When a creditor falters, the debtor is not automatically saved

The National Review's lead proposition is arresting: that only a thin slice of China's population participates in the tech sectors that have so dazzled the world's strategic commentators, and that the administration is therefore flattering a country already in structural retreat. I have no recollection of events after 1946, and I will not pretend otherwise. But I know something about what happens when the apparent strength of a large economy is mistaken for durable capacity — and about what happens when the decline, once it arrives, is handled badly by those watching from across the table.

The analogy I reach for, as inference rather than recollection, is the Germany of the 1920s. A country that looked, from certain angles, formidable — industrial base, educated workforce, engineering tradition — and yet whose internal imbalances were severe enough that the Versailles settlement's demands could not, in the end, be met. The lesson was not that Germany was weak; the lesson was that the form of the weakness mattered enormously, and that the creditor nations who ignored that form paid for their inattention in ways they had not anticipated.

If China is indeed faltering — a demographic cliff, a property sector whose debts have not cleared, a technology sector whose workforce is narrower than its headlines suggest (National Review's claim, which I take at face value for these purposes) — then the question is not simply whether the United States can press its advantage. The question is what kind of decline we are managing. A disorderly descent by a country that holds substantial dollar-denominated claims, that sits at the centre of supply chains the world has not yet diversified away from, and that retains the capacity to impose costs on its trading partners even while weakening, is a very different matter from a graceful managed adjustment.

"Animal spirits" — the phrase I coined for the expectations and confidence that drive investment decisions — do not respect national borders. If the world's investors conclude simultaneously that China's model has broken, the resulting re-pricing will not stay contained within Chinese equity markets. That is a macroeconomic claim, not a geopolitical one, and it is the claim I am best placed to press. The paradox of thrift applies internationally as surely as domestically: if every major economy simultaneously repatriates capital, tightens trade exposure, and builds strategic reserves against Chinese instability, the aggregate demand consequences are not the sum of individually prudent decisions. They are considerably worse.

What, then, is the policy that is actually buildable? First, a clear-eyed assessment of China's structural position — not flattery, as National Review charges, but equally not triumphalism — that distinguishes between sectors of genuine competitive strength and those inflated by state subsidy and narrative. Second, international monetary coordination of the kind I laboured over at Bretton Woods: pre-agreed mechanisms for managing capital flows if a large economy undergoes sudden adjustment, rather than improvised bilateral deals struck under pressure. And third, domestic investment in the United States and its allied economies sufficient to ensure that whatever China's trajectory, the aggregate demand of the rest of the world does not depend on Chinese growth to sustain itself.

The historical Keynes was capable of prejudices about other peoples that I do not carry forward and that I acknowledge as moral failings. What I do carry forward is this: the economic consequences of political settlements — and of the diplomatic flattery or confrontation that precedes them — are always longer, wider, and more damaging than the negotiators in the room believe at the moment of agreement. Read the arithmetic carefully. The trajectory matters more than today's headline.