Before we get to this week’s interview, I want to share a warm thank you to everyone who watched my 2024 market outlook briefing. My goal with all the work I’ve done with John over the years, and with the work I’m doing with the Macro Team today, is to help you navigate a world in flux.
We are at the onset of a shift in the markets. In the years ahead, investors won’t be able to rely on broad-based ETFs to deliver great returns. A different approach is in order, and that is what I’ve spent the past years developing.
As I’ve mentioned before, my team and I use themes to guide our investment research. This allows us to focus on investments that will benefit from the biggest shifts and megatrends.
One of those themes, as I mentioned in my market briefing (click here to watch if you missed it) is the multipolar world. A common narrative I hear is that China is rising while the US declines. It’s a tidy story, but the reality is more complex. A range of countries and regions, including China, are growing their economic, military, and social power, while the US continues to lead the world in nearly every way that matters.
This theme was the impetus behind my latest Global Macro Update interview with Elbridge Colby.
Colby served as the Deputy Assistant Secretary of Defense for Strategy and Force Development from 2017 to 2018. He’s a co-founder of the Marathon Initiative, a foreign policy think tank, and the author of The Strategy of Denial: American Defense in an Age of Great Power Conflict.
We covered so much ground that I had to break this interview into two parts. In part one, which you’ll see today, I asked Colby if we are on a collision course with China. He said “yes.”
Taiwan is one potential near-term war catalyst.
Most Americans have a hard time grasping the tension over Taiwan. Why should the US care about an island right off China’s mainland that’s smaller than our biggest national park? Sure, it makes all those semiconductors, but is that worth going to war over (especially now that we’re reshoring more chip manufacturing)?
Colby says the heart of the issue here isn’t Taiwan, but China’s ambitions to dominate the Eastern Hemisphere, both economically and militarily… and then use that dominance to challenge the US from a position of even greater strength.
Take a look at this chart showing China’s military spending. It’s going up, up, up.
This makes sense when you consider that China feels threatened by the US, as Colby says.
Taiwan has increased its military spending, which you can see in the next chart. Yet it still spends less on defense as a percentage of GDP (2.6%) than the US (3.1%).
Taiwan is a wealthy, sophisticated country. If it wants to retain its quasi-independence—and recent elections there indicate it does—it can afford to bulk up on its own defense a lot more. Colby and I agree that your average American would have a hard time helping a country that isn’t doing everything it can to help itself.
In the interview, you will also hear why the US can no longer afford to act as the world’s policeman, along with other ways tensions with China could escalate in the near term.
You can watch my full interview with Elbridge Colby by clicking the image above.
A full transcript of our conversation is available here.
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