Framing a Conflict With China

“We do not benefit from a relationship with China or any other country in which we put our values and our ideals aside.”

– Barack Obama

Author's Image

May 6, 2025 — The US has been on the road to conflict with China since 2001, when Clinton and Gore pushed for China’s entry into the WTO (World Trade Organization) by claiming that capitalism would inevitably democratize China.

It didn’t, but it did put on a course toward conflict.

Now that the conflict is finally reaching a breaking point (embargoes, tariffs, cyber disruption, potential invasions, etc.), let’s spend some time framing it in a way that will help us make sense of it.

Orienting the Conflict

The first step is to orient our thinking by determining what kind of war this is and what victory looks like.

While this conflict could become a war, that isn’t likely since it isn’t a struggle between existentially incompatible systems.
On the contrary, we both use the same system (capitalism) and profit mightily from participating in a global trading system. It’s in neither country’s interest to destroy that system through protracted military conflict.
With this in mind, a better historical template is a trade war. The century-long trade wars and struggles between Venice, Genoa, Byzantium, and Portugal for control over lucrative trade networks are a good starting point.

Trade War?

The historical examples of these trade wars can give us a ‘feel’ for this type of conflict.

Slow Victory. In this type of conflict, opponents attempt to squeeze and drain their opponents until they are no longer a threat or find ways to generate wealth that the opponents cannot access. It’s a slow race to see who can become the wealthiest and most capable of generating more wealth, until dominance becomes uncontestable. This conflict is similar to the Cold War, but instead of two separate economic systems, it’s inside the same system.
Reinvention. An opponent will attempt a strategic reversal by reinventing the contest when possible — for example, breaking a competitor’s monopoly by finding a way to produce it domestically (Byzantium and silk worms smuggled out of China), a new trade route (Portugal, around Africa), or unique defensive weapons that make their trade routes hard to disrupt (Byzantium’s Greek fire).
Sudden Escalation. Occasionally, trade wars escalate into hot wars that destroy the opponent. For example, the Byzantine crackdown and arrest of Venetian merchants led the Venetians to use debt to convince French crusaders to join them in sacking Constantinople. Another example: the Genoan fleet sent to blockade Venice was trapped in a Venetian lagoon for nearly a year before capitulating, leaving the city vulnerable to French domination.

Network War

Of course, the conflict between the US and China isn’t just a struggle over the global trade network. It’s a war for dominance over the entire global network and what it makes possible.

Logical connectivity — from sprawling JiT (just in time) manufacturing chains to energy flows.
Social connectivity — from social decision making to networked politics.
New technology — from AIs to advanced chips.

Now, let’s frame the orientation for this networked conflict.

The center of gravity of the conflict will be within the global network.
As a result, the war will mainly be in the network domain. Participants will focus on growing their access to the network, increasing its throughput, suppressing the opponent’s access to it, and increasing their control over it.

The goal of the conflict will be network dominance, while avoiding the overreach that would trigger a catastrophic conflict. Military action will only be effective if it advances the war in the primary domain — the network.

John Robb
Substack and Grey Swan

P.S. from Addison: Something’s definitely in the air.

Jennifer asked me yesterday why more people aren’t reading Empire of Debt, Demise of the Dollar, or Financial Reckoning Day. “So many of the themes you began writing about 25 years ago are happening right now,” she said. I’ve noticed she’s been more concerned lately — for our money, our future, and the kids.

Then this morning, three emails popped into the inbox.

The publisher at Wiley wrote: “Are you doing a new push for the books? The market’s right.” Nudge, nudge.

Brian Q. said: “I’m on page 80. I love the wit. I can tell Twain was an influence, but I’m scared. I’m retired. My kids are 32 and 30. I fear the worst. Is there any way out of this debt?”

And from Jerry N.: “I wish to purchase all three books. What’s the best way to do that?”

Coincidence? I don’t know, but something’s up. Jerry, you can get all three books at the links below. We haven’t bundled them into a set yet. Maybe now would be a good time.

Your thoughts before we continue? Add them to the mix here: addison@greyswanfraternity.com

“We do not benefit from a relationship with China or any other country in which we put our values and our ideals aside.”

– Barack Obama

Author's Image

It didn’t, but it did put on a course toward conflict.

Orienting the Conflict

The first step is to orient our thinking by determining what kind of war this is and what victory looks like.

While this conflict could become a war, that isn’t likely since it isn’t a struggle between existentially incompatible systems.
On the contrary, we both use the same system (capitalism) and profit mightily from participating in a global trading system. It’s in neither country’s interest to destroy that system through protracted military conflict.
With this in mind, a better historical template is a trade war. The century-long trade wars and struggles between Venice, Genoa, Byzantium, and Portugal for control over lucrative trade networks are a good starting point.

Trade War?

The historical examples of these trade wars can give us a ‘feel’ for this type of conflict.

