The Hidden Mesh: How Trade Tentacles Replaced Tank Treads in Global Power Plays #254
Cold Commerce Replaces Military Force in US-China Rivalry
Grüezi!
Panic incentives, not principled diplomacy, forced the US-China tariff truce – economic pain trumped political posturing at 40% and counting
Trump pivots from bombing Houthis to brokering billion-dollar Gulf deals – commerce replaces combat as the Middle East's new battleground
Chinese weapons score first blood over Kashmir, challenging Western air superiority – is Beijing's military tech finally proving its mettle?
1️⃣ How Commercial Weapons Replaced Military Firepower
From The Grand Illusion to the Hidden Mesh
Economic interdependence should have made WW1 unthinkable…
Norman Angell’s 1910 thesis on economic interdependence vindicated—he was a 100 years too early.
Economic pain forced compromise: millions of Chinese jobs vs empty American stores
High tariffs remain: 40% US on Chinese goods, 25% in reverse
Poor Norman Angell. In 1909 the British journalist shook the world with The Great Illusion, insisting that dense trade and financial ties made great‑power war wildly uneconomic. A few years later Europe marched to fight and his book became a by‑word for naïve optimism.
A century on, Angell looks less wrong than premature. Interdependence has not abolished rivalry, but it has moved the arena from trenches to spreadsheets. The United States and China—linked by roughly $700 billion of annual commerce—cannot afford a shooting war, yet each now treats those same links as the sharpest instruments of statecraft.
The 20th‑century Grand Illusion has matured into what we might call the Hidden Mesh: a largely invisible web of supply chains, capital currents and data routes that sovereign governments can twist, throttle or subsidise at will.
Tariffs, not tanks
The January 2025 tariff truce makes the Mesh visible. After six years of ratcheting duties, US retailers dreaded empty shelves whilst Beijing feared ten million factory layoffs. Panic incentives forced both capitals to freeze levies at 40% (US) and 25% (China). No principle was surrendered, yet economic pain imposed a compromise that negotiators alone could not.
Neither side could afford economic divorce—both ended up in the spare room.
Angell’s logic finally bit: destructive policies were capped because economic ruin threatened both sides more than the politics of face‑saving did.
Guns still roar—and budgets too
None of this means the cannons have fallen silent. Wars smoulder in Gaza, drones buzz over Kashmir’s Line of Control, and Yemen’s fragile cease‑fire collapses every other fortnight. Global military outlays topped $2.4 trillion in 2024, the eighth straight annual rise.
But even in these hot zones, coercion is flanked by cash‑flow calculations: Israel fights under the shadow of potential US aid freezes, India and Pakistan trade artillery but hesitate to throttle cross‑border power projects, and Gulf monarchies offset missile defence costs with giant equity stakes in American tech. The shooting has not stopped; it is simply budget‑constrained and bond‑market‑monitored.
Four levers in the Mesh
Gatekeeping – deny rivals the inputs that define the technological frontier. Washington’s 2024‑25 chip‑tool embargo starves Chinese fabs of extreme‑ultraviolet lithography.
Network centrality – weaponise control of chokepoints. Beijing’s grip on rare‑earth oxides and battery chemicals lets it squeeze Western automakers.
Positive inducements – lure partners with subsidies or market entry. The Inflation Reduction Act pulls allied clean‑tech plants stateside; China’s zero‑tariff pacts with ASEAN do the mirror image.
Shadow pressure – harass via informal boycotts or regulatory slow‑walking. Lithuanian exporters learned this after Vilnius let Taipei open a “Taiwan” office.
Mutually assured disruption
What flows through the Mesh is neither peace nor war but economic mutually assured disruption. Supply‑chain collapse now disciplines even populist leaders; they can stoke nationalist anger only until supermarket aisles thin out. The price of coercion is set by voters’ patience and investors’ risk models, not by the size of an arsenal.
Power therefore migrates to whoever controls the chokepoint—whether that is ASML’s patents in Eindhoven or China’s gallium smelters in Inner Mongolia. Tomorrow’s crises will register first in container rates, insurance premiums and export‑licence filings long before they appear in casualty counts. Boardrooms, not barracks, will supply the early‑warning sirens.
Angell, revised
Angell prophesied that prosperity would make war irrational; he underestimated how resourcefully nations would weaponise prosperity itself.
