In a speech delivered during Donald Trump’s visit to Beijing last May, President Xi Jinping invited the United States not to fall into the Thucydides’ Trap, reminding them that it is not inevitable for a declining power and a rising power to go to war.
Upon his return to Washington, Trump replied on his Truth Social network that the United States had been in decline under the Biden administration, but not under his own. With this brief tweet, Trump showed that he had not understood Xi Jinping’s remarks and had never heard of Thucydides, the historian of ancient Greece.
What the Chinese president was telling his guest was that the United States has lost its monopoly on global supremacy and that it would be dangerous to try to regain it through war. He was inviting Americans to accept the shift in the global geopolitical balance in China’s favor and to limit competition between the two powers to the economic sphere.
The growing rivalry between the two countries is the expression of a shift in the global geopolitical balance, where American hegemony is no longer what it was after World War II. And paradoxical as it may seem, the United States is a victim of the inexorable laws of capitalism, of which it has been the flamboyant embodiment for a century.
The very laws it championed have weakened it within an international division of labor that has integrated peripheral regions that were once structurally underdeveloped. By integrating China into globalization, international capital hoped to kill two birds with one stone: produce goods with low wages and gain a foothold in a market of more than a billion potential consumers.
Thirty years later, Western countries realize that they have contributed to the emergence of a powerful competitor that challenges them on their own ground—a competitor far more dangerous to their strategic interests than Russia.
China’s Integration into the International Division of Labor and Its Consequences
Beginning in the 1980s, American companies relocated production to China and other countries in the Global South, considering American workers’ wages too high. They chose to supply the American market with products manufactured in China, Mexico, Vietnam, and elsewhere.
The globalization of the 1980s and 1990s was a large-scale phenomenon of offshoring driven by the profitability requirements of financial capital. Successive administrations, both Republican and Democratic, encouraged the movement, assuming that China, while manufacturing jeans and dolls for the American market, would eventually acquire the purchasing power needed to buy high value-added goods such as Boeing airplanes and HP computers.
China played along while simultaneously moving up the production chain to master the expertise of foreign companies. Its universities trained hundreds of thousands of engineers and managers who equipped the workshops of the 1990s with laboratories, transforming them into innovative production units. In two decades, China succeeded in mastering technologies related to artificial intelligence, energy, robotics, advanced materials, and biotechnology.
Chinese research and development centers now rival those of Europe and the United States, bringing technological dependence to an end. By 2015, measured by GDP, China had become the world’s second-largest economic power. Never in history has there been economic development so rapid and on such a scale. The primitive accumulation of capital in England and France, which laid the foundations for industrial development, unfolded over two centuries during which these two countries established themselves as major global economic powers.
The United States became concerned about China’s rapid growth, which challenges its hegemony, particularly in Asia and Latin America, where the Monroe Doctrine is increasingly ineffective. The military-ideological competition between the capitalist West and the communist bloc in the postwar era has given way to a politico-economic rivalry between the West and China. China appears to have mastered the grammar of capitalist competition, challenging Western countries on the very terrain where they had demonstrated their superiority: the economy.
The Chinese took advantage of the contradictions of global capitalism by welcoming multinational corporations that produced for the rest of the world rather than for the Chinese market. The strategy consisted of using the local labor force and exporting the goods produced while waiting for domestic private capital to master the know-how of foreign firms.
China chose to integrate into the global economy through the export of manufactured goods by leveraging comparative advantages. It did not withdraw from the international price system; it complied with it while improving labor and capital productivity in order to achieve the required competitiveness. It is as if the choice had been made to insert millions of workers into the sphere of global manufacturing production.
This led to the formation of a domestic market with its own effective demand, in the Keynesian sense, accompanying export-led growth. This strategy is reflected in the evolution of monthly wages: $49.5 in 2000, $81.6 in 2011, and $281.3 in 2020.
It should be noted, however, that while China opened itself to economic liberalism, it rejected neoliberalism, which erases the boundary between market goods and non-market goods. Indeed, neither education, nor healthcare, nor transportation in China are exclusively sources of profit. The state sector provides what economist Alfred Marshall called “external economies,” that are costs borne by society to enable capital (both public and private) to be profitable.
The state provided the external economies that allowed national production to prosper: healthcare, education, infrastructure, communications, and finance. The Chinese growth model is characterized by the following elements: 1. Manufacturing production oriented primarily toward exports. 2. The formation of local effective demand as a result of increasing purchasing power among different social groups. 3. A state economic sector playing the role of external economies.
China accepted the supremacy of the dollar while purchasing U.S. Treasury bonds and building the largest foreign exchange reserves in the world, held mainly in the American currency.
