the visit of Nancy Pelosi to Taiwan was preceded by angry warnings from Beijing about the consequences of the trip. The possibility of interfering with the flight and avoiding landing was even mentioned, including the launch of deterrent missiles. None of this happened, as expected, and Pelosi was able to visit the island without major complications. The purposes of Pelosi’s action seem incomprehensible, to the extent that he introduces pressure in an environment in which he would welcome more relaxation. The most widespread version is the intention of the US to put pressure on Xi Jinping ahead of the next congress of the Chinese Communist Party. Pelosi’s visit is a setback that, if not answered, would be perceived as a sign of the leader’s weakness; but, if it is overly contested, it would prove Xi’s lack of ability to handle these situations. On the one hand and on the other, the leader can lose.
Beyond China’s internal affairs, in which it seems very difficult to interfere, the truth is that Pelosi’s gesture I had a very difficult answer. The economic interconnections between the US and China are still enormous, even though they are beginning to dissociate, and in the background is the military issue, which is very relevant. China has grown a lot, has developed its army, has the largest fleet in the world, has made progress in strengthening its capabilities, but its armed forces are inferior to those of the United States. The American aircraft carriers, for example, are qualitatively superior to the Chinese, and in this context of the struggle for dominance of the seas, this fact is of great importance. Beijing has a lot to lose if it decides on direct actions linked to forceso it is normal for him to resort to symbolic displays of muscle, such as the military maneuvers he has carried out.
divergence
That relationship of forces can change. In an interesting conference, the military cameron holtDeputy Assistant Secretary for Acquisitions of the US Air Force, the department that oversees the purchase of everything from drones to nuclear missiles, warned of the nature of this new cold war, and warned of Chinese growth, its ability to influence, and its the skill with which they are performing in the game.
The national defense strategy and the interests of the capital markets are not aligned
Holt described this confrontation as an existential threat to the Western way of life and contrasted the different perspectives between a political system in which “the rights of the individual pre-exist the State”, and the Chinese, which tries to preserve above all the collective force . Holt pointed out that the US could lose those rights without having to be invaded, that wars in the 21st century are not only about military power, since there are many other means by which conflicts are waged. The military is the power of last resort, since it implies an enormous deterrence capacity, but in the battle front there are not only the soldiers. Also the economy or diplomacy participate in it.
And in that terrain, Holt sensed a substantial disadvantage of your country: The national defense strategy and the interests of the capital markets are not aligned. In many occasions, these suppose a problem instead of a solution. It’s a major drawback, because US capital markets have enormous muscle: they should be a definite complement to consolidating your country’s power. But it doesn’t happen like that. Y if the step is not changed, the US will lose the conflict with China in the future.
Wall Street vs. the Pentagon
For Holt, the problem in the military field lies in the ability to acquire weapons, who can get them faster and cheaper, and the elements of innovation they contain. And there the logics of the market and those of the State, those of Wall Street and those of the Pentagon, differ substantially. Holt makes a friendly call to the meeting of interestsafter verifying how far away they are.
In summary, China obtains weapons five or six times faster than the United States and what is worse, it obtains for one dollar the same as the United States for 20. This problem is directly related to market power in the US. Holt highlighted the perverse incentives that animate a highly concentrated defense industry: firms often set low-priced bids, but since they own the intellectual property of the goods they sell, and by acquiring great market power, they can fix prices later and recover everything lost and much more. This dynamic also causes there is no great motivation to invest money in innovative elements, because you have to take advantage of what they once sold: they need to exploit it to the fullest before taking the next step, and that explains why they continue to buy old models. According to Holt, Chinese acquisition strategies are much more efficient.
By having few firms with great market power, what they produce becomes expensive, and companies are very lazy when it comes to innovating
The underlying problem is clearly explained by Matt Stoller, director of research at the American Economics Liberties Project think tank in his BIG newsletter, where he also points out some ways of solution. As occurs in many other areas of the US (and European) economy, the concentration of sectors in the hands of very few players gives them market power that they take advantage of for their own benefit and systematically. By having power, what they produce becomes expensive, and companies very lazy when it comes to improving or innovating.
On the military front, Stoller highlights the difficulties in replacing the Javelin and Stinger missiles shipped to Ukraine, as it will take a long time, even years, to restart some of the assembly lines. “Raytheon and Lockheed have supply chain issues and are unable to deliver weapons despite large orders. We can’t even make the chips for weapon systems like the B-2 bomber.because the semiconductor companies are closing the factories that made the old parts.”
This clash reveals one of the underlying contradictions in Western societies, the one that pushes the market and the State in different directions. At a time when strategic capabilities will be more important than ever, clashes of this kind will be more present than ever. In the US case, the differences are significant, since it pits Wall Street against the Pentagon, just at the moment when the Wall Street’s stance on China it is more accommodating and relaxed, and that of the military field is tougher.
the visit of Nancy Pelosi to Taiwan was preceded by angry warnings from Beijing about the consequences of the trip. The possibility of interfering with the flight and avoiding landing was even mentioned, including the launch of deterrent missiles. None of this happened, as expected, and Pelosi was able to visit the island without major complications. The purposes of Pelosi’s action seem incomprehensible, to the extent that he introduces pressure in an environment in which he would welcome more relaxation. The most widespread version is the intention of the US to put pressure on Xi Jinping ahead of the next congress of the Chinese Communist Party. Pelosi’s visit is a setback that, if not answered, would be perceived as a sign of the leader’s weakness; but, if it is excessively contested, it would mean a confirmation of Xi’s lack of ability to handle these situations. On the one hand and on the other, the leader can lose out.