On May 15 the U.S. government put Chinese telecoms giant Huawei and nearly all its affiliates and subsidiaries on an export black list, which prohibits American firms from selling them high-tech products. Much has been made of Huawei’s position in global telecoms and the role it might play in Chinese surveillance of, well, everyone. The American decision largely ends the concern.

To this point I’ve tried to stay out of the Huawei battles for a pair of reasons. First, the people who really know what is going on when it comes to global data surveillance either do not talk publicly about it or have a vested interest in lying. In the former camp sits the United States National Security Agency, the institution responsible for monitoring global electronic communications. In the latter is the Chinese intelligence directorate, who would like to monitor global electronic communications.

Some background:

Back in the 1960s, the American government started collaborating with the U.K. government on a global monitoring system known as Echelon, a sort of semi-public codename for the series of satellites, towers, fiber optic taps, server farms and software backdoors that span the planet. Echelon soon expanded to include the Anglophone allies of Canada, Australia and New Zealand, becoming the core of what is known today as the Five Eyes intelligence alliance. Echelon’s original raison d’etre was to battle the Soviets, and in time it found new life in the Global War on Terror. According to informed scuttlebutt, if a communication is transmitted using electrons, Echelon sees it.

Or at least it used to. Telecoms have evolved radically in the past half century. Even before the recent fascination of all parties with encryption, the simple fact the United States is no longer the middleman in all telecoms traffic means Echelon is more a tool of yesterday than today, much less tomorrow. Regardless, the ability to scan, read or listen for key words remains essential to America’s tech-heavy intelligence gathering networks.

Enter the Chinese, who found themselves behind the Americans by several decades, and that before considering China lacks the alliance system to create anything of Echelon’s depth or scale. Beijing’s bid to catch up is Huawei, a massive telecoms firm which produces everything from the fiber optic cables and telecoms towers of the physical internet to the phones and computers needed to connect.

While the internet is an infamously unorganized mass of connections, the modern network has central exchange points where the tributaries of information coming from all over the world become torrential flows. Such “core” systems are what Huawei is after. Control the cores and a spy is wired into everything that passes through it.

Huawei’s corporate strategy – which is to say, the strategy of China’s intelligence services – is to grant massive discounts on the installation of a network’s less critical bits on the condition that Huawei can also install and maintain the cores.

Beyond the not-so-minor technical fact that there are people beyond China who understand how the internet works and so might object to handing over all their communications on principle, the plan has an amusing political flaw. Like nearly all of China’s tech industry, Huawei is not technologically self-sufficient. It remains heavily dependent upon tech imports from none other than the United States. Which is the second reason why I’ve never taken the Huawei talk all that seriously: The Chinese not only expect the world to pay them to monitor global communications, they expect the Americans to enable the scheme.

At first the Americans didn’t take the Huawei plan all that seriously, mostly because it was a seriously stupid plan. Then Huawei had some success using heavy subsidies to convince some countries to install their gear. That generated a diplomatic reaction in Washington. American bureaucrats started warning countries not simply of the dangers they seemed willingly oblivious to, but that any country who used Huawei in their cores could kiss any intelligence sharing with the Americans good-bye.

That was enough to shut Huawei out of New Zealand and Australia outright. (The Brits got cute and accepted Huawei gear for their system’s edges, but not their cores, a smug near-miss which undoubtedly infuriated the Chinese to no end.)

But three things have changed that have sparked stronger action out of the Americans.

First, the transition from fourth- to fifth-generation cellular technology blurs the line between core and non-core systems. Huawei penetration into any part of a cellular system now generates complications and vulnerabilities.

Second, despite the risk of communications exposure, enough countries have decided to proceed with Chinese equipment that the Americans can no longer just let it roll. In particular, China’s targeting of Five Eyes members – most notably Canada – has snapped the Americans to attention.

Third, after seventy years of expressly keeping economic and strategic issues separate in American foreign policy, a more standard intermingling is now occurring – and that puts everything Chinese in the Americans’ crosshairs.