The defining clashes of the 21st century are less likely to resemble Midway or Kursk than a midnight customs‑code tweak, an impatient bank server or a surprise export ban. Until bullets fly, it’ll be the Hidden Mesh—silent, supple and pervasive—will decide who bends and who stands firm.
2️⃣ The Empire Strikes Deals
Middle East power shifts from combat to commerce
Trump abruptly ended Yemen bombing campaign before starting Middle East tour
Military operation cost over $1 billion and lost valuable assets with limited success
Gulf states now committing trillions in US investments and technology partnerships
Swapping military failure for commercial victories
For 60 days, the US military conducted an expensive bombing campaign against Yemen’s Houthi rebels, who had been attacking ships in the Red Sea. The operation cost over $1 billion, losing expensive military kit like fighter jets and drones in the process, and it failed to stop the Houthis from threatening shipping.
The deadly campaign also ended with embarrassment. The Houthis agreed not to attack American shipping anymore, but they can still disrupt global traffic by targeting other vessels. Companies must still sail around Africa rather than use the Red Sea shortcut – adding time and cost to global trade.
Never one to dwell on defeat, Trump abruptly declared ‘mission accomplished’ and pivoted to an ambitious Middle East tour focused on investment deals.
What Trump’s tour was really about
Trump’s Middle East tour isn’t focused on traditional security concerns or peace deals – it’s primarily about striking massive commercial arrangements. Forget peacekeeping; this is profit-taking on a grand scale.
Saudi Arabia has committed $600 billion in US investments. Qatar is buying 160 Boeing planes as part of $1.2 trillion in deals. The UAE is getting access to advanced AI computer chips. Commercial relationships now outweigh military calculations.
The Saudi calculation
For Saudi Arabia, these investments are about insurance and influence. By pouring money into American businesses, they create powerful economic incentives for the US to maintain relations regardless of other disagreements.
This gives them leverage in Washington whilst
advancing Crown Prince Mohammed bin Salman’s plans to modernise and diversify the Saudi economy beyond oil. The $142 billion weapons package strengthens their military position without requiring immediate peace with Israel.
Qatar’s diplomatic comeback
Qatar’s deals are an extraordinary turnaround. During Trump’s first term, the US sided with Saudi Arabia and UAE when they blockaded Qatar, accusing it of supporting terrorism.
Now Qatar is spending trillions on American goods and tech partnerships, whilst cementing its status as a key partner hosting America’s largest regional military base.
The UAE’s technology pivot
The UAE has made a strategic choice to break its technology partnerships with China. The reward? Access to advanced AI computer chips previously restricted by export controls.
This positions Abu Dhabi as America’s premier technology partner in the region whilst advancing its ambitions to become a global AI hub. By choosing sides in the US-China technology competition, they’ve gained privileged access that neighbouring states cannot obtain.
The Syrian surprise
Most shocking development? Trump met with Syria’s new leader Ahmed al-Sharaa, a former jihadist who toppled long-time dictator Bashar al-Assad. Trump announced he would lift all sanctions on Syria’s government despite Israel’s objections.
This offers Syria a path to international acceptance and economic recovery after a devastating civil war. Trump even suggested Syria might eventually normalise relations with Israel through the Abraham Accords peace framework.
Israel’s growing isolation
These developments create serious concerns for Israel. Trump’s Middle East tour skipped Israel entirely whilst engaging with Syria, “one of Israel’s biggest foes.” Israeli officials still describe Syria’s new leader as a jihadist and are opposed lifting sanctions. This signals shifting American priorities and forces Israel to reconsider its dependence on Washington as its primary security guarantor.
Commerce over chaos
What we’re seeing is a fundamental shift in America’s Middle East strategy. Instead of addressing regional security threats through military intervention, Washington is prioritising investment flows and technology partnerships.
This is a prime example of the Hidden Mesh in action. By creating economic interdependence, the US is looking for a more durable and beneficial influence than expensive military deployments.
Will it work? Let’s see.
3️⃣ Apple’s China iStrain
Disassembling ‘Designed in California.’
Apple invested $275B+ in China over 5 years
India’s iPhone manufacturing is only ramping up slowly
‘China+1’ strategy masks fundamental supply chain dependencies
Beijing has more operational influence over Apple than Washington does
The tech world’s most consequential relationship faces unprecedented strain as nationalism collides with economic reality. The result? A high-stakes game of corporate brinkmanship with global implications.
