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“I could not have done it sooner,” he says. “I don’t think anybody could have done it sooner. Because I was the first one.” 

By the late 1960s, he was managing TI’s integrated-circuit division. Before long, he was running the entire semiconductor group. 

He transferred to the Massachusetts Institute of Technology, where he studied mechanical engineering, earned his master’s degree and would have stayed for his Ph.D. if he hadn’t failed the qualifying exam. Instead, he got his first job in semiconductors and moved to Texas Instruments in 1958

he came along as the integrated circuit was being invented, and his timing couldn’t have been any better, as Chang belonged to the first generation of semiconductor geeks. He developed a reputation as a tenacious manager who could wring every possible improvement out of production lines, which put his career on the fast track.

Chang grew up dreaming of being a writer—a novelist, maybe a journalist—and he planned to major in English literature at Harvard University. But after his freshman year, he decided that what he actually wanted was a good job

“They talk about life-work balance,” he says. “That’s a term I didn’t even know when I was their age. Work-life balance. When I was their age, if there was no work, there was no life.” 

These days, TSMC is investing $40 billion to build plants in Arizona, but the project has been stymied by delays, setbacks and labor shortages, and Chang told me that some of TSMC’s young employees in the U.S. have attitudes toward work that he struggles to understand. 

Chang says he wouldn’t have taken the risk of moving to Taiwan if he weren’t financially secure. In fact, he didn’t take that same risk the first time he could have.

“The closer the industry match,” they wrote, “the greater the success rate.” 

By then, Chang knew that he wasn’t long for Texas Instruments. But his stock options hadn’t vested, so he turned down the invitation to Taiwan. “I was not financially secure yet,” he says. “I was never after great wealth. I was only after financial security.” For this corporate executive in the middle of the 1980s, financial security equated to $200,000 a year. “After tax, of course,” he says. 

Chang’s situation had changed by the time Li called again three years later. He’d exercised a few million dollars of stock options and bought tax-exempt municipal bonds that paid enough for him to be financially secure by his living standards. Once he’d achieved that goal, he was ready to pursue another one. 

“There was no certainty at all that Taiwan would give me the chance to build a great semiconductor company, but the possibility existed, and it was the only possibility for me,” Chang says. “That’s why I went to Taiwan.” 

Not long ago, a team of economists investigated whether older entrepreneurs are more successful than younger ones. By scrutinizing Census Bureau records and freshly available Internal Revenue Service data, they were able to identify 2.7 million founders in the U.S. who started companies between 2007 and 2014. Then they looked at their ages.

The average age of those entrepreneurs at the founding of their companies was 41.9. For the fastest-growing companies, that number was 45. The economists also determined that 50-year-old founders were almost twice as likely to achieve major success as 30-year-old founders, while the founders with the lowest chance of success were the ones in their early 20s

“Successful entrepreneurs are middle-aged, not young,” they wrote in their 2020 paper.  

Silicon Valley’s venture capitalists throw money at talented young entrepreneurs in the hopes they will start the next trillion-dollar company. They have plentiful energy, insatiable ambition and the vision to peek around corners and see the future. What they don’t typically have are mortgages, family obligations and other adult responsibilities to distract them or diminish their appetite for risk. Chang himself says that younger people are more innovative when it comes to science and technical subjects. 

But in business, older is better. Entrepreneurs in their 40s and 50s may not have the exuberance to believe they will change the world, but they have the experience to know how they actually can. Some need years of specialized training before they can start a company. In biotechnology, for example, founders are more likely to be college professors than college dropouts. Others require the lessons and connections they accumulate over the course of their careers. 

one more finding from their study of U.S. companies that helps explain the success of a chip maker in Taiwan. It was that prior employment in the area of their startups—both the general sector and specific industry—predicted “a vastly higher probability” of success.

Chang was such a workaholic that he made sales calls on his honeymoon and had no patience for those who didn’t share his drive

Morris Chang had 30 years of experience in his industry when he decided to uproot his life and move to another continent. He knew more about semiconductors than just about anyone on earth—and certainly more than anyone in Taiwan. As soon as he started his job at the Industrial Technology Research Institute, Chang was summoned to K.T. Li’s office and given a second job. “He felt I should start a semiconductor company in Taiwan,”

“I decided right away that this could not be the kind of great company that I wanted to build at either Texas Instruments or General Instrument,”

TI handled every part of chip production, but what worked in Texas would not translate to Taiwan. The only way that he could build a great company in his new home was to make a new sort of company altogether, one with a business model that would exploit the country’s strengths and mitigate its many weaknesses.

