Strategic Stalemate: What Investors Miss About U.S.-China Competition
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What is the main topic discussed in this episode?
Welcome to PGIM's The Outthinking Investor, exploring the forces shaping global markets, past, present, and future. Join Dalip Singh as he talks to economists, policymakers, technologists, and veterans of global financial markets to explore what could happen next and why it matters. Now, over to Dalip.
Welcome to the Outthinking Investor. I'm Dalip Singh. There's a concept in military strategy called escalation dominance. The idea is that the side that controls the pace and the pain of a conflict determines the outcome. For most of the Cold War era, the United States had escalation dominance militarily, technologically, and also in the arena of economics. America controlled the financial rails, the technology, Technology stack and the trading system that every economy depended on. America wrote the rules and shaped the institutions that police them. And if America wanted to use economic power as a weapon against any other country, it could, though it rarely did so. America held that option. Other countries mostly didn't.
That era is over, and the US China summit is one of the clearest windows, in my view, that we've gotten into what comes next. The summit went on for 43 or so hours. There was a tour of Jiangnanhai, the inner sanctum. There was a dinner at the Temple of Heaven. There was a new bilateral framework, constructive strategic stability. that Beijing is describing as an agreement binding not just on this administration, but also successor US administrations. There were modest commitments on agricultural purchases and aircraft, and there were AI talks that both sides described quite differently. And then four days after the Americans left town, Vladimir Putin arrived. And he left with over 40 signed cooperation agreements, a joint declaration of a multipolar world, and President Xi warning of unilateral and hegemonic countercurrents running rampant.
So financial markets have read these events as stabilizing the temperature. Is reduced, catastrophic risk dialed down, and a relationship that was dangerously tense, now being managed towards peaceful coexistence. That reading isn't wrong, at least not entirely wrong, but it's certainly not complete. There are deeper set of takeaways that I think investors and observers need to absorb. Beijing came into the summit with a clear theory of the competition. And it's not a secret. It shows up in their official documents, public essays that China's Intel officials have written.
What is escalation dominance and how did it shape U.S. power during the Cold War?
And the argument goes something like this America is in structural decline. The window of China's ascendancy is open. And the task of Chinese statecraft is not to provoke, it's to buy time and to build capabilities while Washington exhausts itself from within. with social cleavages, fiscal profligacy, and political dysfunction. That to me was the strategic backdrop for what went down in Beijing. My guest today is Julian Gwertz, a prolific historian of China, my former colleague. At the White House, he was senior director for China and Taiwan affairs, which means he owned the China file at the highest level of the US government. And Julian being a scholar and a practitioner means he's a student of the long game that's being played.
Not just what was said at the summit, but where this competition is headed and what it means for global stability. Julian, thanks for being on the Out Thinking Investor.
Thanks so much, Talib. It's great to be with you.
So I want to start with recent history. The day before the summit, you published an essay in the New York Times. You wrote that she's ultimate goal is not to stabilize the relationship with America. It's to build a different world order with China at the center. And to understand these objectives, you point to a 90-year-old text from Mao on protracted war. Required reading, you argued, because the logic from Mao's piece maps almost perfectly to today. And it's been referenced repeatedly by Chinese state media and President Xi himself. And Mao wrote that. struggle plays out in stages. First a defensive stage, when the adversary is stronger, then a period of stalemate, when the forces are more evenly matched, and finally an opportunity for a counteroffensive that produces ultimate victory.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:03–2:50
2
What is escalation dominance and how did it shape U.S. power during the Cold War?
2:50–7:48
3
How did the recent U.S.–China summit illustrate a shift in great‑power competition?
7:48–14:41
4
Why does Beijing view the summit as a chance to buy time and build capabilities?
14:41–20:37
5
What are the strategic options for Washington to counter China’s time‑buying strategy?
20:37–26:57
6
How do the missing discussions on rare‑earth and AI chip export controls signal future market risk?
26:57–34:44
7
What are the contrasting U.S. and Chinese approaches to AI safety versus AI deployment?
34:44–37:12