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(Santiago Bedoya Pardo, “Economic confidence rebounds as fears fade over 2023 recession,” pg online @ https://www.theaccountant-online.com/news/economic-confidence-rebounds-as-fears-fade-over-2023-recession/#catfish //um-ef)

Economic confidence is rising across the globe as clear signs of business improvement emerge. While the Q1 2023 Global Economic Conditions Survey (GECS) shows confidence lower than a year ago, it rose for the third consecutive quarter as fears fade over the prospects of a recession in 2023. This better news is underlined by the two GECS “Fear’’ indices which reflects respondents concerns that customers and/or suppliers may go out of business. Both these series improved on Q4 2022. Indeed, worries about suppliers have fallen to the lowest level since 2020. And although new orders have flatlined this quarter, the survey showed improvements in both employment and capital expenditure (capex). Although with Central Banks still raising interest rates and the delayed effect of monetary policy tightening on the real economy, as well as recent challenges in the banking sector, it may be premature to sound the “all clear.” ACCA head of skills, sectors and technology, Jamie Lyon, said “The global economy entered 2023 with more momentum than many had expected. Confidence has risen as business comes to terms with the fallout from the Russian-Ukraine war. The economic climate has been helped by a faster-than-expected relaxation of China’s zero-COVID policies, and more normal energy prices in Europe, that should help to reduce headline inflation and may bring about a pause in Central Banks’ tightening of monetary policy, but there are still some downside risks that may prevail.” IMA vice president of research and thought leadership, Loreal Jiles, added: “Looking at the change in the GECS Confidence Indices over the quarter, what stands out is the 30-point improvement in Confidence in Western Europe. However, this good news was not limited to Europe; Asia-Pacific, North America and South Asia also registered an improvement. This was a broad-based pick-up, with the exception of Africa and the Middle East.” Although Global New Orders are flat-lining, one factor sustaining the rebound in Confidence may be the decline in the level of concern about “increased costs.” Cost pressures look like they may have peaked, although they still remain well above the median recorded over the survey’s history. Commodity prices remain subdued, and Europe has benefitted from natural gas prices returning to levels seen before Russia’s invasion of Ukraine. Global confidence has edged up for the third consecutive quarter, not only because cost concerns have eased, but also because worries about accessing finance and securing prompt payment have declined. Indeed, reports of problems with prompt payment fell to the second lowest level in the survey’s history. The improved macro conditions also appear to have encouraged companies to revisit their capex and hiring plans. When asked how they planned to respond to the changing economic environment, the net balance of companies planning to increase investment in capital and staff rose on the quarter, as did the net balance of companies planning to increase job creation.

(Stephen,frmr Chief U.S. Economist Lehman Brothers, M.S., Economics, George Washington University NumberNomics, “Could We All Have This Wrong?,” pg online @ https://numbernomics.com/could-we-all-have-this-wrong/ //um-ef)

We are beginning to wonder if the economy has a lot more momentum than is generally believed at the moment. Virtually every economist on the planet expects the U.S. economy to slip into recession later this year or early in 2024 because, surely, real interest rates have risen high enough and the yield curve is sufficiently inverted that such an outcome is almost guaranteed. But what if it isn’t? The stock market is telling a different story. Week after week it continues to climb and it is now within 7.0% of its pre-recession, pre-pandemic record high level. The stock market is certainly not anticipating a recession any time soon. This steady run-up in stock prices will do several things. It will boost consumer confidence and, presumably, consumer spending. It will also raise business confidence and give business leaders both the willingness and the ability to quicken investment spending. If all of that happens the economy will grow quickly and it will be substantially more difficult to reduce the core rate of inflation. If that scenario unfolds the Fed will have a lot more work to do than the two additional rate hikes it envisions between now and yearend. Since the pandemic neither the economy nor the inflation rate has behaved in exactly the same way as it did in the past. Could we all have this wrong? One of the reasons for this widespread expectation of a recession stems from the index of leading indicators which has been falling steadily since December 2021. It has been signaling recession for a year and one-half.  This index is the compilation of a dozen indicators each of which are leading indicators.  One of those components is the S&P 500 index.