Chang determined that Taiwan had precisely one strength in the chip supply chain. The research firm that he was now running had been experimenting with semiconductors for the previous 10 years. When he studied that decade of data, Chang was pleasantly surprised by Taiwan’s yields, the percentage of working chips on silicon wafers. They were almost twice as high in Taiwan as they were in the U.S., he said. 

“People were ingrained in thinking the secret sauce of a successful semiconductor company was in the wafer fab,” Campbell told me. “The transition to the fabless semiconductor model was actually pretty obvious when you thought about it. But it was so against the prevailing wisdom that many people didn’t think about it.” 

Taiwan’s government took a 48% stake, with the rest of the funding coming from the Dutch electronics giant Philips and Taiwan’s private sector, but Chang was the driving force behind the company. The insight to build TSMC around such an unconventional business model was born from his experience, contacts and expertise. He understood his industry deeply enough to disrupt it. 

“TSMC was a business-model innovation,” Chang says. “For innovations of that kind, I think people of a more advanced age are perhaps even more capable than people of a younger age.”

the personal philosophy that he’d developed over the course of his long career. “To be a partner to our customers,” he says. That founding principle from 1987 is the bedrock of the foundry business to this day, as TSMC says the key to its success has always been enabling the success of its customers.  

TSMC manufactures chips in iPhones, iPads and Mac computers for Apple, which manufactures a quarter of TSMC’s net revenue. Nvidia is often called a chip maker, which is curious, because it doesn’t make chips. TSMC does. 

Churning out identical copies of a single chip for an iPhone requires one TSMC fab to produce more than a quintillion transistors—that is, one million trillions—every few months. In a year, the entire semiconductor industry produces “more transistors than the combined quantity of all goods produced by all other companies, in all other industries, in all human history,” Miller writes. 

I asked how he thought about success when he moved to Taiwan. “The highest degree of success in 1985, according to me, was to build a great company. A lower degree of success was at least to do something that I liked to do and I wanted to do,” he says. “I happened to achieve the highest degree of success that I had in mind.” 

maybe most controversially, the Biden team added a “foreign direct product rule” that, as The Financial Times noted, “was first used by the administration of Donald Trump against Chinese technology group Huawei” and “in effect bars any U.S. or non-U.S. company from supplying targeted Chinese entities with hardware or software whose supply chain contains American technology.”

This last rule is huge, because the most advanced semiconductors are made by what I call “a complex adaptive coalition” of companies from America to Europe to Asia

The more we push the boundaries of physics and materials science to cram more transistors onto a chip to get more processing power to continue to advance artificial intelligence, the less likely it is that any one company, or country, can excel at all the parts of the design and manufacturing process. You need the whole coalition

The reason Taiwan Semiconductor Manufacturing Company, known as TSMC, is considered the premier chip manufacturer in the world is that every member of this coalition trusts TSMC with its most intimate trade secrets, which it then melds and leverages for the benefit of the whole.

“We do not make in the U.S. any of the chips we need for artificial intelligence, for our military, for our satellites, for our space programs” — not to mention myriad nonmilitary applications that power our economy. The recent CHIPS Act, she said, was our “offensive initiative” to strengthen our whole innovation ecosystem so more of the most advanced chips will be made in the U.S.

It managed to pilfer a certain amount of chip technology, including 28 nanometer technology from TSMC back in 2017.

Because China is not trusted by the coalition partners not to steal their intellectual property, Beijing is left trying to replicate the world’s all-star manufacturing chip stack on its own with old technologies

China can’t mass produce these chips with precision without ASML’s latest technology — which is now banned from the country.

Raimondo rejects the idea that the new regulations are tantamount to an act of war.

“The U.S. was in an untenable position,” she told me in her office. “Today we are purchasing 100 percent of our advanced logic chips from abroad — 90 percent from TSMC in Taiwan and 10 percent from Samsung in Korea.” (That IS pretty crazy, but it IS true.)