Slow Victory. In this type of conflict, opponents attempt to squeeze and drain their opponents until they are no longer a threat or find ways to generate wealth that the opponents cannot access. It’s a slow race to see who can become the wealthiest and most capable of generating more wealth, until dominance becomes uncontestable. This conflict is similar to the Cold War, but instead of two separate economic systems, it’s inside the same system.
Reinvention. An opponent will attempt a strategic reversal by reinventing the contest when possible — for example, breaking a competitor’s monopoly by finding a way to produce it domestically (Byzantium and silk worms smuggled out of China), a new trade route (Portugal, around Africa), or unique defensive weapons that make their trade routes hard to disrupt (Byzantium’s Greek fire).
Sudden Escalation. Occasionally, trade wars escalate into hot wars that destroy the opponent. For example, the Byzantine crackdown and arrest of Venetian merchants led the Venetians to use debt to convince French crusaders to join them in sacking Constantinople. Another example: the Genoan fleet sent to blockade Venice was trapped in a Venetian lagoon for nearly a year before capitulating, leaving the city vulnerable to French domination.

Network War

Of course, the conflict between the US and China isn’t just a struggle over the global trade network. It’s a war for dominance over the entire global network and what it makes possible.

Logical connectivity — from sprawling JiT (just in time) manufacturing chains to energy flows.
Social connectivity — from social decision making to networked politics.
New technology — from AIs to advanced chips.

Now, let’s frame the orientation for this networked conflict.

The center of gravity of the conflict will be within the global network.
As a result, the war will mainly be in the network domain. Participants will focus on growing their access to the network, increasing its throughput, suppressing the opponent’s access to it, and increasing their control over it.

John Robb
Substack and Grey Swan

P.S. from Addison: Something’s definitely in the air.

Then this morning, three emails popped into the inbox.

The publisher at Wiley wrote: “Are you doing a new push for the books? The market’s right.” Nudge, nudge.

Brian Q. said: “I’m on page 80. I love the wit. I can tell Twain was an influence, but I’m scared. I’m retired. My kids are 32 and 30. I fear the worst. Is there any way out of this debt?”

And from Jerry N.: “I wish to purchase all three books. What’s the best way to do that?”

Coincidence? I don’t know, but something’s up. Jerry, you can get all three books at the links below. We haven’t bundled them into a set yet. Maybe now would be a good time.

Your thoughts before we continue? Add them to the mix here: addison@greyswanfraternity.com

Back in April, when we published what we called the Trump Great Reset Strategy, we described the grand realignment we believed President Trump and his acolytes were embarking on in three phases.

At the time, it read like a conceptual map. As the months passed, it began to feel like a set of operating instructions written in advance of turbulence.

As you can expect, any grandiose plan would get all kinds of blowback… but this year exhibited all manner of Trump Derangement Syndrome on top of the difficulty of steering a sclerotic empire clear of the rocky shores.

The “phases” were never about optimism or pessimism. They were about sequencing — how stress surfaces, how systems adapt, and what must hold before confidence can regenerate. And in the end, what do we do with our money?!

Relative to GDP, the net international investment claim on the U.S. economy was 20% in 2003. It had swollen to 65% by 2023. Practically every type of American company, bond, or real estate asset now has some degree of foreign ownership.

But it’s even worse than that. As the federal deficit has pumped up the GDP figures, and made a larger share of the economy dependent on government spending, the quality and sustainability of GDP have deteriorated. So, foreigners, to the extent they are paying attention, are accumulating claims on an economy that has been eroded by inefficient, government-directed spending and “investments.” Why should foreign creditors maintain confidence in the integrity of these paper claims? Only to the extent that their economies are even worse off. And in the case of China, that’s probably true.

As global government interest expense climbed, gold quietly followed it higher. The IIF estimates that interest costs on government debt now run at nearly $4.9 trillion annually. Over the same span, gold prices have tracked that burden almost one-for-one.

Silver has recently gone along for the ride, with even more enthusiasm.

Since early 2023, Japan’s 10-year government bond yield has risen roughly 150 basis points, touching levels not seen since the 1990s.

Over that same period, gold prices have surged about 135%, while silver is up roughly 175%. Zoom out two years, and the divergence becomes starker still: gold up 114%, silver up 178%, while the S&P 500 gained 44%.

According to the American Association of Individual Investors, the average retail investor has about a 70% allocation to stocks. That’s well over the traditional 60/40 split between stocks and bonds. Even a 60/40 allocation ignores real estate, gold, collectibles, and private assets.

A pullback in the 10% range – which is likely in any given year – will prompt investors to scream as if it’s the end of the world.

Our “panic now, avoid the rush” strategy is simple.

Take tech profits off the table, raise some cash, and focus on industry-leading companies that pay dividends. Roll those dividends up and use compounding to your overall portfolio’s advantage.