The Folly of the Iran war & The China Shock 2.0 - How Xi Jinping is winning on all fronts
If the late historian Barbara Tuchman had to add a chapter to her seminal book “The March of Folly” it surely would have to deal with Donald Trump’s senseless war against Iran. It is an arrogant military adventure that will one way or the other finish off his presidency whilst leaving responsible statecraft and geopolitics to Beijing. As a result, soft power is now “made in China”. This is happening at a time when the United States, Europe and Asia are exposed to the China Shock 2.0 to which no Western government has found an answer yet. So, America’s overreach comes at a time when our markets are being flooded by cheap but this time high-end Chinese manufacturing goods. With Trump’s folly and the EU’s powerlessness China is the winner on all fronts.
In The March of Folly (1984) Barbara Tuchman describes some of the traits of rulers that lead to historic defeat and disaster in four case studies from Troja to Vietnam. Those are arrogance, inflated ego and moral blindness which made those leaders ignore advice and prefer immediate gains over long-term consequences, all this happening within the group think among their sycophants. That about sums up Donald Trump’s pathway to the Gulf, Teheran and the Strait of Hormuz.
Here is somebody whose view of Iran is closely linked to the events of 1979 and the roaring 80ies when he was a model chasing real estate developer in New York practicing The Art of the Deal. Trump is neither a history buff nor an ideologue. But there are two consistent beliefs in his career: his love of tariffs and his hate for the Iran of the mullahs. In their excellent article “1979 is the year that explains Donald Trump” in The Atlantic Jonathan Lemire and Isabel Ruehl review his quotes about Iran from the 80ies to today. And look, everything is already there in his reactions to President Carter’s hostage crisis of 1979/80 and to subsequent skirmishes at the Gulf: the criticism of America’s allies for not doing enough, the being “harsh” on Iran, the “take the oil” refrain, the “doing a number on Kharg Island”.
Trump’s political socialization during the 80s might therefore explain his current oscillation between bombing Iran back to the Stone Age and trying The Art of the Deal. Decades later the Iran War is just the most recent act in Donald Trump’s reckless demotion of the American Empire, dragging the international order and the global economy along with it. And helping China on its rise.
At first sight it is remarkable how careful the Chinese government has reacted to America’s military adventurism in a shipping lane through which almost half of its crude oil imports pass. Even when US-warships blockaded tankers destined for China its government acted with utmost restraint. Just imagine the opposite scenario!
It is also remarkable how the bipartisan American view that the geopolitical and economic competition with China was the most pressing issue for US foreign policy to be dealt with decisively, how this consensus is gone. Under Trump II it seems to have dissipated into a faint hope for a vague deal at the upcoming summit with Xi Jinping in May. Even Democrats in Congress are not really calling out Trump on his strangely accommodating approach. What has happened here?
Well, China has learned its lessons from Trump I and the Biden years, improved its resilience to external economic shocks and has shown America its own dependencies in terms of trade, technology and rare materials. China’s internal problems might have deepened since 2016, but its dependence on energy imports and exposure to a crisis at the Gulf has been reduced by moving to renewable energy and increasing its reserves.
Beijing has also understood that its aggressive wolf worrier diplomacy during Joe Biden’s presidency is the wrong way to deal with the erratic reign of Donald Trump. The new strategy is not interrupting your enemy whilst he is committing one blunder after the other. If Xi Jinping had one wish free as regards to US-domestic politics, it would be Trump III.
Thus, the US-president has given China the chance to act as a responsible power which is already registering in opinion polls all over the world. Whilst Trump’s America is banking its future on barrels of oil, China has captured the global market for batteries. Where Trump is asking Congress for a 40% increase in military spending and “turning the United States into a modern Sparta”, as Howard French writes in Foreign Policy, “China is increasingly outcompeting the United States in a growing number of frontier industries, from electric vehicles to batteries to renewable energy”. And outcompeting Europe even more, one might add. What the Iran War and its consequences show is that China has been strategically working on both - on its hard and on its soft power.
In a series of articles about “The China Shock 2.0” the Financial Times describes the frightening economic mismatch between China and the rest of the world. After a record trade surplus of about 1 trillion Dollars last year, Chinese exports to the US, Europe and Asia have further gone up by another 15% in the first quarter of 2026. And there is no sign of a let off by Beijing: no planned reduction of state support to crucial industries; no intention to devaluate the currency (according to the IMF currently undervalued by 16%); no change in industrial policy which urges local governments in China to compete in providing subsidies to attract new industries; and there will definitely be no shift from exports to domestic consumption under Xi Jingping. Chinese internal hyper-competitiveness might be creating considerable domestic problems, but this is not helping western economies as long as China does not change the strategic goalposts of its general export strategy mentioned above.
And Europe is on the front line of this second China Shock. Because it is now not only flooded by cheap electric cars, batteries and other high-tech manufacturing goods, EU countries also sell fewer of its own goods to the Chinese after their domestic car and other industries have become more competitive. And for a notoriously cumbersome and divided block of 27 nations it is difficult to respond to this even more dramatic economic challenge.
You can see Europe’s difficulties in the diverging reactions of its leaders. Spain’s Prime Minister Pedro Sanchez is vying for Chinese investments in Spain to lower the pressure of the economic assault. The French President tries to have it both ways by welcoming Chinese companies but also demanding stricter controls for Foreign Direct Investments, so that Europe does not become a mere assembly line for Chinese products. And German Chancellor Friedrich Merz can’t make up his mind if he should continue the shmoozing approach of Germany’s large car manufacturers or factor in the more protectionist demands from the German Mittelstand. In short, the EU does not know which path to take towards its declared goal of “strategic autonomy” versus China: through diplomacy and bilateral investment deals or by turning towards coordinated and more protectionist measures.
Yet any successful response to the new China Shock would require a collective effort on the European or even the G-7 level. And here the fracturing of the western alliances through Donald Trump’s unpredictable and mad foreign policy comes at the wrong time. So do the additional economic pressures caused by the closure of the Strait of Hormuz.
Donald Trump leading the US into a reckless war has come at the expense of the US-security umbrella in the Indo-Pacific where the withdrawal of antimissile systems and other military hardware from East Asia has sown further distrust in South Korea and Japan. As Andrew P. Miller and Michael Clark point out in Foreign Affairs the Iran war “has also given China a live demonstration of the United States’ military capabilities…a trove of information about US-weaponry, decision-making cycles, and the use of artificial intelligence that it might put to use in future conflicts in Taiwan and elsewhere.”
At the same time China is responding to the Iran war as it has always reacted to past global crises: by improving its resilience and further insulating itself from external economic shocks. It does so by increasing its investments into applied AI, cheap electric vehicles and green energies; whereas the vainglorious tech-brothers of Silicon Valley are building data centres without a common strategy and the Trump-Administration is sticking to gas guzzlers and fossil fuels as if it was running America during the 80s.
The Iran war just shows how a steady China is increasing its resilience and burnishing its global reputation whilst America under its 47th president is endangering its economic strength and running down its Empire. And Donald Trump himself? In the end he might go down by Iran like the despised Jimmy Carter did or fall into disgrace with his own populace as did the self-destructive rulers described in The March of Folly.