It’s easy to imagine a doomsday World War III scenario in which China and the United States are the main belligerents. China is pouring resources into its armed forces and is militarizing the South China Sea. The primary goal is not to make Scarborough Shoal a 21st-century Sudetenland but to find weak points in the U.S.-led archipelagic security alliance. The United States’ primary response thus far has been economic. The occasional freedom of navigation operation notwithstanding, U.S. strategy has evolved toward hitting China where it hurts most – its bottom line. If history is any indicator, this may be the point of no return. After all, it was a U.S. oil embargo that led Japan to conclude that war was its only option for dealing with the U.S. in 1941. Trade is still the lifeblood of the Chinese economy; posterity may well remember U.S. tariffs as the first pitched battle in a much larger conflict.

But this focus on each other obscures the truth, which is that the only collision course China and the U.S. are on right now is with themselves. Wealth and income inequality in both countries have reached astronomical levels and show no signs of abating. The political institutions of both countries are struggling to tackle the problems facing their respective citizenries. China and the U.S. may eventually become strategic competitors, but for now, both countries have far more pressing matters to deal with at home.


China is a contradiction. It has the world’s second-largest economy, and yet 550 million people in China live on less than $5.50 per day. Its coastal provinces and cities are glittering beacons of the finest infrastructure 21st-century technology has to offer, while much of its interior provinces remain positively Third World. China presents itself as a guardian of the environment and upholder of the global trade regime, while its human rights record is abysmal and its trade practices are far from equitable. It is as easy to make a case that China is destined for world power as it is to make a case that China will collapse ignominiously into a collection of warring states. That is part of what makes China so hard to understand.

And yet, for all of China’s complexity, its long history is defined by a recurring trope. A strong dynasty emerges to unite the country in prosperity and governs until the economic interests of the coast and the interior become so mismatched that the country breaks down into civil war. Chaos, regionalism and even foreign domination become the status quo until a new movement arises to unite the Chinese people and reclaim the glory of Middle Kingdoms past. U.S. history is short compared to Chinese history, where a sample size of a few millennia shows the repetition of this pattern in era after era.

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China’s future, then, boils down to a relatively simple question: Where is China currently in the cycle? The Communist Party dynasty has ruled China since 1948, and if it is on the verge of downfall, that would make the CPC one of the shortest-lived dynasties in Chinese history. The Tang, Ming and Qing dynasties all ruled for centuries before collapsing. But the rapidity of the CPC’s success is also unprecedented in China’s history. At the end of World War II, China was little more than a backwater, a 19th-century geopolitical island in a 20th-century world. Not even the Soviet Union boasted such a rapid modernization as China has undergone in the past 70 years.

China has become immensely wealthy in the aggregate and decently powerful. But as is often the case, China has paid for that enrichment with inequality. Economic data is notoriously difficult to interpret in China, but a recent study by Peking University showed that as of 2014, 25 percent of China’s population possessed just 1 percent of the country’s total wealth. The top 1 percent, on the other hand, owned 33 percent of China’s wealth. Income inequality has increased markedly too. According to a National Bureau of Economic Research paper, the top 10 percent of Chinese earners make 40 percent of the total pretax national income in China. In 1978, by almost any indicator, China was poor but one of the most economically egalitarian countries in the world. Now China is rich and one of the most economically elitist countries in the world.

The bulk of China’s economic growth – and concurrent increase in inequality – came after 1978, when China reformed and opened its economy to the world. The government, led by Deng Xiaoping, felt China could handle the stresses that capitalism would inflict on the Chinese system – and perhaps also felt that the infusion of wealth was necessary to allow China to progress beyond its backwardness. Deng, in the end, was right. China enriched itself immensely, lifting hundreds of millions out of poverty. Deng’s policies and the political conventions put in place after Mao constituted a mini-political revolution inside China, and there was significant internal strife as a result, Tiananmen Square being the most dramatic example.

China has reached another such moment. When Xi Jinping came to power in 2013, he inherited a system that was as corrupt as it was rich. The problem was that China could not sustain its preternatural growth rates any longer – it was becoming too expensive, and foreign companies were finding cheaper and more advantageous places to do business. In addition, the scourge of inequality was beginning to tear the fabric of Chinese society apart. China’s economy needed to be restructured. Its people needed ideology to make sense of the changes that were coming. And Xi needed more power than the political system offered him. And so Xi has been purging his rivals and building a cult of personality for five years and counting. He has been successful so far, but he is only at the beginning of a process that is already creating factions of dissent in Chinese society, from army veterans to coastal elites.

The U.S.

