As the US launched airstrikes on Iran’s nuclear facilities tonight, the Middle East crisis deepens—but the trajectory of America’s China strategy remains critical. War in the Middle East and peace in Asia-Pacific are inseparable issues.
Dear econVue Subscribers,
As many of you know, the first place I lived outside the US was Iran, quite a journey for a child from Skokie, Illinois. I went on to major in Persian studies, at the University of Chicago, graduating just in time for the hostage crisis in Tehran. So in 1979, I went to China instead. My recurring dream of returning seems to be cruelly receding, and tonight I wonder if it will ever happen. So while I am deeply engaged with the crisis in the Middle East, and concerned for friends and their families, I believe that it is critical not to forget what is going on in China.
As Elbridge Colby, Under Secretary of Defense for Policy, recently said:
❝ China is the pacing threat, and denying a Chinese seizure of Taiwan is the Pentagon’s top strategic priority.
As we have seen, China and Russia have their own territorial ambitions. What kind of support will they provide to Iran?
🎥 China Discussion
Last month, I appeared on a panel for Mauldin Economics’ annual conference, the Strategic Investment Conference. My co-panelist was someone I have long admired, Fordham professor Carl Minzner, a leading China hand who focuses on China’s legal and institutional issues.
My friends John Mauldin, and publisher Ed D’Agostino who moderated our panel, know my views on China’s long-term structural issues including demographics, and so this was a good match. Minzner’s 2018 book, End of an Era: How China’s Authoritarian Revival is Undermining Its Rise, was an early diagnosis of the consequences of the end of the reform era under Xi Jinping.
Mauldin Economics has kindly granted permission to share the video from my session with econVue subscribers. I hope you enjoy our discussion. If you don’t already subscribe to John’s free newsletter, Thoughts from the Frontline, or Ed’s podcast series, Global Macro Update, you can subscribe here: https://www.mauldineconomics.com
Leadership and History Matter
This month I also attended a book discussion with Benn Steil, senior fellow and Director of International Economics at the Council on Foreign Relations. He publishes a series of trackers, including this month’s Global Monetary Policy Tracker that I find indispensable. His most recent book, The World That Wasn’t is about Henry Wallace, the ill-fated vice president to Franklin Roosevelt, who dramatically lost the nomination to Harry Truman on the convention floor—and thus his chance to become president, as Roosevelt died in office the following year. That story is itself worth reading, a timely reminder that politics is, and always has been, a blood sport.
However, it is Chapter 7, China, Through A Glass Darkly, that is truly remarkable from my point of view. Steil focuses on the intrigues around China during World War II. I have spent a lot of time in archives studying US-China relations during the Interwar period, so I am a tough audience—but many of the events that Benn Steil uncovered have never been published before.
It has been said that FDR’s China policy was almost as great a secret as the atom bomb. I knew about the internecine warfare between the China Lobby and the China Hands in Washington. But Wallace’s negotiations with Chiang Kai-shek in Chungking were totally unknown to me.
I think the Great Man theory has been retired too early, and that counterfactual history matters. Wallace’s sympathies toward the Soviet Union, which this episode in China clearly illustrates, could have radically changed post-war history had he become president instead of Harry Truman. There might never have been a Cold War.
Today we find ourselves at another inflection point. Conflicts may erupt locally, but since the 20th century, their effects are global. In many ways, we are still living in the post-World War II era, the inheritors of decisions made many decades ago and of unresolved conflicts. We are still trying to escape some of these unhappy legacies.
Quick Take
Although we don’t yet have many details, tonight’s airstrikes illustrate just how entangled global crises have become. Come Monday, how will markets react? Will the logistics of oil in the Strait of Hormuz push Europe into a deep recession? How will China respond?
China is deeply dependent on Iranian oil. The IRGC has long-standing ties with Chinese businesses and banks. The regional stakes are high, but so are the global implications of this conflict. Tomorrow, I will be watching official Chinese media for clues to Beijing’s policy stance. Generally speaking, China is unhappy with any sudden changes to the status quo. Will Xi Jinping see the US incursion into Iranian territory as a precedent, as their passport to invade Taiwan?
As foreign policy analyst Walter Russell Mead noted on X tonight:
❝ Interesting dilemma for Xi Jinping. Does he encourage Iran to resist the U.S., triggering an oil price spike as his economy struggles. Or does he back away, handing Trump a huge win?
The stakes could be even higher: Could this moment prompt Xi to step away from Tehran—and pursue faster action over Taiwan? Or will he, and Putin, ignore it? The world is focused on Iran tonight, but we should not take our eyes off security in the Asia-Pacific—especially if we wake up to reports of US casualties, which would undoubtedly spark significant escalation.
Going to bed tonight with a prayer for peace with Iran, which has eluded us since 1979.
💬 𝓁𝓎𝓇𝒾𝒸
Editor-in-Chief
📍Chicago
Note to all subscribers:
In light of tonight’s historic events—the US airstrikes on Iran—we are sharing this essay with our entire subscriber list. Whether you are a longtime supporter or reading econVue for the first time, we hope this perspective brings clarity in a moment of global uncertainty.
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