Various scholars and institutions regard global social instability as the greatest threat facing this decade. The catalyst has been postulated to be a Second Great Depression which, in turn, will have profound implications for global security and national integrity. This paper, written from a broad systems perspective, illustrates how emerging risks are getting more complex and intertwined; blurring boundaries between the economic, environmental, geopolitical, societal and technological taxonomy used by the World Economic Forum for its annual global risk forecasts. Tight couplings in our global systems have also enabled risks accrued in one area to snowball into a full-blown crisis elsewhere. The COVID-19 pandemic and its socioeconomic fallouts exemplify this systemic chain-reaction. Onceinexorable forces of globalization are rupturing as the current global system can no longer be sustained due to poor governance and runaway wealth fractionation. The coronavirus pandemic is also enabling Big Tech to expropriate the levers of governments and mass communications worldwide. This paper concludes by highlighting how this development poses a dilemma for security professionals. Key Words: Global Systems, Emergence, VUCA, COVID-9, Social Instability, Big Tech, Great Reset INTRODUCTION The new decade is witnessing rising volatility across global systems. Pick any random “system” today and chart out its trajectory: Are our education systems becoming more robust and affordable? What about food security? Are our healthcare systems improving? Are our pension systems sound? Wherever one looks, there are dark clouds gathering on a global horizon marked by volatility, uncertainty, complexity and ambiguity (VUCA). But what exactly is a global system? Our planet itself is an autonomous and selfsustaining mega-system, marked by periodic cycles and elemental vagaries. Human activities within however are not system isolates as our banking, utility, farming, healthcare and retail sectors etc. are increasingly entwined. Risks accrued in one system may cascade into an unforeseen crisis within and/or without (Choo, Smith & McCusker, 2007). Scholars call this phenomenon “emergence”; one where the behaviour of intersecting systems is determined by complex and largely invisible interactions at the substratum (Goldstein, 1999; Holland, 1998). The ongoing COVID-19 pandemic is a case in point. While experts remain divided over the source and morphology of the virus, the contagion has ramified into a global health crisis and supply chain nightmare. It is also tilting the geopolitical balance. China is the largest exporter of intermediate products, and had generated nearly 20% of global imports in 2015 alone (Cousin, 2020). The pharmaceutical sector is particularly vulnerable. Nearly “85% of medicines in the U.S. strategic national stockpile” sources components from China (Owens, 2020). An initial run on respiratory masks has now been eclipsed by rowdy queues at supermarkets and the bankruptcy of small businesses. The entire global population – save for major pockets such as Sweden, Belarus, Taiwan and Japan – have been subjected to cyclical lockdowns and quarantines. Never before in history have humans faced such a systemic, borderless calamity. COVID-19 represents a classic emergent crisis that necessitates real-time response and adaptivity in a real-time world, particularly since the global Just-in-Time (JIT) production and delivery system serves as both an enabler and vector for transboundary risks. From a systems thinking perspective, emerging risk management should therefore address a whole spectrum of activity across the economic, environmental, geopolitical, societal and technological (EEGST) taxonomy. Every emerging threat can be slotted into this taxonomy – a reason why it is used by the World Economic Forum (WEF) for its annual global risk exercises (Maavak, 2019a). As traditional forces of globalization unravel, security professionals should take cognizance of emerging threats through a systems thinking approach. METHODOLOGY An EEGST sectional breakdown was adopted to illustrate a sampling of extreme risks facing the world for the 2020-2030 decade. The transcendental quality of emerging risks, as outlined on Figure 1, below, was primarily informed by the following pillars of systems thinking (Rickards, 2020): • Diminishing diversity (or increasing homogeneity) of actors in the global system (Boli & Thomas, 1997; Meyer, 2000; Young et al, 2006); • Interconnections in the global system (Homer-Dixon et al, 2015; Lee & Preston, 2012); • Interactions of actors, events and components in the global system (Buldyrev et al, 2010; Bashan et al, 2013; Homer-Dixon et al, 2015); and • Adaptive qualities in particular systems (Bodin & Norberg, 2005; Scheffer et al, 2012) Since scholastic material on this topic remains somewhat inchoate, this paper buttresses many of its contentions through secondary (i.e. news/institutional) sources. ECONOMY According to Professor Stanislaw Drozdz (2018) of the Polish Academy of Sciences, “a global financial crash of a previously unprecedented scale is highly probable” by the mid- 2020s. This will lead to a trickle-down meltdown, impacting all areas of human activity. The economist John Mauldin (2018) similarly warns that the “2020s might be the worst decade in US history” and may lead to a Second Great Depression. Other forecasts are equally alarming. According to the International Institute of Finance, global debt may have surpassed $255 trillion by 2020 (IIF, 2019). Yet another study revealed that global debts and liabilities amounted to a staggering $2.5 quadrillion (Ausman, 2018). The reader should note that these figures were tabulated before the COVID-19 outbreak. The IMF singles out widening income inequality as the trigger for the next Great Depression (Georgieva, 2020). The wealthiest 1% now own more than twice as much wealth as 6.9 billion people (Coffey et al, 2020) and this chasm is widening with each passing month. COVID-19 had, in fact, boosted global billionaire wealth to an unprecedented $10.2 trillion by July 2020 (UBS-PWC, 2020). Global GDP, worth $88 trillion in 2019, may have contracted by 5.2% in 2020 (World Bank, 2020). As the Greek historian Plutarch warned in the 1st century AD: “An imbalance between rich and poor is the oldest and most fatal ailment of all republics” (Mauldin, 2014). The stability of a society, as Aristotle argued even earlier, depends on a robust middle element or middle class. At the rate the global middle class is facing catastrophic debt and unemployment levels, widespread social disaffection may morph into outright anarchy (Maavak, 2012; DCDC, 2007). Economic stressors, in transcendent VUCA fashion, may also induce radical geopolitical realignments. Bullions now carry more weight than NATO’s security guarantees in Eastern Europe. After Poland repatriated 100 tons of gold from the Bank of England in 2019, Slovakia, Serbia and Hungary quickly followed suit. According to former Slovak Premier Robert Fico, this erosion in regional trust was based on historical precedents – in particular the 1938 Munich Agreement which ceded Czechoslovakia’s Sudetenland to Nazi Germany. As Fico reiterated (Dudik & Tomek, 2019): “You can hardly trust even the closest allies after the Munich Agreement… I guarantee that if something happens, we won’t see a single gram of this (offshore-held) gold. Let’s do it (repatriation) as quickly as possible.” (Parenthesis added by author). President Aleksandar Vucic of Serbia (a non-NATO nation) justified his central bank’s gold-repatriation program by hinting at economic headwinds ahead: “We see in which direction the crisis in the world is moving” (Dudik & Tomek, 2019). Indeed, with two global Titanics – the United States and China – set on a collision course with a quadrillions-denominated iceberg in the middle, and a viral outbreak on its tip, the seismic ripples will be felt far, wide and for a considerable period. A reality check is nonetheless needed here: Can additional bullions realistically circumvallate the economies of 80 million plus peoples in these Eastern European nations, worth a collective $1.8 trillion by purchasing power parity? Gold however is a potent psychological symbol as it represents national sovereignty and economic reassurance in a potentially hyperinflationary world. The portents are clear: The current global economic system will be weakened by rising nationalism and autarkic demands. Much uncertainty remains ahead. Mauldin (2018) proposes the introduction of Old Testament-style debt jubilees to facilitate gradual national recoveries. The World Economic Forum, on the other hand, has long proposed a “Great Reset” by 2030; a socialist utopia where “you’ll own nothing and you’ll be happy” (WEF, 2016). In the final analysis, COVID-19 is not the root cause of the current global economic turmoil; it is merely an accelerant to a burning house of cards that was left smouldering since the 2008 Great Recession (Maavak, 2020a). We also see how the four main pillars of systems thinking (diversity, interconnectivity, interactivity and “adaptivity”) form the mise en scene in a VUCA decade. ENVIRONMENTAL What happens to the environment when our economies implode? Think of a debt-laden workforce at sensitive nuclear and chemical plants, along with a concomitant surge in industrial accidents? Economic stressors, workforce demoralization and rampant profiteering – rather than manmade climate change – arguably pose the biggest threats to the environment. In a WEF report, Buehler et al (2017) made the following pre-COVID-19 observation: The ILO estimates that the annual cost to the global economy from accidents and work-related diseases alone is a staggering $3 trillion. Moreover, a recent report suggests the world’s 3.2 billion workers are increasingly unwell, with the vast majority facing significant economic insecurity: 77% work in part-time, temporary, “vulnerable” or unpaid jobs. Shouldn’t this phenomenon be better categorized as a societal or economic risk rather than an environmental one? In line with the systems thinking approach, however, global risks can no longer be boxed into a taxonomical silo. Frazzled workforces may precipitate another Bhopal (1984), Chernobyl (1986), Deepwater Horizon (2010) or Flint water crisis (2014). These disasters were notably not the result of manmade climate change. Neither was the Fukushima nuclear disaster (2011) nor the Indian Ocean tsunami (2004). Indeed, the combustion of a long-overlooked cargo of 2,750 tonnes of ammonium nitrate had nearly levelled the city of Beirut, Lebanon, on Aug 4 2020. The explosion left 204 dead; 7,500 injured; US$15 billion in property damages; and an estimated 300,000 people homeless (Urbina, 2020). The environmental costs have yet to be adequately tabulated. Environmental disasters are more attributable to Black Swan events, systems breakdowns and corporate greed rather than to mundane human activity. Our JIT world aggravates the cascading potential of risks (Korowicz, 2012). Production and delivery delays, caused by the COVID-19 outbreak, will eventually require industrial overcompensation. This will further stress senior executives, workers, machines and a variety of computerized systems. The trickle-down effects will likely include substandard products, contaminated food and a general lowering in health and safety standards (Maavak, 2019a). Unpaid or demoralized sanitation workers may also resort to indiscriminate waste dumping. Many cities across the United States (and elsewhere in the world) are no longer recycling wastes due to prohibitive costs in the global corona-economy (Liacko, 2021). Even in good times, strict protocols on waste disposals were routinely ignored. While Sweden championed the global climate change narrative, its clothing flagship H&M was busy covering up toxic effluences disgorged by vendors along the Citarum River in Java, Indonesia. As a result, countless children among 14 million Indonesians straddling the “world’s most polluted river” began to suffer from dermatitis, intestinal problems, developmental disorders, renal failure, chronic bronchitis and cancer (DW, 2020). It is also in cauldrons like the Citarum River where pathogens may mutate with emergent ramifications. On an equally alarming note, depressed economic conditions have traditionally provided a waste disposal boon for organized crime elements. Throughout 1980s, the Calabriabased ‘Ndrangheta mafia – in collusion with governments in Europe and North America – began to dump radioactive wastes along the coast of Somalia. Reeling from pollution and revenue loss, Somali fisherman eventually resorted to mass piracy (Knaup, 2008). The coast of Somalia is now a maritime hotspot, and exemplifies an entwined form of economic-environmental-geopolitical-societal emergence. In a VUCA world, indiscriminate waste dumping can unexpectedly morph into a Black Hawk Down incident. The laws of unintended consequences are governed by actors, interconnections, interactions and adaptations in a system under study – as outlined in the methodology section. Environmentally-devastating industrial sabotages – whether by disgruntled workers, industrial competitors, ideological maniacs or terrorist groups – cannot be discounted in a VUCA world. Immiserated societies, in stark defiance of climate change diktats, may resort to dirty coal plants and wood stoves for survival. Interlinked ecosystems, particularly water resources, may be hijacked by nationalist sentiments. The environmental fallouts of critical infrastructure (CI) breakdowns loom like a Sword of Damocles over this decade. GEOPOLITICAL The primary catalyst behind WWII was the Great Depression. Since history often repeats itself, expect familiar bogeymen to reappear in societies roiling with impoverishment and ideological clefts. Anti-Semitism – a societal risk on its own – may reach alarming proportions in the West (Reuters, 2019), possibly forcing Israel to undertake reprisal operations inside allied nations. If that happens, how will affected nations react? Will security resources be reallocated to protect certain minorities (or the Top 1%) while larger segments of society are exposed to restive forces? Balloon effects like these present a classic VUCA problematic. Contemporary geopolitical risks include a possible Iran-Israel war; US-China military confrontation over Taiwan or the South China Sea; North Korean proliferation of nuclear and missile technologies; an India-Pakistan nuclear war; an Iranian closure of the Straits of Hormuz; fundamentalist-driven implosion in the Islamic world; or a nuclear confrontation between NATO and Russia. Fears that the Jan 3 2020 assassination of Iranian Maj. Gen. Qasem Soleimani might lead to WWIII were grossly overblown. From a systems perspective, the killing of Soleimani did not fundamentally change the actor-interconnection-interaction adaptivity equation in the Middle East. Soleimani was simply a cog who got replaced.