The United States is also a contradiction. The U.S. economy is the largest in the world by far – and yet over 43 million Americans live in poverty. The world’s most powerful liberal democracy has seen 288 school shootings since 2009 and is in the throes of an opioid addiction crisis that killed over 64,000 in 2016 (2017 figures are not yet available) and, according to the U.S. Council of Economic Advisers, has cost the country over $500 billion. The U.S. is one of the freest countries in the world in terms of individual rights, and yet it jails a larger share of its population than any other country in the world – far more than China or Russia. U.S. foreign policy is similarly disjointed. The U.S. is attempting to lessen its commitments abroad, and U.S. strategic rivals and partners alike are talking about the emergence of a multipolar world – and yet anytime a crisis breaks out, the first question asked is what will the U.S. do and will it do it as soon as possible please.

U.S. history is shorter than China’s, so it is hard to speak as authoritatively about broad cycles in American politics. But the U.S. has faced similar challenges at least twice before: at the turn of the 20th century, the end of the so-called Gilded Age, and on the eve of the Great Depression, as the Roaring ’20s enjoyed their last gasps of fun. Both of these periods were defined by a large increase in wealth and income inequality in the United States as well as uncertainty over what America’s role in the world should be. Both resulted in intense social and political crises in American society that led to a complete redefinition of what the status quo political parties stood for. The Gilded Age gave way to progressivism, Teddy Roosevelt’s trust-busting and a host of labor reforms. The Great Depression gave way to the New Deal, inaugurated a host of federally funded entitlement programs and started new conversations about race relations in the U.S. that led directly to the civil rights movement in the 1960s.

Today, as in those previous episodes, income and wealth inequality in the United States has reached staggering levels. The top 10 percent of pretax income earners make half of all pretax income in the United States. That is higher than at any previous moment in recorded U.S. history – including at the height of the Great Depression. Income growth has also ground to a standstill. The bottom 50 percent of U.S. income earners saw a 1 percent decline in real cumulated growth from 1978 to 2015. Even in China, where the top wage earners have profited far more than the bottom 50 percent, real growth over the same period was 550 percent for the bottom half of earners.

Looking at wealth inequality offers a similarly bleak picture. From 1932 to 1986, the bottom 90 percent of American society increased its share of total wealth in the U.S., peaking at around 35 percent. Since 1986, the bottom 90 percent has been walloped. Now, it possesses just over 20 percent of U.S. wealth. Meanwhile, the top 0.1 percent of Americans possess 20 percent of household wealth. The last time wealth was concentrated so highly was on the eve of the Great Depression.

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Perhaps most distressing of all, despite these ominous figures, Americans are defiantly spending more. The private debt balance is now greater than it was during the 2008 financial crisis – housing debt is almost at its 2008 peak. Credit card delinquencies are growing while student loan debt has increased by almost $1 trillion since 2008. According to a Reuters report published on Tuesday, over the past two years, U.S. consumer spending has increased on the spending of the bottom 60 percent of income earners – the very people whose income and wages have stagnated and are often spending by going deeper into debt.

As in China, U.S. political institutions have struggled to adapt to the times. The power to declare war is supposed to be wielded by Congress. Congress hasn’t declared war since 1941, and yet the U.S. has fought plenty of wars since then. The Trump administration has managed to consolidate control over U.S. trade policy by invoking laws from the 1970s that grant the president extraordinary powers over tariffs to defend national security. Congress has seen fit to abdicate its responsibilities here too. The legislative branch’s ability to check the power of the executive branch has weakened considerably.

The judicial branch’s ability to check the other two branches has also weakened. In 2013, Democrats got rid of filibuster rules for non-Supreme Court judicial appointments. When the Republicans took back the House and Senate in 2014, they used their newfound majority positions to block an Obama appointee to the Supreme Court. When U.S. President Donald Trump made his first Supreme Court appointment last year, the Republicans eliminated the last remaining filibuster protocols on Supreme Court nominations. In effect, both parties helped to jettison rules designed to prevent judicial appointments from becoming hostage to partisan politics. These moves may have dramatic consequences for future Supreme Court rulings on abortion, campaign finance reform and gay marriage – all of which will factionalize the U.S. electorate even further.

Trump’s election was not a singular event. It was the first political expression of a much deeper malaise and dissatisfaction inside the U.S. with establishment politics. On the left, for instance, anti-establishment candidates are beginning to make their presence felt, with one-sixth of Democratic congressional nominees in the upcoming 2018 midterm election having a formal affiliation with groups campaigning against Democratic incumbents – the making of a left-wing Tea Party.

