We're at War with China... And We're Losing

Written by Jason Simpkins
Posted October 30, 2015

The United States continues to insist that there's plenty of room at the top, that we're eager to welcome China as a partner.

China says much the same thing, even though it's grown more forceful in pressing its claims and expanding its influence. Beijing says China is concerned only with its own defense — not challenging the United States militarily.

However, if you look at what's actually happening, it looks like both countries are lying through their teeth.

In fact, a war with China isn't just inevitable — it's already taking place.

We're currently battling China on two fronts: First, there's the traditional military conflict. And second, there's the decades-long economic battle.

How's it going?

Not well.

Military Clash

The main reason I'm bringing this up is because earlier this week, the U.S. infuriated Beijing by sailing a guided missile destroyer into what China considers its territory.

The USS Lassen passed within 12 miles of an artificial island in the Spratly archipelago. This area has been a major point of contention for more than a year now.

You see, China has claimed virtually all of the South China Sea as its own, ignoring the claims of its smaller neighbors — Vietnam, the Philippines, Malaysia, and Brunei — and trampling the maritime boundaries established by the UN.


The area is important for two reasons:

  • It has resources, including fish, natural gas, oil, and minerals.
  • It is a massive shipping corridor, as half the world's seaborne cargo passes through.

Recently, China has advanced its claim by creating more artificial islands. In just two years, China has expanded these islands by 2,000 acres. It's also outfitting them with harbors, airstrips, military barracks, and even drilling for oil.

However, the United States and others refuse to accept China's claims. They continue to treat the islands and the water around them as international. And that's bringing them into direct contact with the Chinese military.

Over the summer, a U.S. spy plane, the P-8A Poseidon surveillance jet, flew over the Spratlys. It filmed early warning radar, military barracks, a lookout tower, and a runway long enough to handle every aircraft in the Chinese military on an expanded Fiery Cross Reef.

In doing so, it blatantly ignored eight warnings from the Chinese military to vacate the area.

In response, China lodged a formal complaint, with a spokeswoman saying: "China's will to maintain sovereignty and territorial integrity is as solid as a rock. We urge the U.S. to make corrections, keep their rationality and stop any provocative actions."

The USS Lassen is the latest intrusion. And again, China is displeased.

"If the United States continues with these kinds of dangerous, provocative acts, there could well be a seriously pressing situation between frontline forces from both sides on the sea and in the air, or even a minor incident that sparks war," warned Chinese Navy chief Admiral Wu Shengli.

Communist media mouthpieces are blaring, too.

"If the United States' bottom line is that China is to halt activities, then a US-China war is inevitable in the South China Sea," read a recent editorial in China's Global Times. "We do not want a military conflict with the United States, but if it were to come, we have to accept it."

And after the latest incident, the paper suggested:

Beijing ought to carry out anti-harassment operations... should first track US warships. If they, instead of passing by, stop for further actions, it is necessary for us to launch electronic interventions, and even send out warships, lock them by fire-control radar and fly over the US vessels.

For its part, the U.S. remains defiant.

“The U.S. has conducted naval operations in the South China Sea in recent days and will conduct similar operations in the future,” Defense Secretary Ashton Carter said.

Vice President Joe Biden even commented on the issue directly during his commencement speech at the U.S. Naval Academy:

In the disputed waters of the South China Sea, the United States does not privilege the claims of one nation over another, but we do unapologetically stand up for the equitable and peaceful resolution of disputes and for the freedom of navigation, and today these principals are being tested by Chinese activities in the South China Sea.

U.S. foreign policy is rebalancing toward the vast potential of the Asia-Pacific region, but we can't succeed if you don't show up. That's why 60% of the United States Naval Forces will be stationed in the Asia-Pacific by 2020.

If a military conflict breaks out between the U.S. and China, it's going to happen here.

But again, the war with China goes far beyond traditional forces.

We've been engaged in an economic war for decades.

Economic Warfare

As you well know, China shrewdly built its economic machine, making itself into the world's manufacturing center.

It used low wages and a lack of basic worker rights to siphon jobs from the West. At the same time, it accumulated a huge pile of foreign currency reserves, much of it U.S. debt.

We were dreadfully slow in acknowledging and appreciating the amount of leverage this has given them.

China's economy is already larger than that of the United States.

China US Economy

But that's not all.

Here's an overview of China's other economic achievements:

The Rise of the Renminbi: Over the past few years, China has signed nearly 2 trillion RMB worth of currency swap deals with 24 countries and regions. This allows China to trade with its neighbors without exchanging local currencies for dollars. The dollar's role as the universal trade currency is in jeopardy — along with it dollar primacy.

Furthermore, IMF officials have reportedly told China that the yuan is almost certain to join its basket of reserve currencies, the SDR, in 2016. This, too, will expand the role of the yuan in global trade at the expense of the U.S. dollar.

The Global Gold Hub: Shanghai is supplanting London as the world's global gold trading hub. With the collapse of the London gold fix, China has sought to make the state-backed Shanghai Gold Exchange (SGE) the new center of gold trading and price fixing. This certainly makes sense, since Asia accounts for about two-thirds of global gold consumption.

China alone accounts for 28% of global gold usage. And this year, consumption, which totaled 973.6 metric tons last year, could reach a record high. The country's gold reserves totaled 1,708.5 tonnes at the end of September.

Also, earlier this year, China launched the “Silk Road Gold Fund” — one of the largest gold funds the world's ever seen at $16 billion. The fund will take stakes in gold miners and gold mining projects all over Asia, the Mid-East, and Europe.

World Bank Rival: Last year, leaders from the five BRICS countries, led by China, established the Asia Infrastructure Investment Bank (AIIB). To start, the AIIB could lend up to $175 billion for infrastructure projects in the region, taking lending (and leverage) away from the World Bank and the Asian Development Bank.

It's not just the BRICS, either. Despite explicit U.S. objections, the United Kingdom, France, Germany, Canada, Australia, South Korea, and others have all agreed to join. Japan has been the lone holdout.

Cyber Espionage: China has been hacking the U.S. government and Western corporations for years. And it continues to do so despite a newly minted accord reached during President Xi Jinping's September visit.

The accord between Presidents Obama and Xi was agreed to on Sept. 25. Yet cyber-security provider CrowdStrike said it detected Chinese hacking attacks on Sept. 29, Sept. 30, Oct. 3, Oct. 4, Oct. 8, Oct. 9, Oct. 13, Oct. 15, and Oct. 16.

The attacks were aimed at U.S. technology and pharmaceuticals companies, "where the primary benefit of the intrusions seems clearly aligned to facilitate theft of intellectual property and trade secrets, rather than to conduct traditional national security-related intelligence collection."

World War III

When you look at the history of U.S.-China relations, as well as the historical relations between other superpowers — both established and ascendant — conflict seems inevitable.

In the past 10 years, China’s economy has grown four times larger, while its military spending has tripled.

There's no question that China's ambitious economic development has undermined U.S. interests. And it will continue to do so.

China's rise has also imbued more confidence in its government, as the United States struggles more and more to impress its order upon the world.

Russia has emerged as China's closest ally, further fanning the flames of anti-West sentiment and encouraging China to take initiative.

In short, we're at war with China. And it's not going well.

Fight on,

Jason Simpkins Signature

Jason Simpkins

follow basic@OCSimpkins on Twitter

Jason Simpkins is Assistant Managing Editor of the Outsider Club and Investment Director of Wall Street's Proving Ground, a financial advisory focused on security companies and defense contractors. For more on Jason, check out his editor's page. 

*Follow Outsider Club on Facebook and Twitter.

Heal Your Ailing Portfolio Body