The blockade of the Strait of Hormuz is not an isolated episode but the latest in a series of blows to the global trade and economic order that was established after the Soviet Union’s fall in the early 1990s. Hormuz should probably be unblocked one way or another – and (update alert) Donald Trump claimed in a social media post Saturday afternoon US time that this was about to happen:
I am in the Oval Office at the White House where we just had a very good call with President Mohammed bin Salman Al Saud, of Saudi Arabia, Mohammed bin Zayed Al Nahyan, of The United Arab Emirates, Emir Tamim bin Hamad bin Khalifa Al Thani, Prime Minister Mohammed bin Abdulrahman bin Jassim bin Jaber Al Thani, and Minister Ali al-Thawadi, of Qatar, Field Marshal Syed Asim Munir Ahmed Shah, of Pakistan, President Recep Tayyip Erdoğan, of Türkiye, President Abdel Fattah El-Sisi, of Egypt, King Abdullah II, of Jordan, and King Hamad bin Isa Al Khalifa, of Bahrain, concerning the Islamic Republic of Iran, and all things related to a Memorandum of Understanding pertaining to PEACE. An Agreement has been largely negotiated, subject to finalization between the United States of America, the Islamic Republic of Iran, and the various other Countries, as listed. Separately, I had a call with Prime Minister Bibi Netanyahu, of Israel, which, likewise, went very well. Final aspects and details of the Deal are currently being discussed, and will be announced shortly. In addition to many other elements of the Agreement, the Strait of Hormuz will be opened. Thank you for your attention to this matter! President DONALD J. TRUMP
Hormuz has made it inevitable that a new world order definitively enters the scene. It is one in which seamless globalization no longer properly functions; trade must be guaranteed by military force, as in the 19th century; and bilateral or multilateral exchanges are, in any case, risky.
Not even during the Cold War did such a situation exist. The two empires had specific codes of conduct that did not significantly impede the general trade flow within their respective blocs. Although the two blocs were separated, occasional exchanges still occurred, such as Western countries’ purchases of oil from Russia during the 1970s OPEC crisis. Today, by contrast, the chaos is not governed by bilateral or multilateral gentlemen’s agreements. Everything seems left to chance, events, and occasional bargaining and haggling.
Four blows
The first two blows to the order were a medium-term event and a response that sought to be equally medium-term in character. The first is the closure of the Chinese market and the non-full convertibility of the RMB. In practice, this has selectively separated China, the world’s largest industrial power and second commercial power, from the free circulation of goods and services in the rest of the world.
China also has a growing trade surplus and a currency considered undervalued, as Mark Sobel and Brad Setser have recently argued.
The second element is the American response, marked by the imposition of 19th-century tariffs that have affected global trade, not just China. For President Donald Trump’s America, the problem, in general, is its commercial and financial imbalance.
Many are responsible for it, including allies that have trade surpluses with America, thereby contributing to it. For China, the tariffs demonstrate that the problem is not Chinese isolation but rather the unsustainable American system of excess consumption, excessive imports, and de-industrialization — that is, the excess financialization of the economic system.
According to economist Wang Jian, who identified this over 20 years ago, before the 2008 financial crisis[2], America was a paper economy that could not hold. It needs a relationship with other parts of the world. But these are slipping from its grasp, and the whole thing is curdling like mayonnaise gone bad. China had no other option but to escape this American unraveling and create its own alternative system. The 2008 financial crisis in China seemed to confirm the thesis.
The third element is the closure of Hormuz, which raises the prospect of closing any of the world’s straits and would therefore impose some level of militarization of those straits. It’d be something that multiplies costs and entropy for America and the world. According to China, the one large country that has long prepared to stand out against the fallout from US-led globalization, this would be a new fault line for the US.
Four. The migration pressure sweeping through the Western world carries more than people. It’s a different phase of modernity, in which the white man no longer roams the world and settles it as he did for the past five centuries. Western white men often feel out of place and out of step with the past and without a new role in the present.
The automatic reaction can be: if we are not settling it, we are being settled by new waves of people we had colonized. They have very different worldviews and are changing our way of life and the way we ought to see things. The reaction can be: We are not adapting but opposing it. It then increases friction and entropy.
It all becomes hard to understand.
It’s epistemology, not trade.
It’s true: There is a deep epistemological challenge. The old world is gone, and China seems to feel that in its bones.
Beijing recognizes the crisis facing the Western world and responds systematically. It organized a congress on the proposition that “Theoretical elaboration refers to the process of elevating China’s diplomatic practices and theoretical understandings into academic theories, professional principles, and public knowledge.”
“China has its own distinct characteristics,” reportedly argued Liu Qing, vice president of the China Institute of International Studies. “Western theories of international relations are fundamentally shaped by Western centrism. By contrast, in China’s independent knowledge system of international relations, the concept of a community with a shared future for humanity occupies a central position.”
He emphasized that the first essence of building China’s independent knowledge system of international relations lies in “China.”
Western knowledge spread organically alongside Western power over the centuries, shaping modernity. China is now organizing an “independent” worldview to shape the future world through a centralized effort. Will it work? To what extent?
Something that is “China-centered” may seem to work for China, but how can it work for the rest of the world? Will the world be subjected to blackmail, forced to be tributary vassals of the Chinese system, or starved and marginalized? Some Chinese may think that the US operates just such a mechanism and thus Beijing can too.
There may be significant confusion and superficiality surrounding this diagnosis. Yet this effort deserves serious consideration because it goes to the heart of an anthropological crisis.
Mistrusts of the West
The Chinese position is grounded in deep mistrust of the Western world and is intended to defend the Chinese political status quo, but it’s not just that. There is a continuation of the old anticapitalist mistrust and difficulty in rationally understanding how a capitalist system works.