Bilateral trade talks with China more or less collapsed last week. I can’t say I’m shocked. At the talks’ onset the Americans laid out a series of non-negotiable demands including an end to cybertheft, an end to forced tech transfer, an end to the hyper-subsidization of Chinese industry, an end to functional prohibitions on American firms’ access to the Chinese market, granting the Americans the right to impose any investigation at any time on any issue without any consultation complete with the ability to impose any desired punishment on any Chinese economic sector.

The fact the Chinese even began talks with those swords hanging over them indicates just how weak the Chinese knew their hand was. China exports over four times as many goods to the American market as vice versa and China is completely dependent upon American global security commitments for access to raw materials, energy and end markets. There is no modern China without active American involvement.

Last week it became apparent to the lead American trade negotiator – one Robert Lighthizer – that the Chinese were backing off what commitments he had previously convinced them to make. It was Lighthizer’s recommendation to Donald Trump that American tariffs on China be more than doubled May 10. He then put an even bigger set of tariffs in the pipeline to be applied within a few weeks.

The Americans’ Huawei announcement has the feel of Lighthizer’s work: he likes to throw the odd sharp elbow and knows his boss is particularly fond of bold, direct, splashy actions that cut to the heart of the issue.

That issue is pretty straightforward. The Americans may be done managing the world, but that doesn’t mean they are going to help someone else do it – especially someone who doesn’t have a ghost of a chance of pulling off such a feat without deep and active American collaboration. Better instead to put China in its place.

The Chinese, understandably, have proven less than enthusiastic about accepting that message.

So the Americans decided it is easier to simply end China’s global surveillance ambitions by killing Huawei’s international position outright. It isn’t very subtle, and if it doesn’t generate the desired Chinese cave-in in the trade talks it makes me wonder what Lighthizer will take aim at next. I’ve got lots of ideas.

I’m certain Lighthizer has more.

The economic conflict between the United States and China continues to ramp up. Earlier this week the Trump administration announced plans for tariffs on another $200 billion in Chinese exports to the United States. Barring (substantial) Chinese concessions the new tariffs will likely come into effect around the end of August. This is now the third volley in what has become a tit-for-tat trade war. I’m starting to think up snazzy names. “Pacific Pong” doesn’t have quite the right je ne sais quoi, but I’m working on it. Suggestions welcome.

The Americans’ imports from China are triple China’s imports from the United States (quadruple if you factor out services). The simple fact is the Chinese are already running out of American imports to penalize. Any effort to shift the dispute to something beyond goods trade will similarly end in colossal failure. The Americans control global trade routes, global energy, global security, and global finance — everything that makes the Chinese system possible. The Chinese simply can’t bring the fight to other fields without suffering immeasurably. (Which isn’t the same thing as me saying I’d like to be an American company operating in China right now.) Chinese holdings of American government debt don’t even give Beijing leverage as such “investments” in reality are capital flight from the Chinese system.

While Chinese state media continues to put on a brave face, the days of tone-deaf chest-beating are gone. Government censorship guidelines now regularly bar terms like “Trump tantrum” and “trade war” and in general discourage the discussing of any angle of the issue whatsoever. One of the problems with stoking nationalism is that it can be hard to turn off. With the Politburo realizing they have little ammo for this sort of fight, political consolidation at home is far more important than scoring points in a media firestorm.

But that’s not what I want to talk about today. I want to talk about one of the funniest things I’ve seen in months. On July 11 the Chinese floated the possibility of a 25% tariff on U.S. oil exports. Several media commentators immediately pounced on the trial balloon as evidence of something that would get Trump’s attention because of his stated interest in “achieving American energy dominance.” Maybe it will. The criteria for what attracts or doesn’t attract the American president’s attention continues to elude me.

But that doesn’t mean a tariff on American oil isn’t a fabulously stupid idea. It has to do with the nature of the oil market, and in particular the role of American crude within it.