Until recently, China’s premier chip maker, Semiconductor Manufacturing International Company, had been thought to be stuck at mostly this chip level,

Imposing on China the new export controls on advanced chip-making technologies, she said, “was our defensive strategy. China has a strategy of military-civil fusion,” and Beijing has made clear “that it intends to become totally self-sufficient in the most advanced technologies” to dominate both the civilian commercial markets and the 21st century battlefield. “We cannot ignore China’s intentions.”

So, to protect ourselves and our allies — and all the technologies we have invented individually and collectively — she added, “what we did was the next logical step, to prevent China from getting to the next step.” The U.S. and its allies design and manufacture “the most advanced supercomputing chips, and we don’t want them in China’s hands and be used for military purposes.”

Our main focus, concluded Raimondo, “is playing offense — to innovate faster than the Chinese. But at the same time, we are going to meet the increasing threat they are presenting by protecting what we need to. It is important that we de-escalate where we can and do business where we can. We don’t want a conflict. But we have to protect ourselves with eyes wide open.”

China’s state-directed newspaper Global Times editorialized that the ban would only “strengthen China’s will and ability to stand on its own in science and technology.” Bloomberg quoted an unidentified Chinese analyst as saying “there is no possibility of reconciliation.”

it is easy to forget how much we have in common as people. I can’t think of any major nation after the United States with more of a Protestant work ethic and naturally capitalist population than China.

These days, it is extremely difficult for a visiting columnist to get anyone — a senior official or a Starbucks barista — to speak on the record. It was not that way a decade ago.

The Communist Party’s hold is also a product of all the hard work and savings of the Chinese people, which have enabled the party and the state to build world-class infrastructure and public goods that make life for China’s middle and lower classes steadily better.

Beijing and Shanghai, in particular, have become very livable cities, with the air pollution largely erased and lots of new, walkable green spaces.

some 900 cities and towns in China are now served by high-speed rail, which makes travel to even remote communities incredibly cheap, easy and comfortable

Just when trust has become more important than ever between the U.S. and China, it also has become scarcer than ever. Bad trend.

China’s stability is a product of both an increasingly pervasive police state and a government that has steadily raised standards of living. It’s a regime that takes both absolute control and relentless nation-building seriously.

For an American to fly from New York’s Kennedy Airport into Beijing Capital International Airport today is to fly from an overcrowded bus terminal to a Disney-like Tomorrowland.

China got an early jump on A.I. in two realms — facial recognition technology and health records — because there are virtually no privacy restrictions on the government’s ability to build huge data sets for machine learning algorithms to find patterns.

“ChatGPT is prompting some people to ask if the U.S. is rising again, like in the 1990s,”

“I understand your feeling: You have been in the first place for a century, and now China is rising, and we have the potential to become the first — and that is not easy for you,” Hu said to me. But “you should not try to stop China’s development. You can’t contain China in the end. We are quite smart. And very diligent. We work very hard. And we have 1.4 billion people.”

Before the Trump presidency, he added: “We never thought China-U.S. relations would ever become so bad. Now we gradually accept the situation, and most Chinese people think there is no hope for better relations. We think the relationship will be worse and worse and hope that war will not break out between our two countries.”

A lot of people hesitated when I asked. Indeed, many would answer with some version of “I’m not sure, I just know that it’s THEIR fault.”

t was repeated conversations like these that got me started asking American, Chinese and Taiwanese investors, analysts and officials a question that has been nagging at me for a while: What exactly are America and China fighting about?

the real answer is so much deeper and more complex than just the usual one-word response — “Taiwan” — or the usual three-word response — “autocracy versus democracy.”

Let me try to peel back the layers. The erosion in U.S.-China relations is a result of something old and obvious — a traditional great-power rivalry between an incumbent power (us) and a rising power (China) — but with lots of new twists

One of the twists, though, is that this standard-issue great-power rivalry is occurring between nations that have become as economically intertwined as the strands of a DNA molecule. As a result, neither China nor America has ever had a rival quite like the other.

in modern times, China, like America, has never had to deal with a true economic and military peer with which it was also totally intertwined through trade and investment.

Another new twist, and a reason it’s hard to define exactly what we’re fighting about, has a lot to do with how this elusive issue of trust and the absence of it have suddenly assumed much greater importance in international affairs.