A new proposal from a group of Democratic lawmakers attempts to make Social Security solvent while adding to its liabilities and imposing $33.8 trillion in new taxes.2

On paper, the proposal appears to make Social Security solvent over the next 75 years, but that is based on a narrow cost analysis that ignores the damaging effects the plan would have across the entire economy, reducing output, destroying jobs, and restricting income growth that could otherwise boost Social Security’s revenues. As part of an economically illiterate, socialist agenda, these reverberating consequences would cause younger and future generations to be more dependent on government and less free to pursue their own goals.

US business activity grew in May by the most in over a year, powered by robust demand for services, while views about the economic outlook brightened.

The S&P Global flash May composite purchasing managers index advanced 1.1 points to 54.5, the group reported Tuesday. That’s the highest since April of last year and above the 50 level that separates growing and shrinking activity.

Times are tough when a millionaire oil man can't get a wind farm built. T. Boone Pickens backed off of his much ballyhooed mega-wind project in Texas this week, citing the declining cost of natural gas. Fossil fuel burning power plants are still too good of a deal to bother investing $2 billion into wind turbines. A bear market might seem like a boon for the environment: less overall economic activity, like manufacturing and driving, means less overall pollution. Right? Actually, as the Pickens example proves, global economic downturns take a toll on the environment by restraining economic activity that could improve the situation. But that's not all. Over-farming and drought led to 400,000 square kilometers of prime top soil blowing away in the wind in the 1930s, exacerbating, and exacerbated by, the Great Depression. And the economic crises that crippled the economies of southeast Asia in the 1990s also set in motion a rapid uptick in environmentally damaging pursuits such as illegal logging and cyanide fishing, according to the World Bank. Even as I speak, economic worries have prompted some European countries to begin backpedaling on their commitments to cut back on global warming pollution. So an economic downturn is no friend of the environment. Brother, can you spare a turbine?

But energy is not the only domain that has a direct bearing on whether we have a livable climate or not. So does foreign policy—specifically, nuclear war.

Since Russia invaded Ukraine two weeks ago, that threat has become a lot more real: Many Americans, including artists, climate-concerned progressives, and even a few lawmakers, have come out in support of a “no-fly zone.” But despite its euphemistic name, a no-fly zone means that NATO and the United States issue a credible threat that they will shoot down any enemy plane in Ukrainian territory. This would require U.S. bombing runs into Russian territory to eliminate air defenses, bringing the U.S. and Russia into open war, and it would have a reasonable chance of prompting a nuclear exchange. And it would be worse for the climate than any energy policy that Donald Trump ever proposed.

