Weekly Geopolitical Report – The U.S.-China Balance of Power: Part I (January 11, 2021)

by Patrick Fearon-Hernandez, CFA | PDF

(Note: Due to Martin Luther King Jr. Day, our next WGR will be published on January 25.)

We’ve often written in these reports that one of the most important challenges of the 21st century will be the geopolitical tensions generated as China strengthens and comes into ever greater competition with the U.S., even as the U.S. wavers in its commitment to its traditional role as global hegemon.  In early 2019, we introduced our readers to the concept of the “Thucydides Trap,” which describes the heightened risk of war when a rising power comes into conflict with an incumbent hegemon (see our WGRs from January 28 and February 4, 2019).  Naturally, great-power warfare is a nasty business with plenty of potential ramifications for investors.  Given the global scale of interests and the multiple dimensions on which the U.S. and China compete, even tensions short of combat could affect investors.

In order to stay on top of the evolving opportunities and risks, we continue to deepen our research into the U.S.-China competition.  This multi-part report aims to assess the current balance of power between the two sides and what that implies for how the competition may play out in the coming years.  In Part I, we provide a comprehensive overview of each side’s key interests and goals, which will say a lot about how the two sides use their power over time.  In two weeks, Part II will provide a head-to-head comparison of U.S. and Chinese military power.  In the following weeks, Part III will examine the relative economic power of the two sides, and Part IV will describe their relative diplomatic positions around the world.  Finally, Part V will dive into the opportunities and threats for U.S. investors.

Read the full report