This is a byproduct of our new technological ecosystem in which more and more devices and services that we both use and trade are driven by microchips and software, and connected through data centers in the cloud and high-speed internet

so many more things became “dual use.” That is, technologies that can easily be converted from civilian tools to military weapons, or vice versa.

no one country or company can own the whole supply chain. You need the best from everywhere, and that supply chain is so tightly intertwined that each company has to trust the others intimately.

when we install the ability to sense, digitize, connect, process, learn, share and act into more and more things — from your GPS-enabled phone to your car to your toaster to your favorite app — they all become dual use, either weapons or tools depending on who controls the software running them and who owns the data that they spin off.

As long as most of what China sold us was shallow goods, we did not care as much about its political system — doubly so because it seemed for a while as if China was slowly but steadily becoming more and more integrated with the world and slightly more open and transparent every year. So, it was both easy and convenient to set aside some of our worries about the dark sides of its political system.

when you want to sell us ‘deep goods’ — goods that are dual use and will go deep into our homes, bedrooms, industries, chatbots and urban infrastructure — we don’t have enough trust to buy them. So, we are going to ban Huawei and instead pay more to buy our 5G telecom systems from Scandinavian companies we do trust: Ericsson and Nokia.”

as we’ve seen in Ukraine, a smartphone can be used by Grandma to call the grandkids or to call a Ukrainian rocket-launching unit and give it the GPS coordinates of a Russian tank in her backyard.

So today, the country or countries that can make the fastest, most powerful and most energy efficient microchips can make the biggest A.I. computers and dominate in economics and military affairs.

As more and more products and services became digitized and electrified, the microchips that powered everything became the new oil. What crude oil was to powering 19th- and 20th-century economies, microchips are for powering 21st-century economies.

When you ask them what is the secret that enables TSMC to make 90 percent of the world’s most advanced logic chips — while China, which speaks the same language and shares the same recent cultural history, makes zero — their answer is simple: “trust.”

TSMC is a semiconductor foundry, meaning it takes the designs of the most advanced computer companies in the world — Apple, Qualcomm, Nvidia, AMD and others — and turns the designs into chips that perform different processing functions

TSMC makes two solemn oaths to its customers: TSMC will never compete against them by designing its own chips and it will never share the designs of one of its customers with another.

“Our business is to serve multiple competitive clients,” Kevin Zhang, senior vice president for business development at TSMC, explained to me. “We are committed not to compete with any of them, and internally our people who serve customer A will never leak their information to customer C.”

But by working with so many trusted partners, TSMC leverages the partners’ steadily more complex designs to make itself better — and the better it gets, the more advanced designs it can master for its customers. This not only requires incredibly tight collaboration between TSMC and its customers, but also between TSMC and its roughly 1,000 critical local and global suppliers.

As the physics of chip making gets more and more extreme, “the investment from customers is getting bigger and bigger, so they have to work with us more closely to make sure they harvest as much [computing power] as they can. They have to trust you.”

China also has a foundry, Semiconductor Manufacturing International Corporation, which is partly state-owned. But guess what? Because no global chip designers trust SMIC with their most advanced designs, it is at least a decade behind TSMC.

It’s for these reasons that the erosion in U.S.-China relations goes beyond our increasingly sharp disagreements over Taiwan. It is rooted in the fact that just when trust, and its absence, became much bigger factors in international affairs and commerce, China changed its trajectory. It made itself a less trusted partner right when the most important technology for the 21st century — semiconductors — required unprecedented degrees of trust to manufacture and more and more devices and services became deep and dual use.

when American trade officials said: “Hey, you need to live up to your W.T.O. commitments to restrict state-funding of industries,” China basically said: “Why should we live by your interpretation of the rules? We are now big enough to make our own interpretations. We’re too big; you’re too late.”

Combined with China’s failure to come clean on what it knew about the origins of Covid-19, its crackdown on democratic freedoms in Hong Kong and on the Uyghur Muslim minority in Xinjiang, its aggressive moves to lay claim to the South China Sea, its increasing saber rattling toward Taiwan, its cozying up to Vladimir Putin (despite his savaging of Ukraine), Xi’s moves toward making himself president for life, his kneecapping of China’s own tech entrepreneurs, his tighter restrictions on speech and the occasional abduction of a leading Chinese businessman — all of these added up to one very big thing: Whatever trust that China had built up with the West since the late 1970s evaporated at the exact moment in history when trust, and shared values, became more important than ever in a world of deep, dual-use products driven by software, connectivity and microchips.

it started to matter a lot more to Western nations generally and the United States in particular that this rising power — which we were now selling to or buying from all sorts of dual-use digital devices or apps — was authoritarian.

eijing, for its part, argues that as China became a stronger global competitor to America — in deep goods like Huawei 5G — the United States simply could not handle it and decided to use its control over advanced semiconductor manufacturing and other high-tech exports from America, as well as from our allies, to ensure China always remained in our rearview mirror

Beijing came up with a new strategy, called “dual circulation.” It said: We will use state-led investments to make everything we possibly can at home, to become independent of the world. And we will use our manufacturing prowess to make the world dependent on our exports.