In a broader sense, it is unlikely that even ecological concerns can be addressed by degrowth as illustrated in Fig. 1. First, the environmental issues would be less important during the economic implosion, which could delay the development of sustainable alternative energy. Second, while the environmental picture could temporarily improve during the economic implosion, the carrying capacity will eventually be exceeded yet again as the economic growth resumes, as we illustrate in Fig. 2. Third, given that crude oil is an investable asset, it is likely that the price of crude oil would correct during the implosion due to deleveraging, deflation, and the decrease in demand for energy, which are likely to be only temporarily positive for ecological concerns. However, the temporary lower crude oil prices would also put climate change issues on the backburner, and thus, limit the interest in development of alternative energy projects. Thus, in the long run, the economic implosion would be a net negative for ecological concerns. As soon as the economy rebounds, energy consumption growth would resume and eventually exceed the carrying capacity, this time perhaps even more damaging for the environment due to the significantly delayed development of effective alternative energy sources.

Today, economic and fiscal trends pose the most severe long-term threat to the United States’ position as global leader. While the United States suffers from fiscal imbalances and low economic growth, the economies of rival powers are developing rapidly. The continuation of these two trends could lead to a shift from American primacy toward a multi-polar global system, leading in turn to increased geopolitical rivalry and even war among the great powers. The current recession is the result of a deep financial crisis, not a mere fluctuation in the business cycle. Recovery is likely to be protracted. The crisis was preceded by the buildup over two decades of enormous amounts of debt throughout the U.S. economy – ultimately totaling almost 350 percent of GDP – and the development of credit-fueled asset bubbles, particularly in the housing sector. When the bubbles burst, huge amounts of wealth were destroyed, and unemployment rose to over 10 percent. The decline of tax revenues and massive countercyclical spending put the U.S. government on an unsustainable fiscal path. Publicly held national debt rose from 38 to over 60 percent of GDP in three years. Without faster economic growth and actions to reduce deficits, publicly held national debt is projected to reach dangerous proportions. If interest rates were to rise significantly, annual interest payments – which already are larger than the defense budget – would crowd out other spending or require substantial tax increases that would undercut economic growth. Even worse, if unanticipated events trigger what economists call a “sudden stop” in credit markets for U.S. debt, the United States would be unable to roll over its outstanding obligations, precipitating a sovereign-debt crisis that would almost certainly compel a radical retrenchment of the United States internationally. Such scenarios would reshape the international order. It was the economic devastation of Britain and France during World War II, as well as the rise of other powers, that led both countries to relinquish their empires. In the late 1960s, British leaders concluded that they lacked the economic capacity to maintain a presence “east of Suez.” Soviet economic weakness, which crystallized under Gorbachev, contributed to their decisions to withdraw from Afghanistan, abandon Communist regimes in Eastern Europe, and allow the Soviet Union to fragment. If the U.S. debt problem goes critical, the United States would be compelled to retrench, reducing its military spending and shedding international commitments.

The second scenario is marked by low energy prices, weak economic growth, and global disharmony. The United States and the European Union falter because their macroeconomic policies never come to grips with unsustainable budget deficits caused by rising transfer payments in the face of declining working-age populations. Recurrent financial crises afflict the OECD countries and wreak havoc on the developing world. China is never able to establish the conditions of secure property rights, impartial rule of law, and transparent governance for modem economic growth. The result is high volatility and low-trend economic growth in the world's biggest economies, which drives down growth abroad and has a debilitating effect on geopolitical stability. Illiberal trade policies are ramped up everywhere, which slows growth further and breeds ill-will and mistrust among nations. Weak economic growth leads to low energy demand, which, when combined with new supplies of conventional and unconventional energy sources, leads to a sharp drop in energy prices. This is a tumultuous multipolar world. Oil producers in the Middle East resort to desperate policies to retain power, and Iran emerges as the regional power after a short but exceedingly violent regional war. After decades of economic decline and rising unrest, Russia experiences a revolution by disparate groups of aggrieved liberal parties. Asian countries form a new alliance to resist pressure from an aggressive China. Africa does not reap the expected rewards from oil production. Instead, poor governance leads to weak economic performance, and many African nations are mired in conflict over water resources and drought-induced famine. The international community fails to · adequately address the underlying problems.

Pressures to rein in federal spending are sure to grow. There is little that is easy to cut given the need to meet entitlement obligations, pay interest on the $10 trillion debt, and bail out states and cities unable to balance their budgets. What's more, there is an emerging consensus on the need for yet another stimulus package. Down the road, ballooning deficits will bring inflation and cause problems for the dollar. It is highly likely then that Congress will want to cut the defense and foreign-aid budgets simply because there are so few other targets available to reduce federal spending. This will limit the availability of tools central to asserting U.S. power and influence abroad.

Power is what it always has been. It is the ability to get someone to do something they do not want to do by means of your resources and your position. It was always that. There is no such thing in my mind as “soft” power or “hard” power or “smart” power or “dumb” power. It is people who are hard or soft or smart or dumb. Power is power. And people use it wisely or poorly. Now, what has changed is the composition of power in international affairs. For almost all of history, international power was achieved in the form of military power and military force. Now, particularly in the last fifty years or so, it has become more and more economic. So power consists of economic power, military power, and diplomatic power, but the emphasis has shifted from military power (for almost all of history) to now, more economic power. And, as President Obama said in his West Point speech several months ago, our economy is the basis of our international power in general and our military power in particular. That is where it all comes from. Whether other states listen to us and act on what we say depends a good deal on their perception of the strength of the American economy. A big problem for us in the last few years has been the perception that our economy is in decline.