First, demand for oil is inelastic. What you need, you need. If it takes ten gallons of gasoline to get your delivery truck from A to B and you only have nine gallons, you cannot make the run. You must have ten. So regardless of what the price of the gasoline is, you’re going to buy it. Applied to this situation, were the Chinese to levy the tariff they will simply have to buy oil from somewhere else, and America’s oil will (easily) fill that gap in that third market. Net effect on U.S. energy exporters: zero.

Second, American oil is different from the rest. Conventional crude percolates through rock formations over time, picking up impurities as it goes (sulfur being the most common). A big part of refining crude oil into finished product is removing those impurities. But American oil exports are not conventional. They come from shale formations. Shale isn’t as porous as most rock, so the oil never percolates. It is trapped. Shale technologies are all about cracking out these pure bits of petroleum out. Shale oil’s lack of exposure to impurities makes it the lightest, purest oil produced in the world, as well as the most valuable and easiest to refine. China likes shale oil because they can blend it with thicker, dirtier crude to make a cocktail that their refineries can use. American exporters will have zero problems finding alternative buyers, but since the United States produces more of this ultralight/ultrasweet crude than the rest of the world combined. China will find alternate supplies difficult to scrounge up.

So either China isn’t going to put this tariff on, or if it does it won’t have any meaningful impact on the American side of the equation. What the tariff trial balloon might do – what discussion of the topic is probably already doing – is pump up oil prices a touch. Markets – especially oil markets – hate anything that might even momentarily restrict oil’s availability. And this little China discussion is only one of four oil-related bits of news that oil markets are stressing about right now.

The second and third issues involve general civilizational breakdown in two major oil exporters: Libya and Venezuela. Ever since Colonel/President/Wacko Muammar Gaddafi was deposed and killed in 2011, Libya has not existed as a state. It is now a shifting series of warlord-run fiefdoms. Unfortunately for the oil markets, not only is Libya’s crude production not in the same area as the oil export facilities, oftentimes the connecting pipeline infrastructure is under a third party’s control. Libya’s larger oil export ports have switched hands twice already this month, with the expected impact upon export volumes – and global prices.

If anything, Venezuela is even worse. Government ineptitude combined with a slow slide towards one-man dictatorship cum anarchy has transformed what was once South America’s richest state to one of its poorest and condemned much of the population of this once-food exporter to famine. The government’s ability to perform basic maintenance on its oil industry is now collapsing. Venezuela’s oil output is already down to a 30-year low and will likely dip below 1.0 million bpd by year’s end… assuming the country doesn’t completely implode.

Needless to say, such civilizational breakdowns can only exert upward pressure on oil prices.

The fourth hit to the oil markets hasn’t quite landed yet: Iran. The Trump administration is pressuring, well, everyone, to eliminate their imports of Iranian crude by November. The expectation is for a two-thirds reduction in total exports. Countries that resist American pressure will find themselves subject to secondary sanctions that would bar their access to anything that touches the U.S. banking system. Since that is in essence anything that involves nouns it is sort of a big deal. The Indians and Japanese have already signaled they’re going to play ball, and the Europeans are rapidly coming around. That just leaves China.

While the pot-stirrer in me would love to see what would happen to a trade-dependent internationally-wired oil-importing economy like China’s under full financial embargo, I’m fairly sure the Chinese will blink on this one. Financial sanctions of the type the White House is preparing would hit China at least an order of magnitude harder than the tariffs they are staring down, and the Chinese are not suicidal. And while I firmly stand by my claim that no one can really claim to know what Trump is thinking I have to admit things are starting to look more than coincidental: a last-minute cave by the Chinese on Iran just as the third round of tit-for-tat tariffs really start to bite? I see some serious negotiating leverage there, useful in many theaters.

This – all of this – is quite possibly the best-case environment for U.S. shale oil producers. Chronic export outages in multiple countries for multiple reasons, a trade war that is both widening and deepening. All this pushes oil prices up. That helps whichever oil producers can bring new output online fastest. And with today’s shale tech American shale operators can bring on new oil output in half the time the Saudis can bring on their pre-existing spare capacity.

