Jul.20

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The Iran War Is an Incredible Gift--to China

When Donald Trump decided to attack Iran, he assumed there would be a loser and a winner in 4-6 weeks. The Iran War is now in its 21st week, the memorandum of understanding is in shambles, and there are increasingly many battles every day, with no end in sight. And Trump was wrong about there being one loser and one winner. There is one loser and two winners. The loser is the United States. The winners are Iran and China.

The U.S. is a loser because none of its war goals were achieved, including regime change and stopping Iran's efforts to build a nuclear weapon. In fact, it is now worse off because over a dozen American soldiers lost their lives in the war, the U.S. stockpile of munitions is greatly depleted, the war cost tens of billions of dollars, Iran has emerged as the dominant power in the region, and America's Arab allies are going to have to respect Iran now.

Iran is a winner because it has withstood the most powerful air attack in at least 80 years and survived. It also learned that it can hold the world hostage any time it wants to by closing the Strait of Hormuz. Before the war, it could only dream of closing the Strait and getting away with it. Now it knows it can. It has also learned that it can charge tolls for safe passage and get away with it, thus providing it with a vast amount of recurring money with which it can buy advanced Chinese weapons.

But the other big winner is China, for at least three reasons:

• America Is Weaker: China, which depends on oil from the Middle East for much of its industry, has always seen American dominance of the region as a critical liability. America always had the power to get its allies to turn off the spigot if times got tough. That power is now gone and it is China's ally, Iran, that is in the driver's seat. Many of the countries in the region sense this and will draw closer to China to hedge their bets. Trump doesn't realize it, but one of America's sources of power in the world is the role of the dollar in settling most contracts. The U.S. alone doesn't have to worry about its exchange rate against the dollar. Iran is beginning to accept payment in Chinese renminbi, which weakens the role of the dollar.
  
  
• The World Relies More on China: Europe and Asia see the handwriting on the wall and it says: "Your oil supply hangs by a thread." Their response in both the short term and long term will be to wean themselves from oil. That means solar panels, wind turbines, electric cars, and yes, a Green New Deal. That is both a business bonanza for China, which makes all this stuff, and the creation of a new—Chinese—chokepoint. While Iran can cut off the supply of oil, China can cut off the supply of rare earths, batteries, solar panels, electric cars and more, and everyone understands this. Better not to awake the sleeping giant.
  
  
• China Is a more reliable business partner: China always drives a tough bargain on business deals, but once the deal has been signed, it always follows through and never reneges because Xi Jinping got up in the morning in a foul mood. Other countries know that with China, a deal is a deal. With Trump, they know that an hour after signing, he can have a fit of pique, unilaterally cancel the deal, and impose a punitive tariff on them because they refuse to obey his latest bleat. Xi doesn't do that. It is hard to do business with someone who doesn't keep his word and regards following through on signed contracts as a mere suggestion.

In the past 25 years, the U.S. has exhausted itself in three pointless ventures in the Middle East: Iraq, Afghanistan and Iran. China has simply built up its manufacturing capacity and constructed hundreds of dark factories, while America's manufacturing capacity has withered. And for Xi, the best part is that China's advance in the world has cost China nothing. It just minded its own business while the U.S. was busy destroying its own power. What a gift! (V)