Of course, the report encompasses more than economics and indeed believes the future is likely to be the result of a number of intersecting and interlocking forces. With so many possible permutations of outcomes, each with ample Revisiting the Future opportunity for unintended consequences, there is a growing sense of insecurity. Even so, history may be more instructive than ever. While we continue to believe that the Great Depression is not likely to be repeated, the lessons to be drawn from that period include the harmful effects on fledgling democracies and multiethnic societies (think Central Europe in 1920s and 1930s) and on the sustainability of multilateral institutions (think League of Nations in the same period). There is no reason to think that this would not be true in the twenty-first as much as in the twentieth century. For that reason, the ways in which the potential for greater conflict could grow would seem to be even more apt in a constantly volatile economic environment as they would be if change would be steadier. In surveying those risks, the report stressed the likelihood that terrorism and nonproliferation will remain priorities even as resource issues move up on the international agenda. Terrorism’s appeal will decline if economic growth continues in the Middle East and youth unemployment is reduced. For those terrorist groups that remain active in 2025, however, the diffusion of technologies and scientific knowledge will place some of the world’s most dangerous capabilities within their reach. Terrorist groups in 2025 will likely be a combination of descendants of long established groups_inheriting organizational structures, command and control processes, and training procedures necessary to conduct sophisticated attacks_and newly emergent collections of the angry and disenfranchised that become self-radicalized, particularly in the absence of economic outlets that would become narrower in an economic downturn. The most dangerous casualty of any economically-induced drawdown of U.S. military presence would almost certainly be the Middle East. Although Iran’s acquisition of nuclear weapons is not inevitable, worries about a nuclear-armed Iran could lead states in the region to develop new security arrangements with external powers, acquire additional weapons, and consider pursuing their own nuclear ambitions. It is not clear that the type of stable deterrent relationship that existed between the great powers for most of the Cold War would emerge naturally in the Middle East with a nuclear Iran. Episodes of low intensity conflict and terrorism taking place under a nuclear umbrella could lead to an unintended escalation and broader conflict if clear red lines between those states involved are not well established. The close proximity of potential nuclear rivals combined with underdeveloped surveillance capabilities and mobile dual-capable Iranian missile systems also will produce inherent difficulties in achieving reliable indications and warning of an impending nuclear attack. The lack of strategic depth in neighboring states like Israel, short warning and missile flight times, and uncertainty of Iranian intentions may place more focus on preemption rather than defense, potentially leading to escalating crises. 36 Types of conflict that the world continues to experience, such as over resources, could reemerge, particularly if protectionism grows and there is a resort to neo-mercantilist practices. Perceptions of renewed energy scarcity will drive countries to take actions to assure their future access to energy supplies. In the worst case, this could result in interstate conflicts if government leaders deem assured access to energy resources, for example, to be essential for maintaining domestic stability and the survival of their regime. Even actions short of war, however, will have important geopolitical implications. Maritime security concerns are providing a rationale for naval buildups and modernization efforts, such as China’s and India’s development of blue water naval capabilities. If the fiscal stimulus focus for these countries indeed turns inward, one of the most obvious funding targets may be military. Buildup of regional naval capabilities could lead to increased tensions, rivalries, and counterbalancing moves, but it also will create opportunities for multinational cooperation in protecting critical sea lanes. With water also becoming scarcer in Asia and the Middle East, cooperation to manage changing water resources is likely to be increasingly difficult both within and between states in a more dog-eat-dog world.

With the global financial system in serious trouble, is America's geostrategic dominance likely to diminish? If so, what would that mean? One immediate implication of the crisis that began on Wall Street and spread across the world is that the primary instruments of U.S. foreign policy will be crimped. The next president will face an entirely new and adverse fiscal position. Estimates of this year's federal budget deficit already show that it has jumped $237 billion from last year, to $407 billion. With families and businesses hurting, there will be calls for various and expensive domestic relief programs. In the face of this onrushing river of red ink, both Barack Obama and John McCain have been reluctant to lay out what portions of their programmatic wish list they might defer or delete. Only Joe Biden has suggested a possible reduction -- foreign aid. This would be one of the few popular cuts, but in budgetary terms it is a mere grain of sand. Still, Sen. Biden's comment hints at where we may be headed: toward a major reduction in America's world role, and perhaps even a new era of financially-induced isolationism. Pressures to cut defense spending, and to dodge the cost of waging two wars, already intense before this crisis, are likely to mount. Despite the success of the surge, the war in Iraq remains deeply unpopular. Precipitous withdrawal -- attractive to a sizable swath of the electorate before the financial implosion -- might well become even more popular with annual war bills running in the hundreds of billions. Protectionist sentiments are sure to grow stronger as jobs disappear in the coming slowdown. Even before our current woes, calls to save jobs by restricting imports had begun to gather support among many Democrats and some Republicans. In a prolonged recession, gale-force winds of protectionism will blow. Then there are the dolorous consequences of a potential collapse of the world's financial architecture. For decades now, Americans have enjoyed the advantages of being at the center of that system. The worldwide use of the dollar, and the stability of our economy, among other things, made it easier for us to run huge budget deficits, as we counted on foreigners to pick up the tab by buying dollar-denominated assets as a safe haven. Will this be possible in the future? Meanwhile, traditional foreign-policy challenges are multiplying. The threat from al Qaeda and Islamic terrorist affiliates has not been extinguished. Iran and North Korea are continuing on their bellicose paths, while Pakistan and Afghanistan are progressing smartly down the road to chaos. Russia's new militancy and China's seemingly relentless rise also give cause for concern. If America now tries to pull back from the world stage, it will leave a dangerous power vacuum. The stabilizing effects of our presence in Asia, our continuing commitment to Europe, and our position as defender of last resort for Middle East energy sources and supply lines could all be placed at risk. In such a scenario there are shades of the 1930s, when global trade and finance ground nearly to a halt, the peaceful democracies failed to cooperate, and aggressive powers led by the remorseless fanatics who rose up on the crest of economic disaster exploited their divisions. Today we run the risk that rogue states may choose to become ever more reckless with their nuclear toys, just at our moment of maximum vulnerability. The aftershocks of the financial crisis will almost certainly rock our principal strategic competitors even harder than they will rock us. The dramatic free fall of the Russian stock market has demonstrated the fragility of a state whose economic performance hinges on high oil prices, now driven down by the global slowdown. China is perhaps even more fragile, its economic growth depending heavily on foreign investment and access to foreign markets. Both will now be constricted, inflicting economic pain and perhaps even sparking unrest in a country where political legitimacy rests on progress in the long march to prosperity. None of this is good news if the authoritarian leaders of these countries seek to divert attention from internal travails with external adventures. As for our democratic friends, the present crisis comes when many European nations are struggling to deal with decades of anemic growth, sclerotic governance and an impending demographic crisis. Despite its past dynamism, Japan faces similar challenges. India is still in the early stages of its emergence as a world economic and geopolitical power. What does this all mean? There is no substitute for America on the world stage. The choice we have before us is between the potentially disastrous effects of disengagement and the stiff price tag of continued American leadership.

Geopolitical ambitions could reduce economic interdependence even further.120 Russia and China have territorial and quasi-territorial ambitions beyond their recognized borders, and the United States has attempted to counter what it sees as revisionist behavior by both countries. In a low-growth world, it is possible that leaders of either country would choose to prioritize their nationalist ambitions over economic growth. More generally, it could be that the expectation of future gains from interdependence—rather than existing levels of interdependence—constrains great power bellicosity.121 If great powers expect that the future benefits of international trade and investment will wane, then commercial constraints on revisionist behavior will lessen. All else equal, this increases the likelihood of great power conflict going forward.

