The Emerging Multi-polar World
Fri Oct 20 2023
As the United States scales back its role as the global enforcer of order, the world risks becoming increasingly perilous, volatile, and conflict-ridden. The best outcome is that international commerce will prevail over war and aggression, creating a game-theoretical incentive for nations to choose trade over warfare. If this fails to materialize, the repercussions for the U.S. could be severe, given its position as one of the primary beneficiaries of global stability and interconnected markets. However, the financial and reputational costs of maintaining a policing role on the world stage have become increasingly unsustainable for the U.S., especially after contentious military interventions.
Realignment with China
China has the largest navy in the world by vessel count, with 730 military vessels. The United States comes in fourth with 484 naval vessels. In the worst case, the United States loses its ability to defend the interests of its allies in specific theaters, such as Southeast Asia, leading to the erosion of its international alliances. As trust in American commitments wanes, allies recalibrate their foreign policies, seeking new partnerships that further marginalize U.S. influence.
China will capitalize on this power vacuum by annexing Taiwan. Such a move would be a territorial gain for China and a strategic coup in technology. Taiwan is a critical hub in the global semiconductor manufacturing industry, with TSMC accounting for 90% of global semiconductor production. Its annexation would give China unprecedented control over this vital resource.
With control over 90% of the semiconductor supply, it will coerce other nations into diplomatic and economic subservience. Faced with the prospect of technological stagnation, East Asian countries and even the European Union might find themselves compelled to align with China. Countries that defy or compete with China will be in a weakened position.
The consequences of this worst-case scenario are grave, reshaping alliances, economies, and the global balance of power. It will mark a step shift in international relations, with China emerging as the unchallenged leader in both technology and geopolitics, while the U.S. and its allies face the grim prospects of economic decline and eroding global influence.
Deterrence for now
American influence has been challenged, but its institutions’ robustness and alliances’ resilience provide a buffer against a complete collapse of its global standing.
China annexing Taiwan would incur international sanctions, economic isolation, and potential military conflict. The global semiconductor supply chain is deeply interconnected, and monopolizing it is more complex than taking control of Taiwan. TSMC relies on machines from ASML, a Dutch equipment vendor specializing in extreme ultraviolet lithography (EUV) machines. ASML is the sole provider of the EUV machines that produce sub-7nm process nodes for TSMC’s clients.
As for the possibility of East Asian countries and the EU turning towards China, economic interests are undoubtedly strong motivators. However, these nations also have other considerations, such as human rights, democratic values, and long-standing diplomatic ties with the U.S., which could deter a complete realignment. The geopolitical landscape is fluid, but shared values, interests, and complex economic interdependencies make a wholesale shift unlikely in the near term.
While the worst-case scenario cannot be completely ruled out, several strong counterbalancing forces make it less probable. Such a future would require a cascade of failures and miscalculations to materialize.
Lead by example
Innovation should remain at the forefront of American policy. The U.S. has historically been a leader in technology and scientific research, and doubling down on investment in these sectors will help the US lead economically. By fostering a robust ecosystem of startups, research institutions, and high-tech industries, America can maintain a leading role in technology.
Second, the U.S. could leverage its soft power more effectively. American culture, ideals, and educational institutions have global appeal, and utilizing this influence can help the U.S. maintain strong relationships even as other nations rise in prominence. This includes strengthening diplomatic ties and forging new trade agreements that are mutually beneficial. The focus should be on building relationships that enable economic cooperation and shared values rather than relying solely on military might to assert influence.
Demographically, the US has benefited from the immigration of high and low-skilled labor. A favorable immigration policy will ensure US dominance in high-tech and keep local production costs competitive globally.