Chinese officials also argue that a lot of American politicians — led by Trump but echoed by many in Congress — suddenly seemed to find it very convenient to put the blame for economic troubles in the U.S.’s middle class not on any educational deficiencies, or a poor work ethic, or automation or the 2008 looting by financial elites, and the crisis that followed, but on China’s exports to the United States.

As Beijing sees it, China not only became America’s go-to boogeyman, but in their frenzy to blame Beijing for everything, members of Congress started to more recklessly promote Taiwan’s independence.

Xi told President Biden at their summit in Bali in November, in essence: I will not be the president of China who loses Taiwan. If you force my hand, there will be war. You don’t understand how important this is to the Chinese people. You’re playing with fire.

at some level Chinese officials now understand that, as a result of their own aggressive actions in recent years on all the fronts I’ve listed, they have frightened both the world and their own innovators at precisely the wrong time.

I don’t buy the argument that we are destined for war. I believe that we are doomed to compete with each other, doomed to cooperate with each other and doomed to find some way to balance the two. Otherwise we are both going to have a very bad 21st century.

I have to say, though, Americans and Chinese remind me of Israelis and Palestinians in one respect: They are both expert at aggravating the other’s deepest insecurities.

China’s Communist Party is now convinced that America wants to bring it down, which some U.S. politicians are actually no longer shy about suggesting. So, Beijing is ready to crawl into bed with Putin, a war criminal, if that is what it takes to keep the Americans at bay.

Americans are now worried that Communist China, which got rich by taking advantage of a global market shaped by American rules, will use its newfound market power to unilaterally change those rules entirely to its advantage. So we’ve decided to focus our waning strength vis-à-vis Beijing on ensuring the Chinese will always be a decade behind us on microchips.

I don’t know what is sufficient to reverse these trends, but I think I know what is necessary.

If it is not the goal of U.S. foreign policy to topple the Communist regime in China, the United States needs to make that crystal clear, because I found a lot more people than ever before in Beijing think otherwise.

As for China, it can tell itself all it wants that it has not taken a U-turn in recent years. But no one is buying it. China will never realize its full potential — in a hyper-connected, digitized, deep, dual-use, semiconductor-powered world — unless it understands that establishing and maintaining trust is now the single most important competitive advantage any country or company can have. And Beijing is failing in that endeavor.

In his splendid biography of the great American statesman George Shultz, Philip Taubman quotes one of Shultz’s cardinal rules of diplomacy and life: “Trust is the coin of the realm.”

while Trump deserves credit for upsetting the apple cart in terms of conventional wisdom with regards to China relations, the Biden administration is correct to pursue those previous actions to their logical conclusion. . . .

it bans chips but it also bans equipment as well (and, given the restrictions it places on U.S.-persons, also bans the service of existing equipment).

That certainly increases the motivation for China to build alternatives, but it is tough to get strong legs when you have to first figure out how to make weights (but the weights involve the most complex tools ever invented by humans).

now the Chinese have to reinvent every wheel in the process just to get to par as it exists in the West circa 2022.

we talked about an accusation we sometimes hear:It’s nice that you right-wingers have come around since 2016, but the Republican party was always like this.

I argued that I don’t think this criticism is really right. Let’s pretend that you were a Republican in 2000 and you cared about:Robust foreign policyThe spread of democracy abroadThe rule of lawFree trade

Well, guess what: The Democratic party is now your natural home for those priorities. Sure, the Democrats also have some stuff you’re against, like political correctness and student loan forgiveness and expansion of the welfare state.

I hope you’ll watch this video clip. Because it’s not what Tuberville is saying so much as the crowd’s reaction to it. The guy is basically doing a Supreme Grand Wizard routine—all that’s missing is the n-word—and the crowd forking loves it.

at the same time, I understand—I think—what these critics mean. What they mean is:

Republican voters were always revanchists motivated not by high-minded intellectual arguments, but by simple animosities. Like racism.