Efforts to mend the military relationship and insulate it from the occasional tensions that arose in the wider bilateral relationship were taking place at a time when the U.S. and most of the global economy were recovering from a serious financial crisis. This had two correlated results. The first is that the PRC “misinterpreted Obama administration efforts to increase cooperation as a sign of U.S. weakness and an opportunity to press Washington for concessions.”875 The economic downturn had simply reinforced a pre-existing belief on the part of many senior PRC policymakers that the United States was a declining power. As a result of this belief, beginning around 2009, China became more assertive “on a wide range of bilateral, regional, and global issues,” including on maritime and sovereignty claims in the South and East China Seas and in PLA interactions with U.S. military ships and aircraft conducting lawful routine operations within China’s EEZ.876

Several recent works on China and Sino–US relations have made substantial contributions to the current understanding of how and under what circumstances a combination of nuclear deterrence and economic interdependence may reduce the risk of war between major powers. At least four conclusions can be drawn from the review above: first, those who say that interdependence may both inhibit and drive conflict are right. Interdependence raises the cost of conflict for all sides but asymmetrical or unbalanced dependencies and negative trade expectations may generate tensions leading to trade wars among inter-dependent states that in turn increase the risk of military conflict (Copeland, 2015: 1, 14, 437; Roach, 2014). The risk may increase if one of the interdependent countries is governed by an inward-looking socio-economic coalition (Solingen, 2015); second, the risk of war between China and the US should not just be analysed bilaterally but include their allies and partners. Third party countries could drag China or the US into confrontation; third, in this context it is of some comfort that the three main economic powers in Northeast Asia (China, Japan and South Korea) are all deeply integrated economically through production networks within a global system of trade and finance (Ravenhill, 2014; Yoshimatsu, 2014: 576); and fourth, decisions for war and peace are taken by very few people, who act on the basis of their future expectations. International relations theory must be supplemented by foreign policy analysis in order to assess the value attributed by national decision-makers to economic development and their assessments of risks and opportunities. If leaders on either side of the Atlantic begin to seriously fear or anticipate their own nation’s decline then they may blame this on external dependence, appeal to anti-foreign sentiments, contemplate the use of force to gain respect or credibility, adopt protectionist policies, and ultimately refuse to be deterred by either nuclear arms or prospects of socioeconomic calamities. Such a dangerous shift could happen abruptly, i.e. under the instigation of actions by a third party – or against a third party.

Yet as long as there is both nuclear deterrence and interdependence, the tensions in East Asia are unlikely to escalate to war. As Chan (2013) says, all states in the region are aware that they cannot count on support from either China or the US if they make provocative moves. The greatest risk is not that a territorial dispute leads to war under present circumstances but that changes in the world economy alter those circumstances in ways that render inter-state peace more precarious. If China and the US fail to rebalance their financial and trading relations (Roach, 2014) then a trade war could result, interrupting transnational production networks, provoking social distress, and exacerbating nationalist emotions. This could have unforeseen consequences in the field of security, with nuclear deterrence remaining the only factor to protect the world from Armageddon, and unreliably so. Deterrence could lose its credibility: one of the two great powers might gamble that the other yield in a cyber-war or conventional limited war, or third party countries might engage in conflict with each other, with a view to obliging Washington or Beijing to intervene.