While the economy is humming (and is getting an extra boost from the recently passed tax bill), the politics of inequality that brought Trump to office have grown more muted, focused instead on issues like kneeling during national anthems at sporting events or summits with Vladimir Putin. Eventually, the ticking time bomb of historically unprecedented inequality will coincide with the end of one of the longest periods of continuous economic growth in U.S. history, and when it does, a kind of political reorganization on the scale of progressivism and New Dealism will emerge.

Two Roads Diverge

Ironically, then, the U.S. and China face similar challenges. Both are powers with global appetites and interests. Both face high and increasing rates of inequality and are seeing societal stresses emerge as a result. And both are struggling to adapt their political institutions to meet the challenges they face. But therein lies the biggest difference between the two – and the key to understanding what will happen next. The United States is a liberal democracy and China is an authoritarian, communist state. They will respond to these challenges in diametrically opposed ways.

China has moved unambiguously toward a more authoritarian system of government. In northwestern China, Uighurs are being systematically jailed in “re-education camps” to make sure they cannot pose a threat to the regime. Xi is throwing his rivals into prison, shuffling around military commanders so that they don’t command troops with whom they have personal relationships, and imposing a level of surveillance on the population far beyond even the most paranoid of the totalitarian states of the 20th century. China is embracing state-run capitalism under the assumption that it can succeed where so many other state-run capitalist countries have failed. These are not the behaviors of a leader or a regime confident in its current system, but rather one that is working diligently to build a new system without sparking a revolution.

In the short term, this makes China look more coherent than the United States. That is because China is more coherent than the United States, at least for now. Dictatorships can be more single-minded than democracies. Major transformations in U.S. politics happen only during moments of real crisis, like during a war or a major economic depression. And the fact of the matter is the U.S. has not reached a moment of real crisis yet. The backlash against and support for Trump pale in comparison to the political assassinations of the 1960s, or the Japanese bombing of Pearl Harbor, or South Carolina seceding from the Union.

In Federalist No. 10, James Madison, writing under the pseudonym Publius, describes the dangers that factions pose to governments. It is worth quoting how Madison defined what a faction is:

“A number of citizens, whether amounting to a majority or a minority of the whole, who are united and actuated by some common impulse of passion, or of interest, adversed to the rights of other citizens, or to the permanent and aggregate interests of the community.”

Madison goes on to discuss how best to combat the emergence of factions within a political society and comes up with two viable tactics: removing the causes of factions or controlling their effects. To remove the causes of factions, Madison points out that you must either destroy liberty or ensure that every citizen has the same opinion. This is the path China is taking. To control the effects of factions, Madison and the Founders designed the current U.S. system of government, with its checks and balances meant to temper the passions and necessitate compromise. This is the U.S. path.

The U.S. system of government has not always worked. The Civil War, by far the bloodiest affair in U.S. history, was just 153 years ago. From a Chinese perspective, 153 years is the blink of an eye, the midpoint of a moderately successful dynasty. China looks at the U.S. and sees a country in terminal decline, one far more concerned with political melodrama than with making the right and tough decisions to ensure the greater good. The U.S. looks at China trending toward tyranny and sees yet another misguided version of the Crown it rebelled against and the opponents it has fought throughout history.

And yet, for all of China’s immense resources and potential, it is still a country whose weaknesses necessitate intense state control over all aspects of its citizens’ lives, and where individual lives are considered expendable. For all the United States’ faults, it is still a country where individual rights are protected, where creativity is uncensored and where the people can remove a leader they don’t like at a ballot box every four years.

Most look at the state of U.S. politics and think the U.S. is weakening. In fact, the current chaos of domestic U.S. politics is the country’s greatest strength. If the American system of government fails as it did in 1861, a prospect that seems unlikely despite the polarization of American politics and the degradation of some U.S. political institutions, China would not even have to fight a war to become a global power. On the other hand, if China emerges from its current tribulations stronger – if its system of government can achieve what no Chinese system of government has achieved before it – a U.S.-China global war may indeed materialize. But that is putting the cart before the horse. There are more important issues to attend to first.

Jacob L. Shapiro
Jacob L. Shapiro is a geopolitical analyst who explains and predicts global trends. Mr. Shapiro is a regular speaker at international conferences and has appeared both in print and on television as an expert on international affairs in such places as MSNBC, CNBC, the New York Times and Fox News. Prior to Geopolitical Futures, Mr. Shapiro worked at Stratfor as an analyst and as the director of the operations center. He joined Geopolitical Futures to help found a new company dedicated to publishing excellent analysis and accurate forecasts based on the geopolitical method Dr. Friedman pioneered. Mr. Shapiro holds a master’s degree from Oxford University, where he won an award for his dissertation on the link between philosophy and mysticism in 20th century Jewish thought. He also holds a bachelor’s degree from Cornell University in Near Eastern studies.