As philosopher Lorenzo Infantino long argued, socialist theory was refuted twice a century ago. In 1920, the Austrian economist Ludwig von Mises published a forty-page text, “Economic Calculation in the Socialist Commonwealth,“ which demonstrated that a socialist economy is impossible. His thesis boils down to a few lines: Without private property in the means of production, there are no market prices.
In a market economy, prices for capital goods and the means of production emerge from the interaction of supply and demand. These prices convey crucial information about relative scarcity and consumer preferences. Under socialism, the state owns the means of production, and there is no genuine market for them.
Without a market, there are no real prices for goods. Without real prices, economic planners have no way to calculate whether a given use of resources is efficient or wasteful. Therefore, socialist planners are essentially flying blind — they cannot allocate resources rationally. You can nationalize an economy. You cannot calculate it.
Friedrich Hayek later extended Mises’s argument, emphasizing the role of dispersed knowledge in his 1945 essay “The Use of Knowledge in Society.” He had an even deeper intuition.
The knowledge relevant to an economy is not concentrated in an office. It is dispersed across millions of minds, tied to local contexts, hands-on skills, on-the-ground intuitions and preferences that change every day.
No planner, even with the world’s most powerful computer, can aggregate that information. The market is not merely an efficiency mechanism. It is a cognitive mechanism. It is the only device ever invented that knows how to coordinate knowledge that no one possesses in full.
Rational but unconvincing?
The reasonable arguments were far more convincing than the vague “invisible hand” (possibly inspired by the Taoist wuwei, non-action) that Adam Smith intuited as the true engine of free markets in the 18th century, at the beginning of the capitalist revolution.
The failures of communist countries during the short 20th century proved the theory in practice and led to the eventual meltdown of the Soviet experiment.
Still, there might be something more, and more rational, against capitalism: the concern about its endemic instability and the sweeping financial-social crisis that brings everything to the verge of collapse now and then.
In his biography of Stalin, Stephen Kotkin describes the USSR’s critical juncture in the late 1920s. Trotsky was expelled from the party in his power struggle with Stalin, and the Soviet economic experiment was producing starvation and utter poverty. The socialist trial was going very badly. But Kotkin notes that just then, the unprecedented 1929 financial crisis re-convinced the socialists that Marx was right and that capitalism was about to die of its own liabilities.
Something similar, and perhaps deeper, happened in China between 2005 and 2009. The Chinese leadership was half-convinced that its political system didn’t work and that some political reform was necessary. It was about 90% certain that its economic structure didn’t work and that broader changes were needed.
Yet the US failures to export democracy in Iraq and Afghanistan, followed by the 2008 financial crisis, without a massive readjustment of the financial mistakes that led to it, reshaped many priorities.
The new consensus in Beijing was that the political system shouldn’t be democratized and that the economy could be tweaked but not overhauled, because the West was about to succumb.
Moreover, the Chinese economy was not flying completely blind. Its industry, geared toward exports, piggybacked on the US capitalist price assessment. Therefore, its currency and prices, although not fully aligned with a market-oriented valuation, are not completely out of whack like Soviet prices. Periodic price misalignments can be adjusted through international bargaining, which gives Chinese authorities extra leverage with their Western frenemies.
This gives China time and room to maneuver, assess the international situation, and respond accordingly. Any other option is less appealing, especially as chaos is growing elsewhere in the world. For instance, its relationship with Russia, though uneasy, remains important.
China knows that wuwei is hard to pin down and gauge. Moreover, giving political power to the market means taking it away from the leadership.
This might be acceptable if the market is fair and square, but if greedy capitalists and other forces rig it, wise leadership might be better overall.
Moreover, new AI technology provides wise leadership with previously unknown tools for knowledge that might outsmart a free market that has grown too dispersed and is thus often manipulated. Hayek’s argument no longer holds. Or does it?
What to do
We’re back to Lenin’s old revolutionary question: What is to be done?
Then it’s not just Hormuz or the war in Ukraine. Either China is brought back into the fold (but how and why should China accept it when, from China’s perspective, there are many downsides)?, or the US needs to develop its own separate system that might selectively include some countries of its choice.
The countries left out of the US system, which risk being taxed exorbitantly (through tariffs or demands for higher military spending), should be persuaded to join the common effort, or the unity will be broken, endangering the US itself and pushing everyone towards a China-centered world.
Or the US can pursue its own lonely “salvation.” But if it does, the rest of the world could gang up against it, openly or secretly.
Trump’s America may not yet have decided how to proceed. He is clearly right to ride the wave rather than wait for the water to crush the US on the sand.
In the meantime, Chinese intelligence argued that US-China ties are stabilizing, and now it’s about managing sticky issues-Taiwan. The report has no mention of Russia, Iran or North Korea. Will the outcomes of wars and the global arms race not change China’s or the US’s positions? Is Beijing offering a major trade deal to the US?
Possibly, the report aims to reassure both domestic and foreign audiences that the US-China relationship is under control and that the environment is conducive to investment and business.
The reality, however, may be different: It would be difficult for the US to agree to sell out Taiwan and all of Asia to China. If that happened, what would the US trade for? Would the rest of Asia accept this without reacting? Would India or Japan agree to become China’s vassals? Furthermore, would China abandon Russia and risk being surrounded? Is China ready to rein in North Korea, and how?
Perhaps, instead, a precarious yet precious equilibrium has been reached between the US and China. It may hold until the Midterms — and then we’ll see. Meanwhile, without a genuine Western effort, China’s worldview will drift farther from that of the US, to an even greater degree tearing the world asunder.
Francesco Sisci is the director of the Appia Institute, which originally published this article. It is republished with permission.