So far, China’s high level of economic growth has meant that widening social cleavages have not presented a serious threat to the rule of the CCP, which has managed to bolster its legitimacy by positioning itself as a regime capable of delivering prosperity to its people.14 However, it must be kept in mind that China’s developmental model is predicated on economic growth and positive relations with the USA, the country that its rise is supposedly threatening to unseat as hegemon of the international system. Despite the global economic downturn, the USA remains China’s most important export market, making up close to 20% of China’s foreign trade in 2010.15 There are two major reasons why this is the case. The frst has to do with the value of the Renminbi vis-à-vis the US dollar. By comparative standards, China’s currency is pegged well below its US counterpart, providing an immediate economic incentive to American consumers to buy Chinese goods. The second has to do with the low wages paid to Chinese workers. Although the wages of China’s urban workforce have increased over the past decade, they still remain extremely low by American standards. These low wages decrease production costs, which further lowers the price of goods and encourages US consumption.16 As a result of these factors, Washington has been placing pressure on China to revalue the Renminbi, arguing that it provides an unfair advantage to Chinese producers while at the same time hindering domestic production and consumption.17 Beijing’s resistance to this pressure stems from its fear that increasing the value of the Renminbi too rapidly could serve as a disincentive for investment, slowing exports to the USA and leading to unemployment to China. Since a major downturn in the economy could lead to protests and riots against the ruling party, as well as reducing the resources available for programs designed alleviate China’s social ills, the Chinese government remains dependent on US consumer demand in order to provide the prosperity that it uses to justify its rule. One consequence of China’s reliance on American consumption to ensure its own economic prosperity has been willingness of the Chinese government to invest heavily in US debt. Throughout the 2000s, Americans were able to borrow massive sums of money at low interest rates without having to worry about a negative reaction from fnancial markets, and much of that money was provided by Chinese banks. The Chinese were willing to invest in American debt for a number of reasons, the most important being that US Treasury bonds were seen as a safe investment, but also because buying up these assets allowed American consumers to keep spending money on Chinese goods. The trillion dollar obligation the US owes the Chinese places Washington in a weakened position, and on the surface, it does seem as if China holds a great deal of economic leverage over the USA. However, China’s vast exposure to American debt is a double-edged sword. The Chinese are too invested in the USA to withdraw their fnancing, which in turn decreases any leverage Beijing might have over American economic policy. This reason behind this entrapment has to do with several important pathologies of Chinese development. Stateowned enterprises continue to be a key component of China’s domestic economy; they depend upon growth in China’s privately owned foreign investment for growth and proftability (Vermieren 2014). This has led to a broad penetration of the use of fxed assets in both state-owned enterprises and in private enterprises that rely upon exports (Ibid 2014). Deleveraging itself from the USA would be diffcult. Even if the government slowly started selling off Treasury bonds, it would shake the confdence of international investors, leading to an increase in interest rates as the USA struggled to fnance its defcit and avoid default.18 Higher interest rates would also slow US consumer spending, hurting Chinese exports and its state-owned enterprises and leading to unemployment as factories close and workers are laid off. In addition to the domestic repercussions, any remaining US debt held by the Chinese government would decline in value, since it would become harder to sell off bonds as US interest rates rose. China’s economic future is therefore tightly bound to that of America, since any action that undermined the US economy would have dire consequences for the Chinese economy as well. Also, China has not completely insulated itself from domestic and international economic turmoil. It has started to reach a development plateau with its low-wage workforce requiring higher value-added industries in order to keep up its economic growth.19 Similar to other Asian countries, China must diversify its economic and political system if it wants to continue to develop. This does not suggest China will democratize in the near future, however, China’s continued development requires increasing the value of the Renminbi to lower the cost of purchasing foreign technology and reducing the intervention of the Chinese government in order to better meet domestic and foreign consumer demand.20 Thus far, the CCP has been willing to gradually increase the Renminbi but has been far more reluctant to withdraw its control from the economy—a testament to a regime that is highly self-conscious. Though China’s growth since 2008 had been mainly due to domestic consumption, there are limits on how protracted this recovery can be if the EU and America fall back into recession. Despite a burgeoning middle class, China still relies on foreign exports in order to keep its job market growing. If another major fnancial crisis hits a major trading partner, despite the resources of the CCP, it could hamper China’s economic growth. There are also fears China could experience a housing market collapse similar to the USA and Europe. Since the crisis occurred in 2008, the CCP introduced a series of stimulus measures coupled with low interest rates on loans from Chinese banks.21 The intent of these policies was to prevent a protracted economic recession from threatening China’s growth and ipso facto the legitimacy of the regime. Similar to the USA in the early 2000s, many Chinese people took out cheap loans and began to speculate on the value of their property.22 This has led to a housing market boom in areas of China, but has led many to worry that a collapse of the market may harm the Chinese economy. The government has begun to raise interest rates to lower demand, but a correction in the value of the market of this scale could represent the loss of the billions in equity for many Chinese people. While China’s banks have considerable government oversight—preventing a similar bankruptcy to Lehman Brothers in the USA—there is potential for a major recession to hit the Chinese economy. So, despite its institutional barriers in place by the CCP, the liberalization of the economy has made China vulnerable to fnancial markets. This could have massive potential consequences on the stability of the Chinese regime and on global economic stability. More recently, China’s economy has experienced a stock market crisis in 2015, though this has not translated into a broader economic downturn in the economy. There is, of course, some diffculty in relying upon government-based reports, since the government has a political incentive to promote data favourable to the regime. Nonetheless, despite the lack of reliable information there has been a slowdown in private-sector investment, from growth of more than 40% in 2011 to just 2.8% in the frst half of 2016 (Economist 2016). Rather than an anomaly, the lack of private-sector investment is indicative of other worrying signs in the economy. Although the Chinese economy is still growing, there are other sign of underlying economic strain. The credit market in China is on a sharp increase compared to nominal growth, growing at 16% this year, meaning loose monetary policy set by the central bank is allowing for both private and state-owned enterprises to leverage at a rapid pace. Moreover, China’s debt-to-GDP level has exploded—from roughly 150% before the 2008 global fnancial crisis to more than 250% in 2016 (Economist 2016). This puts it similar to countries such as Spain and Japan, both have long-term structural economic problems that will undermine growth for the foreseeable future. In a period of eight years since the onset of the fnancial crisis, China has gone from a country that was praised for its resilience, to one of the most in debt large economies in the world. While it would be premature to suggest China will face similar economic problems, the sheer amount of debt in China has led the IMF to publish a working paper on how to ease China’s debt problems before they lead to a crisis that will affect the domestic and international economy. The IMF report identifed several measures to ease China’s debt burden and aid its economy to transition from a middle-income country to a higher income country. The paramount recommendation is that the Chinese government must recognize and cease supporting, through favourable loans and government-backing, failing and bankrupt companies (IMF 2016). The Chinese government has long protected industries that have close ties to the party. Though there has been a recognition by the Chinese government to tackle corruption within state-owned enterprises, there is still a reluctance by offcials to let companies go bankrupt if they face signifcant economic problems. There is excessive corporate debt and a reluctance among the political establishment to lift the implicit guarantees on SOEs and make the necessary structural changes to reform China’s economy including the privatization of telecommunications and energy sectors (Economist 2016). While these economic recommendations may be necessary to avoid a crisis in China’s economy by providing some “short-term pain for long-term gain”, the political will to implement them is lacking (IMF 2016). There is a reluctance within the Chinese political establishment to accept policies that may undermine economic growth for fear of causing political strife in the country, even if in the long-term it may be benefcial to the country. These economic problems have not gone unnoticed by the people of China—there has been an exponential increase in the quality and quantity of strikes and protests from Chinese workers and social groups. As economic growth has slowed, wages and job growth have declined as well—many workers have been denied wages, leading to strikes and labour protests erupting across the country (Hernandez 2016). A labour rights group based in Hong Kong—the Chinese Labour Bulletin— recorded more than 2700 strikes and protests in 2015, more than double the number in 2014; the strife appears to have intensifed in the early months of 2016, with more than 500 protests in January alone (Ibid). Yet again, we get a signifcant tension between the top-down policy from the Chinese government and the response from people who are faced with precarious working conditions and less pay. If the Chinese government does implement structural reform to the economy, it will lead to the failure of many SOEs that have been propped up through favourable conditions by the Chinese government. However, if they are allowed to fail, more protests with erupt from angry workers who are either unemployed or must continue to accept less wages. Despite the sophisticated mechanisms for repression from the Chinese government, the protests are becoming increasingly better organized and sophisticated. Since protests have become widespread, protesters have been using social media as an organizational tool (Minter 2016). The response of the Chinese government to these protests across stateowned and private enterprises has been the same: to arrest dissidents, clamp down on social media and delete news reports on strikes (Ibid). In particular, the Chinese government has devoted more resources to limiting social media and quickly deleting protests and anti-government riots from dissenting workers. The Chinese government has a long-standing policy to block platforms that may be used to organize dissent or spread messages that threaten its legitimacy. For example, some of the largest social media sites used in the West, like Facebook and Twitter, have been blocked by the Chinese government and politically sensitive phrases are often quickly deleted from blogs and other websites (Bamman 2012). Even with these obvious impediments, labour groups use social media platforms to organize and spread their discontent. Some of the largest and well-organized protests, typically numbering in the thousands though diffcult to confrm, have come from China’s north-eastern state-owned coal industry, which has been hit by the slowing of the Chinese economy. The demands of the workers are commonplace payment of wages and better working conditions. However, the state-owned coal industry is caught in a bind: demand for coal has declined by 6% in 2015, while the industry must provide the supply at below market prices to keep energy prices low for other Chinese industries and for growing cities (Hornby 2016). The case of the coal worker strike highlights a growing tension within China: between the economic restructuring that is necessary to prevent a widespread recession throughout the country and the expedient political and economic policies that maintain control for the Communist Party. Indeed, the crackdown on worker protests and censorship is not a sign of strength, but speaks to the fragility of the regime: Despite appearances, China’s political system is badly broken, and nobody knows it better than the Communist Party itself. China’s strongman leader, Xi Jinping, is hoping that a crackdown on dissent and corruption will shore up the party’s rule. He is determined to avoid becoming the Mikhail Gorbachev of China, presiding over the party’s collapse. But instead of being the antithesis of Mr. Gorbachev, Mr. Xi may well wind up having the same effect. His despotism is severely stressing China’s system and society—and bringing it closer to a breaking point. (Shambaugh 2015: 2) The actions of the Chinese party against dissent are not a testament to its power, but a sign of its weakness. Unlike democratic countries, where people can voice their dissent and periodically vote their leaders out, the Chinese government is unwilling to tolerate political opposition to the regime. While the methods to combat protesters are getting more sophisticated, every time the Chinese government intervenes, it shows the vulnerability of the government: it is a self-conscious regime that is aware that its own legitimacy may be threatened. The actions of the business elite in China are another sign of discontent with the regime: 64% of 393 millionaires and billionaires polled by the Hurun Research Institute are currently emigrating or planning to leave China, and they are sending their children to study abroad (Shambaugh 2015). While it is far too premature to tell if the regime is threatened, the protests from industrial workers and the reluctance of elites to commit to the country’s future offer worrying signs for the regime. Moreover, China’s rapid development has not gone unnoticed by the American security establishment. Currently, two contradictory streams of thought about the relative rise of China are common among Washington policy-makers. First is that a prosperous China will be a positive outcome for regional and global security and development.23 Some policy-makers argue China has already integrated peacefully into the international institutions and a wealthier China could be a large market for imports from the USA. Thus far, at least, Beijing has been relatively accommodating to Western interests and open to Western investment. Even when tension has occurred in the past, such as when the Americans bombed a Chinese embassy in Kosovo, the close economic ties have been a stabilizing force in China’s relationship to the West.24 Thus China’s ascent could be peaceful if both sides are willing to continue compromising on economic and security matters. Indeed, thus far, the relationship between China and the USA has been called “interdependent hegemony”: the two powers have built a political and economic framework that provides accommodation and integrates China into the pre-existing hegemonic system where confict can be resolved through institutional channels (Christensen and Xing 2016). On the other hand, some in the security establishment believe it is only a matter of time before China becomes more assertive over Taiwan and scarce oil and other natural resources.25 They argue a rising China will displace the contemporary balance of power and instigate conflict with the USA. The past may not be indicative of the future and China is facing a series of domestic and international challenges moving from a middle-income to high income country. Also due to US pressure, China is facing growing pressure to realign its currency, a greater number of trade investment and intellectual property disputes, a more hostile security environment and exclusionary regional trans-Pacifc and transAtlantic trade agreements, such as the Trans-Pacifc Partnership (Glenn 2017). While US–China relations have been relatively stable for the past 40 years, it is not necessarily an indication that they will remain so inevitably as China continues to grow as a global power and the USA becomes more protectionist. With recent historical examples such as the ascent of Germany leading to the two world wars or the Soviet Union’s 50-year Cold War, they argue Washington should take precautions over a rapidly developing China. These policy-makers advocate heightened preparedness with increased military spending and stronger ties to allies in Southeast Asia.26 Washington should not be reluctant to take a hard line to defend its economic and security interests when they will be, inevitably, threatened by Beijing. This has led to a contradiction between those in the security establishment and those in the economic and business community. China is both a potential threat and a potential stabilizing force. As discussed earlier, China and the USA are highly interdependent with the Chinese holding trillions in US debt while relying upon the Americans to consume Chinese-made products. Many realists often point out Europe was highly integrated prior to the First World War, particularly Britain and Germany, but this did not prevent a catastrophic conflict from engulfing the continent.27 This ignores the fact many European leaders believed the war would be short and inexpensive, and not a long, protracted, violent affair that left millions dead and four empires in ruins.28 The war also displaced international economic integration for the next 50 years— not exactly a predictable outcome from a confict that was supposed to be over by the Christmas of 1914. Few, if any, scholars or policy-makers are under the illusion that a confict between China and the America would be cheap in terms of materiel or human lives or easily resolvable once started. Both Beijing and Washington recognize their mutual economic reliance and the advent of nuclear weapons, perhaps a key reason the Cold War did not cascade into a full out war, raises the costs of great power confict even further. Yet, many in Washington still view China as threat to American interests. While seemingly unaffected by the fnancial crisis, by 2015, China began to experience an economic downturn of its own. In many ways, China is a victim of its own economic model. Its stock market, which continued to grow after many in the West were mired in recession, experienced a rapid decline in the summer of 2015, losing almost $5 trillion in value. While stock markets are not the only, or even the best, test of a country’s economic vitality, there are other worrying signs China may be in for a diffcult period. The very industrial process behind China’s economic development—manufacturing goods for export—is being adopted by other countries in the region with cheaper labour markets, such as Vietnam. Though China is still a strong regional power, it seems to be experiencing a middle-income country trap. It is fnding the transition from middle-income status to high income, diffcult for a series of international and domestic economic problems. The rise of China could lead to tension with the USA, but conflict between these two countries would have dire economic consequences for the global economy. It is possible that domestic or international factors could lead Beijing to be more aggressive on issues such as Taiwan leading to a direct confrontation with the USA, but if the economic consequences of 9/11 or the fnancial crisis are any indication, fnancial markets will limit the policies of these countries. Both countries are reliant upon the free mobility of goods and fnance to maintain economic growth and prosperity. In China’s case, the regime depends on job creation for stability. The international economy in this case has conditioned the two countries to, at least thus far, peacefully co-exist with each other, with neither country willing to destabilize the global economy. Financial markets have the capacity to punish countries for acting contrary to the demands of capital and the USA and China are no exception.