In the first half of 2018, before all this noise erupted, U.S. shale operators were already on course for increasing total U.S. oil output by the largest volume ever – in excess of a fresh 1.5 million bpd. Courtesy of China and Trump and Venezuela and Libya and Iran, that is now the low case estimate.

The concentration of power in the global system continues to gather in the Americans’ favor. Trump is demonstrating he doesn’t need to build an alliance to fight and win a trade war with multiple countries simultaneously. Trump is showing he can wield financial tools simultaneously with trade tools to crushing effect. Trump is showing an enthusiasm for standing up to the business community, something that resonates not just with his base, but also Bernie Sanders’. And in case you missed it, last week the United States became the world’s largest oil producer courtesy of shale, granting Trump even more leverage and autonomy in international relations.

As a guy who makes it his business to integrate context and data in to everything, I find Trump’s brash, details-be-damned approach to… everything a bit annoying. But that doesn’t mean he can’t get results.

By Peter Zeihan and Michael N. Nayebi-Oskoui

There are many things that geopolitics teaches us. One of the more important lessons is that personalities rarely matter. The fate of peoples and nations are largely determined by a mix of geographic features that they cannot amend, and technological trends that are damnably impersonal.

The operative word there is rarely.

There are instances where the cultural zeitgeist and the singular attributes of certain individuals intersect so elegantly that the political or cultural changes that follow emblazon themselves on history.

But we’re reaching a point within two of East Asia’s powers where it seems like the impact of personality is tipping the scales. There were two noteworthy events that took place during the past few days. The one that is getting the most attention is the ongoing National Congress of the Communist Party of China. It’s wrapped up in a story that media and policy experts love to tell: Chinese President Xi Jinping has burst onto the scene, quickly and deftly amassing authority and shaking up the Chinese Communist Party apparatus, and elevating China to global prominence. Demolishing various factions and pursuing an almost-legitimate anti-corruption plan, Xi is the very popular and surprisingly astute leader to guide China through its unavoidable economic slowdown. Part of which is true, I suppose, and part of which is just really glossy PR bullshit.

There are a few key fundamentals that are absolutely necessary to keep in mind when looking at China:

1. China as a culture and a historical concept are ancient, but the “Chinese people” and their amalgamated histories are not the same as the “People’s Republic of China,” which is also distinct from the “Communist Party of China.” Part of the Xi myth is attempting to make those three labels synonymous in everyone’s minds. That flies in the face of millennia of Chinese history, but hey, PR has to start somewhere.
2. The current iteration of China is predicated on many things, but chief among them are employment and a national safety net overseen by the party. In turn that employment and safety net are predicated upon Chinese access to international markets, both for resource imports and the income that comes from merchandise exports.
3. China’s geography is atrocious. Less than one-fifth of its land is habitable. Its flood- and drought-prone north is a flat security free-for-all that has suffered nearly three millennia of incessant internal warfare. Its south is a tropical disease belt. All but one of its rivers are too moody to help with commerce. Its interior is alternatively desert, mountain, tundra, jungle – or some brutal combination thereof. A line of archipelagos parallel its coast, all but preventing military or economic interaction with the wider world.

With that in mind, it doesn’t really matter so much if Xi is an anti-corruption reformer, a savvy consolidator of power, or re-establishing a cult of personality to rival that of Mao Zedong himself (my money is on the latter for those of you keeping score). If he can’t sell his schtick to the masses, well… in a country of nearly 1.4 billion, everybody’s expendable. And so we can’t lose sight of the fact that Chinese media, international outlets – everybody – focuses on Xi’s popularity, especially among China’s urban youth. And it is this popularity (or the belief that its constant repetition confirms its veracity) that provides the political currency for Xi to act like almost every other leader in Chinese history and create a political leadership and patronage structure that entrenches his own power.

That he has certainly achieved. China’s Communist Party holds a big meeting every five years, ostensibly to cement the country’s development plans and party leadership changes. In reality the meeting serves more as a clearing house, disseminating information and decisions made well in advance. Despite all the speeches about China now being “the” world power, the real reveal was supposed to be Xi’s nomination of his successor. Tradition tells us that a Chinese premier serves for five years, nominates his successor, and China then has a five-year leadership transition period.