The depth of entanglement
Patrick McGee’s provocative new book Apple in China: The Capture of the World’s Greatest Company quantifies what many suspected but few fully understood.
McGee says Apple’s China investments reached $55 billion annually and helped train 28 million workers—a labour pool bigger than California’s entire workforce.
The China relationship created manufacturing efficiencies that proved irresistible to shareholders and were impossible for competitors to replicate—the process of decoupling will not be easy.
The India illusion
The diversification numbers—production outside China had risen to 35% by 2023—mask some hard manufacturing realities.
India’s iPhone production reached ~25 million units by 2024, seven years after starting production. China went from zero in 2007 to ~200 million phones by 2014.
As McGee says:
‘If next year you buy an iPhone and it says “Made in India” on the box, that phone will not be any less dependent on the China-centric supply chain than any other iPhone you have ever purchased.’
Without Chinese components, sub-assembly processes, and decades of accumulated expertise, the global iPhone supply chain simply collapses. ‘Designed in California, Dependent on China’ would be a more honest slogan.
The geopolitical accounting
Wall Street took $760 billion off Apple’s market value during tariff uncertainty. Tariffs have so far exempted smartphones and computers—a tacit acknowledgement of the economic realities that transcends the America First rhetoric. The 90-day tariff rollback provides breathing space, but it doesn’t resolve the tension between security concerns and economic interdependence.
4️⃣ The Aerial Arms Bazaar
Chinese missiles draw first blood in Kashmir
The skies above Kashmir have become an impromptu weapons expo for Chinese military tech.
Pakistan’s reported downing of Indian jets—including French Rafales—using Chinese J-10C fighters has sent shockwaves through defence ministries.
After decades of being dismissed as knockoffs with dubious reliability, Beijing’s hardware has potentially scored its first significant combat victory against Western-grade opposition. The question now isn’t whether Chinese weapons work, but how well they work—and who might be queuing up to buy them.
Dogfight dividend
The recent conflict between Pakistan and India has triggered a global reassessment of Chinese weapons, challenging long-held perceptions about their inferiority to Western alternatives. Pakistan’s Foreign Minister Ishaq Dar specifically credited Chinese J-10C jets with shooting down five Indian aircraft, including the prestigious French-made Rafales.
Whilst India has maintained ‘strategic ambiguity,’ the Indian Air Force acknowledged that ‘losses are a part of combat’ without providing details, adding only that all its pilots had returned home.
The J-10C’s manufacturer, Chengdu Aircraft, saw its market cap soar by over $7.6 billion — jumping over 25% in a week. The J-10C, priced at approximately $50 million compared to the Rafale’s significantly higher cost, had never before recorded an air-to-air kill in combat.
Adding to the Chinese military myth-making, its state media subsequently highlighted what may be the first combat use of hypersonic missiles to destroy an Indian S-400 air defence system in Punjab.
Quality questions persist
Despite these apparent successes, Chinese weapons exports have long battled perceptions of substandard quality. Defence specialists note that seemingly inexpensive systems often drain security budgets through excessive maintenance requirements.
Myanmar reportedly grounded its fleet of Chinese fighter jets in 2022 due to structural cracks and technical issues. Bangladesh lodged formal complaints about Chinese military hardware quality. Even Pakistan has experienced problems with its Chinese F-22P frigates, operating them with significantly degraded capabilities.
But for now, China’s latest technology has proven to be affordable and effective. And that’s bound to have countries asking questions about where to source their weaponry.
5️⃣ Inside China’s ‘Neijuan’
The economic death spiral that’s eating manufacturing alive
Neijuan describes China’s self-destructive ultra-competitive cycle where prices fall below sustainable levels
Manufacturers slash profits to kill rivals rather than maintaining healthy margins
This isn’t predatory pricing but a cultural approach to competition that baffles Western economists
When writer Angelica Oung described Chinese manufacturers slashing prices far below what profit-maximising would suggest, she wasn’t documenting simple price competition – she was revealing the logic of neijuan, possibly the most important business concept you’ve never heard of (and certainly can’t pronounce).
What actually is neijuan?
Neijuan (内卷) literally means ‘inward rolling’ or ‘involution’ – a process where competition becomes excessive and destructive rather than productive. It’s a race to the bottom where Chinese companies pour more resources into competition without increasing returns, deliberately sacrificing profits to gain market share until their entire industry operates on razor-thin margins. Everyone works harder, everyone earns less, no one can escape the competitive trap.