The Dollar and U.S. Public Debt
The dollar was declared the de facto international currency in 1944 by the Bretton Woods Agreements, which nevertheless took the precaution of linking its parity to gold. Its convertibility was guaranteed by the volume of gold held by the Federal Reserve. This convertibility was abolished in 1971 by the Nixon administration in order to finance the Vietnam War. From then on, Congress would vote for military expenditures without worrying about either gold parity or a balanced state budget, hoping that the surplus relative to GDP would be absorbed by the rest of the world.
Since then, the volume of dollars in circulation has multiplied dramatically, and despite cyclical fluctuations, the American currency has remained solvent because of an expanding U.S. economy that had no competitors of comparable size during the 1970s and 1980s. When the oil shocks of 1973 and 1979 occurred, demand for dollars increased due to rising hydrocarbon prices.
The United States and the Gulf monarchies, including Saudi Arabia, had concluded a tacit pact whereby hydrocarbon sales would be denominated in dollars. This gave rise to the petrodollar system, which became integrated into the American financial circuit, as if the GDPs of the Gulf monarchies were added to that of the United States, giving the dollar robust international validity.
Nevertheless, the dollar sometimes declined in value, affecting the trade balances of all countries in the world. When a foreign senior official complained about this to John Bowden Connally, Treasury Secretary under the Nixon administration, he replied: “The dollar is our currency, but it is your problem.”
These were the 1970s, during which the principal adversary, the Soviet Union, was on the defensive, China was still underdeveloped, and Third World leaders had lost their revolutionary fervor. The Empire was at the height of its power, with a king-dollar embodied by the New York Stock Exchange, to which those of London, Frankfurt, Paris, Tokyo, and others aligned themselves. The dollar’s soft power was sufficient to impose the Washington Consensus gathering the IMF, the World Bank, and the U.S. Treasury, against which other countries could not resist.
A question arises however, one that economists should examine: Is the mass of dollars in circulation too large relatively to U.S. GDP? A national currency belongs to a domestic market where it ensures monetary equilibrium between the supply and demand of goods and services.
When a currency becomes international, it gives the issuing country the illusion of easy money. There seems to be a syndrome associated with international currencies that eventually leads to their decline, as illustrated by the British pound sterling, which ceased to be an international currency after 1929.
Economists should test the hypothesis, through empirical analysis, that the surplus dollars, which neither the real economy nor the virtual economy absorb, are transformed into bank deposits that finance most of the U.S. public debt. Unable to find investment opportunities, some investors turn to the U.S. Treasury, which lends these funds to the government to finance its expenditures.
Part of the volume of dollars in circulation results from political projects approved by Congress rather than from economic necessities. This is one factor contributing to the swelling public debt, which rose from $500 billion in 1976 to $39 trillion in 2025. According to the Congressional Budget Office (CBO), it will reach $54 trillion by 2034.
Therefore, public debt increases, and with it debt servicing costs, which reached $1 trillion in 2025, representing 14% of the federal budget and exceeding the budget of the Department of Defense. If one adds the budget deficit ($1.833 trillion) and the trade deficit ($918.4 billion in 2024), it is easy to conclude that Americans are living beyond their means.
In monetary terms, they consume more than they produce in goods and services in a year. This is possible only because the United States does not face the constraint of acquiring foreign currencies, since its own currency is the international reserve currency. If the international-currency syndrome proves valid, it would be in Americans’ interest to reverse the Nixon administration’s decision to suspend the dollar’s convertibility into gold.
The debate over debt in Congress is permanent, and the various political currents propose solutions that each side rejects. The left wing of the Democratic Party (Bernie Sanders, Alexandria Ocasio-Cortez, etc.) wants prosperous corporations and great fortunes to contribute more toward reducing the debt, while their Republican opponents propose budget cuts in social spending related to education, public services, aid to the poor (food stamps), Medicare, and Medicaid, the health programs available to Americans over the age of 65.
In order not to alienate either the wealthy donors who finance his party or his electoral base, which includes many poor whites, Donald Trump believes he has found a solution by imposing tariffs on imported products. However, the measure is controversial because, in addition to being inflationary, it risks provoking retaliatory measures feared by American exporters of goods and services.
With its colossal public debt, the American state risks finding itself in a situation of default that could threaten the global financial system. Studying wars in European history from the 17th to the 19th centuries, American scholar Niall Ferguson observes that they tend to break out when a country’s debt-service costs exceed its military budget (see Niall Ferguson, “Fergusson’s Law: Debt Service, Military Spending and the Fiscal Limits of Power,” History Working Paper, Hoover Institution, February 2025).
Is this the explanation for the renaming of the Department of Defense, now called the Department of War by the Trump administration? Is America preparing to declare war on Canada and Denmark in order to annex their territories, reduce the public debt, and confront China under better financial conditions?
The Emergence of Chinese Economic Power
China’s economic development was, in the eyes of its leaders, a geopolitical necessity in a region where the prosperity of Japan and the economic takeoff of South Korea and Taiwan—three countries allied with the United States—posed an existential threat to the Chinese Communist Party.