And when you put it this way, I think the criticism is valid. For example:

The point is that the Republican party has changed along some very important, policy and ideological vectors. It really wasn’t always like this.

the actual Republican voters at this rally? They got crazy for it. They are into it.

Is there any way to read this except as an expression of cut-and-dried, out-and-proud, no dog whistle racism?

we can stipulate that the majority of Republican voters aren’t motivated in large part by racial animosity. I want to be as generous as possible so that Republicans reading this don’t think that they, personally, are being accused.

However small the minority of out-and-out racists in the Republican voting ranks might be, it’s much larger than people like me thought it was 20 years ago.

And any Republican/conservative who can’t come to grips with that today—who is still pretending that their coalition is motivated either by either high-minded political theory or benign tribalism—has to be trying (hard) not to see the truth.

These predictions have enormous implications for the millennial generation now entering the workforce. They have never known a world not defined by Moore’s Law. But unlike their generational predecessors, to this new cohort social networks and iPhone apps are old hat.

What obsesses them is hardware—drones, robots, 3-D printing—that is even more closely connected to the fortunes of Moore’s Law. Their careers will rise and fall on how well they ride the curve of an equation devised during the Johnson administration

And what a curve it will be. Moore’s Law is creative destruction on steroids. It regularly fosters the next wave of entrepreneurial opportunities made possible by the latest jump in chip performance. It can be blamed for much of the 90% mortality rate of electronics startups.

The great turning took place a decade ago, while we were all distracted by social networking, smartphones and the emerging banking crisis. Its breathtaking climb since tells us that everything of the previous 40 years—that is, the multi-trillion-dollar revolution in semiconductors, computers, communications and the Internet—was likely nothing but a prelude, a warm-up, for what is to come. It will be upon this wall that millennials will climb their careers against almost-unimaginably quick, complex and ever-changing competition.

Crowd-sharing, crowdfunding, bitcoin, micro-venture funding, cloud computing, Big Data—all have been early attempts, of varying success, to cope with the next phase of Moore’s Law. Expect many more to come. Meanwhile, as always, this new pace will become the metronome of the larger culture.

Rigid command-and-control structures in every walk of life, from corporations to governments to education, become vulnerable to competition by adaptive and short-lived alliances and confederacies. Now that process is going to attack every corner of society.

Even the human brain will be challenged by artificial intelligence—the latter enjoying the advantage of continuously improving at the pace of Moore’s Law.

Millennials face one of the greatest opportunities any generation has ever known: to completely remake the world through boundless digital technology.

The good news is that this generation seems to be already, often unconsciously, preparing for this adventure—through robotics competitions, gatherings of tech enthusiasts, engineers and tinkerers at Maker Faires and other do-it-yourself events, and playing with new applications for their drones and 3D printers. Having lived their entire lives at the pace of Moore’s Law, they seem to sense that the time has come to hit the accelerator. If millennials don’t entirely get it yet, they soon will.

Asian nations are also wary of getting caught in the middle of a battle between China, a major investor and market for their goods, and the U.S., for whom they rely on for security. The U.S., for instance, has offered rhetorical support for Australia, which has seen China cut off imports of Australian coal, wine and other goods over Canberra’s call for an independent investigation of how China handled the emergence of the coronavirus.

The cabinet secretaries’ visits next week will be their first trips overseas since taking office and, the State Department said, are meant to underscore the U.S. commitment to these alliances and the region’s security.

On Friday, Mr. Biden will host a virtual summit with other leaders of the so-called Quad, a strategic group seen as a bulwark against Chinese expansionism that includes Australia, Japan and India.

Relations, strained for years, pitched down last year as the Trump administration ramped up its drive to roll back China’s global influence, bolster support for partners such as Taiwan and confront Beijing over alleged espionage, its crackdowns on Hong Kong and in the Muslim-region of Xinjiang, and other policies seen as inimical to U.S. interests.

The U.S. hasn’t named its representative but for the Chinese it will be Ma Jun, a World Bank veteran and former chief economist at the People’s Bank of China who is an expert on environmentally sustainable finance.

“I told him I will work with China when it benefits the American people,” Mr. Biden tweeted afterward. Mr. Xi also pledged cooperation and told his counterpart a confrontation between the two powers would be a disaster, according to Chinese media.