The widget economic massacre
Oung gives the example of a German precision manufacturer outsourcing to China, enjoying big margins for years, then watching in horror as its Chinese partner learns to make the product independently.
Instead of pricing the widget at €6k (still massively undercutting the €8k German price), the Chinese manufacturer prices at €950 – barely above cost.
Why do Chinese companies do this?
Several reasons:
State industrial policies that prioritise market share over profitability
Intense domestic competition creating ‘survival’ mindsets
Cultural perspectives valuing long-term positioning over short-term returns
Rapid knowledge diffusion among competitors.
For Western firms, this presents an existential challenge: how do you compete with rivals willing to sacrifice profit almost suicidally?
This isn’t temporary predatory pricing to monopolise markets. Even after erasing competitors, neijuan-minded manufacturers keep costs down and prices low, sacrificing potential profits permanently. Staff sacrifice salaries, margins remain thin, and shareholders wonder why stocks underperform despite market dominance.
In Chinese society, it manifests as ‘incessant anxiety and cutthroat competition from which no one benefits.’ It’s capitalism’s Red Queen’s race: running faster and faster just to stay in place.
For Chinese policy-makers, there’s a lesson to be learned in making economic progress feel like actually winning.
6️⃣ China’s Electrons vs America’s Molecules
Electropol is the new Geopol
China’s electricity share growing 9× faster than rest of world
Xi reframed energy policy as vital national security issue
$800bn grid upgrade moving desert solar to coastal factories
Coal still dominates despite clean tech manufacturing boom
US LNG exports can’t match economics of Chinese renewables
The silent revolution
In the contest of great power competition, China has been quietly rewiring its economic foundations. There’s a fascinating deep dive on the ‘electrostate’ in this week’s FT.
TL;DR? The future has arrived—and it speaks Mandarin.
Electricity now accounts for nearly 30% of China’s final energy consumption, up from 22% a decade ago. Beneath this seemingly modest shift is a profound transformation occurring nine times faster than anywhere else on earth.
When Xi Jinping assumed power in 2012, he swiftly identified energy dependence as China’s Achilles heel. His 2014 directive to ‘revolutionise’ China’s energy system wasn’t climate activism—it was a strategic gambit for autonomy. The calculus was simple: a nation dependent on foreign oil remains vulnerable to maritime choke points controlled by US naval power.
Infrastructure as destiny
The physical manifestation of Xi’s strategy stretches across the Middle Kingdom—over 40 ultra-high-voltage transmission lines carrying renewable electricity from western deserts to eastern industrial hubs. An $800 billion grid upgrade stands as concrete evidence of Beijing’s commitment to reshaping its energy future.
Chinese companies have poured $156 billion into outbound clean technology across more than 200 transactions since 2023 alone. The domestic dividend is equally impressive—clean energy sectors now account for 10% of GDP and drove a quarter of China’s economic growth last year.
Yet contradictions abound. China began construction on more coal plants last year than it has in a decade. Power sector emissions reached new highs despite renewable growth. Academic models suggest this isn’t as paradoxical as it seems—aggressive electrification reduces emissions overall even with a slower coal phase-out.
Whilst America wields tariffs, Beijing counters with indispensability. Trump’s trade moves face a backlash from US tech giants dependent on Chinese manufacturing. In Africa and across the Global South, positive views of China outweigh negative ones by three to one.
China offers developing nations solar power at $0.03 per kilowatt-hour—half the cost of coal and significantly cheaper than American LNG exports. This isn’t just clean energy; it’s affordable energy independence.
That deal becomes irresistible when $1 spent on importing solar panels saves $1 annually in gas imports whilst generating the same electricity. LNG salesmen need not apply…
7️⃣ Some News About Me
I’m giving a commencement speech
No one can beat Reese Witherspoon’s “What, like it’s hard?’ commencement classic.
But of course, Legally Blonde came out in 2001. A year—or maybe three—before this year’s graduates were born.
My son also graduates this year, and the class of 2025 is entering a world at a genuine inflection point. I’ll be speaking in Lugano, but the next century will is also being built in cities from Lagos to Lahore.
Fascinating to see what they make of it all—assuming we haven’t economically assured our mutual disruption by then.
Thanks for reading!
Best,
Adrian