Attracting American investment, South Korea and Taiwan were developing rapidly, unlike North Korea and mainland China, which were confronted with poverty. Beijing had to abandon the centrally planned economy in order to avoid the collapse experienced by the Soviet Union. By the late 1970s, Deng Xiaoping had realized that, in the medium term, the Communist Party would lose power if the economic gap with Taiwan continued to widen.
To prevent this outcome, he imposed a radical change in the Party’s economic doctrine. He understood that, to be independent from foreign powers and to possess a strong military, it was necessary to master the economic grammar of capitalism. After struggles at the top of the state and the Party between reformers and orthodox conservatives, Deng Xiaoping’s faction emerged victorious, breaking with the planned economy that determined production quantities and fixed commodity prices.
He understood that a country’s sovereignty depends on the strength of its economy and its trade balance. To this end, he developed the concept of a “socialist market economy” to legitimize China’s integration into capitalist globalization. He told his compatriots, “Getting rich is glorious,” while encouraging them to do so through productive activities rather than speculative ones.
The new economic policy directed private capital toward export-oriented manufacturing. In 1999, the number of private enterprises (1.5 million) was almost as high as that of state-owned enterprises (1.6 million). Between 1996 and 2000, employment in the private sector increased from 11.71 million to 24.07 million jobs.
Deng Xiaoping’s successors continued along the same path, making China during the 2000s the world’s second-largest economy after that of the United States. Its GDP had continued to grow since the reforms, reaching $21 trillion in 2025 according to the IMF, representing 17.65% of the global economy.
It should be recalled that it accounted for only 1.7% of the world total in 1978. By comparison, the United States’ GDP stands at $32 trillion, representing 25% of global GDP. Today, China is the second-largest power, and economists predict that it will surpass the United States in the near future. From being a trading partner, China has become the United States’ principal military rival.
Its objective is to recover Taiwan after having recovered Hong Kong in 1997 and to establish its hegemony in the Indo-Pacific region, which has become an area of strategic rivalry. What Americans fear, among other things, is that China will translate its economic power into military strength, especially since Beijing possesses the world’s largest foreign exchange reserves, estimated at $3.442 trillion.
According to 2020 Pentagon reports, China has 350 military vessels compared to 293 for the U.S. Navy, as well as more submarines (55 compared to 53). China also plans to have one thousand operational nuclear warheads by 2030. By 2027, the Chinese navy is expected to consist of 400 vessels, including aircraft carriers, stealth destroyers, and nuclear submarines.
The United States certainly has more combat aircraft, but China has doubled its defense budget over the past 30 years, something the United States cannot easily do because its budget is burdened by a colossal public debt—unless it cuts funding for social spending such as healthcare and pensions, which would push millions of people below the poverty line.
How will the United States react to this new military challenge in the Indo-Pacific region that it once controlled? Will the Chinese and Americans fall into the Thucydides Trap, or will they be able to avoid it?
The Thucydides’ Trap
The Peloponnesian War, which the Greek historian chronicled, lasted more than 30 years and pitted Sparta against Athens according to the same logic that governs international relations today. Thucydides was the first theorist to observe that relations between states are regulated by the balance of power and the fear of being dominated. Sparta, a warrior state and the leading naval power in the Mediterranean of its time, distrusted Athens, whose rise was perceived as an existential threat.
Wars between contemporary nations belong to the framework developed by Thucydides 2,500 years ago. The tensions that led to war between Sparta and Athens are like those that characterize today’s relations between the United States and China as they compete for global hegemony.
This is the thesis of the American scholar Graham Allison, professor of international relations at Harvard, who published a book in 2018 entitled “Destined for War: Can America and China Escape Thucydides’ Trap?”.
The book followed an annual seminar in which Allison and his students analyzed 16 competitions between European states from the 17th to the 20th centuries. They observed that of the 16 cases studied, 12 resulted in war between a powerful state and another state perceived as threatening its power.
From this historical analysis, Allison derives the principle that he says he found in the Greek historian Thucydides, who wrote: “It was the rise of Athens and the fear that this inspired in Sparta that made war inevitable.” The wars of the last two centuries between European nations, and the Cold War of the 1950s–1980s between the United States and the Soviet Union, belong to the theoretical framework developed by Thucydides 2,500 years ago.
This framework lies at the heart of the current competition between the United States and China as they vie for global hegemony. China challenges the American military presence in Southeast Asia, which it considers its sphere of influence, and seeks to reclaim Taiwan, which is protected by the United States.
Will the United States accept China becoming the future hegemon, or will it go to war to prevent China from becoming the world’s leading power? This is the Thucydides Trap that Allison discusses and hopes can be avoided. For 2,500 years ago, if Sparta and Athens had possessed nuclear weapons, there would later have been neither Greco-Roman culture nor Mediterranean civilization.