The survey, which was conducted by Beacon Research and Shaw and Company Research, also found that 28% of Americans believe the U.S. should prioritize its military resources toward Asia, compared with the Middle East, which was second at 21%.

Of particular concern to Commerce are so-called frontier models. The phrase, popularized in the Washington lexicon by some of the very companies that seek to build these models—Microsoft, Google, OpenAI, Anthropic—describes a kind of “advanced” artificial intelligence with flexible and wide-ranging uses that could also develop unexpected and dangerous capabilities. By their determination, frontier models do not exist yet. But an influential white paper published in July and co-authored by a consortium of researchers, including representatives from most of those tech firms, suggests that these models could result from the further development of large language models—the technology underpinning ChatGPT

The threats of frontier models are nebulous, tied to speculation about how new skill sets could suddenly “emerge” in AI programs.

Among the proposals the authors offer, in their 51-page document, to get ahead of this problem: creating some kind of licensing process that requires companies to gain approval before they can release, or perhaps even develop, frontier AI. “We think that it is important to begin taking practical steps to regulate frontier AI today,” the authors write.

Microsoft, Google, OpenAI, and Anthropic subsequently launched the Frontier Model Forum, an industry group for producing research and recommendations on “safe and responsible” frontier-model development.

Shortly after the paper’s publication, the White House used some of the language and framing in its voluntary AI commitments, a set of guidelines for leading AI firms that are intended to ensure the safe deployment of the technology without sacrificing its supposed benefit

AI models advance rapidly, he reasoned, which necessitates forward thinking. “I don’t know what the next generation of models will be capable of, but I’m really worried about a situation where decisions about what models are put out there in the world are just up to these private companies,” he said.

For the four private companies at the center of discussions about frontier models, though, this kind of regulation could prove advantageous.

Convincing regulators to control frontier models could restrict the ability of Meta and any other firms to continue publishing and developing their best AI models through open-source communities on the internet; if the technology must be regulated, better for it to happen on terms that favor the bottom line.

The obsession with frontier models has now collided with mounting panic about China, fully intertwining ideas for the models’ regulation with national-security concerns. Over the past few months, members of Commerce have met with experts to hash out what controlling frontier models could look like and whether it would be feasible to keep them out of reach of Beijing

That the white paper took hold in this way speaks to a precarious dynamic playing out in Washington. The tech industry has been readily asserting its power, and the AI panic has made policy makers uniquely receptive to their messaging,

“Parts of the administration are grasping onto whatever they can because they want to do something,” Weinstein told me.

The department’s previous chip-export controls “really set the stage for focusing on AI at the cutting edge”; now export controls on frontier models could be seen as a natural continuation. Weinstein, however, called it “a weak strategy”; other AI and tech-policy experts I spoke with sounded their own warnings as well.

The decision would represent an escalation against China, further destabilizing a fractured relationship

Many Chinese AI researchers I’ve spoken with in the past year have expressed deep frustration and sadness over having their work—on things such as drug discovery and image generation—turned into collateral in the U.S.-China tech competition. Most told me that they see themselves as global citizens contributing to global technology advancement, not as assets of the state. Many still harbor dreams of working at American companies.

“If the export controls are broadly defined to include open-source, that would touch on a third-rail issue,” says Matt Sheehan, a Carnegie Endowment for International Peace fellow who studies global technology issues with a focus on China.

What’s frequently left out of considerations as well is how much this collaboration happens across borders in ways that strengthen, rather than detract from, American AI leadership. As the two countries that produce the most AI researchers and research in the world, the U.S. and China are each other’s No. 1 collaborator in the technology’s development.

Assuming they’re even enforceable, export controls on frontier models could thus “be a pretty direct hit” to the large community of Chinese developers who build on U.S. models and in turn contribute their own research and advancements to U.S. AI development,

Within a month of the Commerce Department announcing its blockade on powerful chips last year, the California-based chipmaker Nvidia announced a less powerful chip that fell right below the export controls’ technical specifications, and was able to continue selling to China. Bytedance, Baidu, Tencent, and Alibaba have each since placed orders for about 100,000 of Nvidia’s China chips to be delivered this year, and more for future delivery—deals that are worth roughly $5 billion, according to the Financial Times.