Xi didn’t simply nominate himself to succeed himself, he enshrined himself into the Chinese constitution so there’d be no doubt just who was in charge. The Party Congress was a Trumpian celebration of Xi. A bit much, n’est pas?

The problem Xi sees is that China’s economic success has very little to do with China… or the Communist Party… or even Xi. China as it exists today is only possible because of the global Bretton Woods economic order Washington has upheld since the end of World War II. Simply put, a land-based power with some of the longest supply chains in the world cannot exist as a manufacturing and export powerhouse unless someone with a global navy enables it. That someone has been the United States, who has guaranteed the safety and security of the goods flowing to, from, in and out of Chinese ports, and who has offered largely unfettered market access for decades. With that in place, the specifics of China’s rather horrid geography haven’t mattered. That’s enabled Beijing to employ millions and millions of people in factories to make widgets and gadgets, and employ even more to feed China’s urban factory populations and to build roads and houses, etc. etc. etc.

But the Americans are going away, and they are taking the Bretton Woods system with them. China’s current economic slowdown is nothing compared the dawning tragedy it will experience during the emerging global disorder for which Beijing is terrifyingly ill-suited. When viewed in context, I don’t see Xi’s surpassing Mao to become the most powerful leader in Chinese history as an event driven by an excess of confidence, but instead an increasingly desperate effort to completely lock down the Chinese political space before the covfefe hits the fan. China is running out of time, and Xi knows it.

So I don’t get excited or worried about China taking over the world, or even its neighborhood, as I do about Japan. While most of the world had eyes on Xi’s celebrations, Japanese voters braved a hurricane over the weekend to participate in parliamentary elections, granting incumbent Japanese Prime Minster Shinzo Abe a commanding majority. Sure, Xi Jinping is disrupting and reshaping Chinese political corruption to better suit him, but why don’t we talk about how Shinzo Abe was able to get his anti-war, Buddhist coalition partners to support his efforts to expand the role of Japan’s military forces? It is Japan, not China, that boasts the world’s second most capable navy. It is that navy that is second only to the United States in the number of aircraft carriers floated (Japan claims those carriers are only for helicopters but that is, if you’ll forgive the repeat, just some more PR bullshit).

Nor do I understand the lack of excitement over how the Japanese, (in)famously fickle when it comes to sacking Prime Ministers, have stuck with Mr. Abe through three concurrent rounds of parliamentary elections. It’s also worth noting that Abe is the first Prime Minister since the American Occupation ended to serve non-concurrent terms, even as he seems likely to coast toward becoming the longest-serving leader in modern times. The Japanese government under Abe has attempted several painful economic reform initiatives – and the fact that Abe has remained in power to oversee more than one strategy is a testament to not only his singular staying power but the trust the Japanese people have in his vision. But perhaps most important is the shift in Japanese society toward a more nationalistic, assertive position both regionally and globally.

That will make the region decidedly sparky. Unlike the Chinese system which is based on backroom-manipulation, globe-spanning economic links, suppression of minorities and carefully-sculpted public relations, Japan is a vibrant democracy with no minorities to speak of that has relocated most of its industrial base to the territories of its foreign customers and a boasts a leader who is genuinely popular despite (because of?) his increasingly militant stances.

This shift isn’t happening in a vacuum. As North Korea increases its provocations, as China is an ever more belligerent actor in its various littoral waterways in order to stoke nationalism at home, and as the United States seeks to diminish its global presence, it’s Japan that has the correct mix of geopolitical underpinnings, unique leadership personality, and national character to pounce on the opportunities ahead.

China is still the world’s second largest economy, the biggest by population, and its domestic (d)evolutions will certainly cause international ripples. But Beijing will remain constrained by its domestic concerns as its economy remains tied to a disappearing global order it cannot hope to replicate, not even – especially not even – in its own neighborhood. But while the world has eyes on China, mine (and I imagine many of those who attended the Chinese Communist Party’s Congress) will be fixed squarely on Japan.