Economic development initially worsens environmental externalities such as deforestation and pollution, including the accumulation of climate-damaging greenhouse gases in the atmosphere and oceans. But long term, pollution and deforestation can start to improve as economic growth boosts the incomes of once poor people. The wealthier people become the more they demand and get improved environmental quality via regulation and market mechanisms that promote cleaner and less resource-intensive processes and technologies.

For example, since 1980 carbon monoxide, sulfur dioxide and nitrogen dioxide air pollution is down 85, 80 and 60 percent, respectively, even as real U.S. GDP more than doubled. Data from the Food and Agriculture Organization of the United Nations’ latest global forest trends report shows that deforestation halts and reverses when per capita incomes reach a threshold of around $4,200. Economies increasingly grow by squeezing more value out of less stuff. The Worldwatch Institute reports that U.S. carbon intensity (the amount of CO2 emitted to produce a dollar of GDP) has fallen 60 percent since 1990.

An increasing frequency or intensity of armed conflict, in turn, would seriously affect efforts to cope with the pandemic (Mehrl & Thurner, 2020). Armed groups collaterally or intentionally destroy infrastructure that is essential to a healthy life, such as water, electricity or health care (Sowers et al., 2017, Wise and Barry, 2017). In line with this, Wagner et al. (2019) find that high-intensity armed conflict increased the mortality of female non-combatants in Africa by 202%. In the worst case, migration flows triggered by violence may spread SARS-CoV-2 even further.