History Traps?

Who was Thucydides?

Source: US Army, Wikipedia

Thucydides was an ancient Athenian general who wrote about the Peloponnesian War between Sparta and Athens. Sparta had been the dominant power in Greece. They had a harsh military culture built around their seemingly invincible army. Athens was a rising power, commercially and at sea. They had built the most powerful navy in the Mediterranean Sea. War between the two city-states was inevitable, according to Thucydides, because Athens’ growth challenged Sparta’s dominance. An irresistible force met an immovable object. They ended up with the Peloponnesian War.

The Thucydides Trap is a conundrum that’s been written about by the historian Graham Allison. He found 16 times in world history when a dominant nation was threatened by the rise of an emerging power. Three quarters of the time it ended in war – the most destructive of which was when Germany’s rise challenged the British Empire in the early 20th century. That resulted in two world wars and over a hundred million dead.

Today, the Thucydides Trap could describe the relationship between China and the US. China is rising; the US is dominant. After the Cold War, we were the world’s sole remaining superpower. Western political and economic institutions became so dominant that several scholars declared that our liberal democratic and capitalistic system was the “end of history”: there is no comparable, coherent system to compete with this structure on a global scale.

But China’s rise does threaten the “Pax Americana.” China has a fast-growing economy, a rising middle class, and the desire to be taken seriously on the global stage. They are now the world’s largest producer of ships, steel, aluminum, autos, cell phones, and computers. Baidu rivals Google as the world’s largest search engine. Alibaba rivals Amazon as the world’s largest online marketplace. Conflicts at sea, in space, in cyber-space, and in trade are all possible, and need careful, deliberate management.

War doesn’t always happen when a rising power displaces an established power. The UK backed off in the 1890s when President Cleveland accused the British government of meddling in Venezuela, violating our Monroe Doctrine. They could have sent warships, but Britain backed down, and went to international arbitration rather than war. Our special relationship with England has been the result.

War doesn’t always happen, but war has happened 12 out of 16 times with the “Thucydides Trap.” If we do business as usual with the Chinese, we may end up with history as usual. Let’s hope we can work things out peacefully.

Douglas R. Tengdin, CFA

Charter Trust Company

“The Best Trust Company in New England”

By |2019-05-02T05:56:13-04:00May 2nd, 2019|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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