end.

Ferguson agrees with Henry Kissinger that U.S. foreign policy is more the net result of interagency battles than a coherent strategy.   © Reuters

So, some kind of strange process of bureaucratic decision-making produced these bad decisions, and I’m not sure it was [President] Joe Biden, or even [national security adviser] Jake Sullivan. It may have been further down the chain of command.

I remember [national security official and later Secretary of State] Henry Kissinger, in the 1960s, saying: “Foreigners think that there’s an American foreign policy. But, in fact, there’s just the net result of all the interagency battles, and the result is a kind of byproduct of interagency rivalries.”

I think that’s true of the Afghan story. At each stage, there has been a battle between the White House, the State Department, the Pentagon, the CIA and the military. The battle has gone back and forth for 20 years, somewhat inconclusively, but the outcome was always going to be something like this.

Q: You said the Cold War isn’t over, but the players have changed. How do you see the U.S.-China rivalry? The year 2001 was when China joined the WTO, and the U.S. and China pledged cooperation in the war against terror, which is not imaginable in today’s environment.

A: When the battle over Huawei began, over 5G, I saw a map of the world, and it was a map of the world according to whether countries were allowing Huawei in or not, and I said to one of my young colleagues, “Oh, that’s the Cold War.”

So, I was a little slow, but I was in good company because most Americans, and I think most Europeans, were in denial about this, until the pandemic. And it was only last year that they suddenly began to see Xi Jinping’s China in its true character.

The first American to notice, was [former President Donald] Trump. Trump was the first American politician to say, “China is the problem.” As soon as he said that, it was like permission for Americans to be hostile to China. It was very important to his success in the election, because middle America had secretly felt for years that they were being screwed, economically.

But then, all the policy elite, both Democrats and Republicans, found that they agreed with Trump, and Trump, extraordinarily, created a huge shift in U.S. attitudes to China, and that was the point at which Americans began to come out of denial and to recognize that they were in “Cold War II.”

Q: “Cold war” means that the two superpowers don’t fight militarily. Do you anticipate this situation will continue for decades? What do you expect to be the chance of a military conflict between them?

A: It’s worth remembering that in “Cold War I,” within a very short space of time, there was a hot war, over Korea. So, I think there’s a significance chance that “Cold War II” has a hot phase, and the obvious place where that could happen is Taiwan. That could happen quite soon.

The question that we all have to try to answer is, “How willing is Xi Jinping to gamble on military action?” — knowing that to take on the United States is extremely risky, but also knowing that this is probably the best moment to do it that he’ll ever have, given that the U.S. does not have good, credible deterrence with respect to Taiwan.

Big wars usually happen when the aggressor thinks that time is not on its side and that it’s better to act sooner rather than wait. The Biden administration’s abandonment of Afghanistan is a kind of signal that they probably won’t fight over anything. If you were Xi Jinping, [you’d think] that as it happened over Crimea, the Biden administration, like the Obama administration before it, would just do financial sanctions and leave it to that.

So, if you’re prepared to take that hit, you’ll probably get away with your annexation. In this case, it’s actually not annexation because you, China, have said all along it really belongs to China and the U.S. basically accepted that, since the 1970s. So, I’m worried that the Chinese think they can do this now, that it’s better to do it now than 10 years from now, and the U.S. has kind of encouraged that, by the way the Biden administration has acted this year.

I don’t know what would happen. If, next year, there was a sudden invasion of Taiwan, what would they do? What would Jake Sullivan say to Joe Biden?

My sense is that, with the Biden administration, they might actually end up going to war, because the alternative would be to abandon predominance in the Indo-Pacific region. It would be like the Suez crisis if they didn’t defend Taiwan. So maybe the Chinese would be wrong. They would gamble that the U.S. wouldn’t act, then the U.S. would act, and then we’d have a really big war on our hands. To a historian, that would not be a surprising sequence of events; it would be a really familiar one.

Q: Let’s talk about the economy. In 2001, the talk was China’s entry into the WTO, globalization and free competition. Today, the topics are quite different. We hear more about inclusiveness, inequality and fair share. What happened?

A: I’m tempted to call it “Keynes’ revenge.” John Maynard Keynes had a period of retreat, and Milton Friedman had a period of ascendancy, and you could date that from around 1979. Monetarism became dominant, markets were preferred to the state, and what emerged as “the Washington consensus” was much more a Friedmanite view of the world.

Keynes’ revenge began in 2008, when, in the face of the financial crisis, a really large part of the economics profession, led by Paul Krugman, essentially said Keynes was right and we need to do Keynes now, or it will be the Great Depression.

The U.S. Capitol in Washington. President Joe Biden’s “Build Back Better” agenda aims to create jobs and help working families, funded via tax reforms that will have the wealthiest and large corporations pay more.   © Reuters

There was an extraordinary intellectual revival of Keynesian thinking that has continued to this day. And it’s, if anything, become more Keynesian than Keynes, because we’ve now ended up with ideas like Modern Monetary Theory that go beyond anything Keynes ever said.

Now, I’m not sure it’s quite that simple, because some Friedmanite ideas have survived. Universal basic income was an idea of the right, once upon a time, although it was supposed to be an alternative to the welfare state, not in addition to the welfare state.

Friedman’s view of the Great Depression had a bigger influence on [former Federal Reserve Chairman] Ben Bernanke than Keynes’ did, because when you look at what central banks have done, it’s actually been a monetary response, not only in 2008-09, but also in the pandemic.

So, the ascendancy of Keynes is the sort of intellectual story, but when you look at what central banks actually do, I think it’s, in many ways, a covert victory for Friedman.

A really interesting shift has been at the International Monetary Fund, where the Washington consensus has largely been discarded in favor of a quite different set of principles, and that began when they started to say that capital controls were OK.

We’ve moved stealthily into a world of semipegged currencies, capital controls, not least in China, and that’s a very different approach.

So, the economics profession has kind of gone all the way back to where it was before Friedman’s dominance, and policymakers have essentially accepted this, and that’s going to lead to inflation, probably.

One of the things you’ve got to ask yourself is, “Well, why was Friedman ever dominant?” And the answer is because, in the 1970s, Keynesian policies led to inflation. I feel like that’s all just going to replay itself and we’re going to have to relive the 1970s in order to remember why we did the 1980s.

Q: Biden’s “Build Back Better” plan will require a huge amount of expenditure. Will it be a successful policy?

A: No, it won’t, because the multiplier just will be nonexistent. The U.S. is completely incapable of turning a large fiscal stimulus into the kind of investment that would have a significant multiplier. We already know what the outcome will be. There won’t really be a significant macroeconomic benefit.

That’s partly because the administration cannot resist mixing up other things with the word “infrastructure.” Infrastructure now means everything. If you want to do environmental, “green” policy, that’s infrastructure.

I think the “green” part of it will be self-defeating, because the truth about “green” deals or new deals is that if you’re serious it’s going to raise costs. If you’re serious, you’re going to walk away from natural gas, walk away from shale gas, and increase the costs of your energy mix. That’s just the reality.

U.S. President Joe Biden delivers remarks in the East Room at the White House on Sept. 8. Americans are bad at exiting cleanly from occupation, Ferguson says.   © Reuters

And so, my sense of there being a kind of rerun of the 1970s is that, in addition to excessive fiscal and monetary stimulus, you then do “greenflation,” and that’s not as big as the oil shock in the 1970s, but it is a supply-side increase in costs that will be inflationary, in ways that the environmentalists don’t want to talk about.

So, I don’t think it will work. Actually, I think it will quite quickly prove to be an unsuccessful strategy, especially if inflation proves more than transitory, which I can’t be sure about. Real wages have gone down in the U.S. You can talk all you like about “Build Back Better,” but if real wages go down, don’t expect voters to be enthused for very long.

Q: What are the next 20 years going to look like?

A: It’s always important to resist the conventional wisdom and be skeptical about what seems like the base case. The base case at the moment is “the United States is in decline, China is ascending, the Asian century has begun,” and I think that’s all wrong.

Just like the Soviet Union, the People’s Republic of China is an ultimately unsustainable enterprise, in which the centralization of power in the hands of a really small number of people, the lack of any legal accountability of the party, all of these things produce the predictable outcomes of corruption and ultimately an economic model that will break down.

And it is breaking down. The demographics are terrible, the debt dynamics are terrible, and the whole thing increasingly relies for its legitimacy on a massive apparatus of surveillance and increasingly crude propaganda.

When a leader declares that it is up to him how much time kids spend on computer games, you know the end is in sight. So, my bet is that, over the next 20 years, there will be a crisis of the Chinese system, and at the same time there will be a resurgence of the United States, based mostly on immigration.

As long as the United States immigrates the talent, brings the talent in, it wins. It wins artificial intelligence, it wins quantum computing, just wins because it has the talent, it has the global talent pool, and China just has the Chinese talent pool.

What can prevent that outcome is internal pathologies in America, like “wokeness” and the kind of insanity of the universities today. But I’m going to take the view that that’s a temporary sort of madness that will not ultimately destroy the open society, in the same way that the power of Big Tech companies is a transient phenomenon.

With the advent of decentralized finance and the next generation of the internet, the power of the platform is going to diminish.

So, I’m going to take a bet that the next 20 years will be like the 20 years prior to 1989. That is to say, it will look as if the U.S. is in big trouble and the Communist regime is going to win, and everybody will run around say it’s all over, and then it’ll turn out that that’s not true because the U.S. reinvents itself, fixes its problem, and the totalitarian regimes come to the internal contradictions of totalitarian regimes.

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