In some cases, fixating on AI models would serve as a distraction from addressing the root challenge: The bottleneck for producing novel biochemical weapons, for example, is not finding a recipe, says Weinstein, but rather obtaining the materials and equipment to actually synthesize the armaments. Restricting access to AI models would do little to solve that problem.

there could be another benefit to the four companies pushing for frontier-model regulation. Evoking the specter of future threats shifts the regulatory attention away from present-day harms of their existing models, such as privacy violations, copyright infringements, and job automation

“People overestimate how much this is in the interest of these companies,”

AI safety as a domain even a few years ago was much more heterogeneous,” West told me. Now? “We’re not talking about the effects on workers and the labor impacts of these systems. We’re not talking about the environmental concerns.” It’s no wonder: When resources, expertise, and power have concentrated so heavily in a few companies, and policy makers are seeped in their own cocktail of fears, the landscape of policy ideas collapses under pressure, eroding the base of a healthy democracy.

The Russian elite can live without Prada handbags, but Western pharmaceuticals are another matter. In any case, consumer goods are only about a third of Russia’s imports. The rest are capital goods, intermediate goods — that is, components used in the production of other goods — and raw materials. These are things Russia needs to keep its economy running, and their absence may cause important sectors to grind to a halt.

First, China, despite being an economic powerhouse, isn’t in a position to supply some things Russia needs, like spare parts for Western-made airplanes and high-end semiconductor chips.

Second, while China itself isn’t joining in the sanctions, it is deeply integrated into the world economy. This means that Chinese banks and other businesses, like Western corporations, may engage in self-sanctioning

Third, China and Russia are very far apart geographically.

Finally, a point I don’t think gets enough emphasis is the extreme difference in economic power between Russia and China.

Putin may dream of restoring Soviet-era greatness, but China’s economy, which was roughly the same size as Russia’s 30 years ago, is now 10 times as large.

Germany’s gross domestic product was only two and a half times Italy’s when the original Axis was formed.

So if you try to imagine the creation of some neofascist alliance — and again, that no longer sounds like extreme language — it would be one in which Russia would be very much the junior partner, indeed very nearly a Chinese client state.

that’s not what Putin, with his imperial dreams, has in mind.

The rise of China’s venture market “signifies a shift from a single-epicenter view of the world to a duopoly,” he says.

The surge also positions Asia’s investors to win stakes in markets that Western companies covet, or that have national security implications.

. “If you think that being the locus of invention gives you a boost to your GDP and so forth, that’s a deterioration of the U.S. competitive advantage.”

Although one of the biggest Asian investors is Japan’s SoftBank Group Corp. , which has tapped Middle Eastern money to create the world’s largest tech-investment fund, it is Chinese activity that is having the greatest impact.

China is creating unicorns—startups valued at a billion dollars or more—at much the same pace as the U.S., drawing on funding from internet giants like Alibaba Group Holding Ltd. and Tencent Holdings Ltd. as well as more than a thousand domestic venture-capital firms that have raised billions of dollars a year for the past few year

Chinese-led venture funding is about 15 times its size in 2013, outpacing growth in U.S.-led financing, which roughly doubled in that time period

Most Chinese-led investment so far has gone to the country’s own firms, the Journal analysis found. Many of them, like the Yelp equivalent Meituan-Dianping, are household names with millions of customers in China, yet virtually unknown elsewhere.

Many Chinese tech companies are “at this critical size that the China market alone is not enough to support their business and valuation,

Madhur Deora, chief financial officer for Paytm, one of India’s biggest e-payments firms, says the company approached Alibaba affiliate Ant Financial instead of U.S. backers for funding in 2015 because Chinese mobile-internet innovations are “way far ahead of anything that’s happened in the U.S.

One reason China’s push into new technologies worries many in the U.S. is that, unlike the hunt for good returns that underpins most Western venture finance, a lot of Chinese investment is driven by strategic interests, some carrying the specter of state influence.

China is pushing hard into semiconductors, for which the government has provided billions of dollars in public funding, and artificial intelligence, where Beijing in July set a goal of global leadership by 2030

Mr. Lee, the venture investor, predicts that in the next five to 10 years Chinese tech companies will become pacesetters for tech-related development, vying with the likes of Alphabet Inc.’s Google and Facebook for dominance in markets outside the English-speaking world and Western Europe.

“All the rest of the world will basically be a land grab between the U.S. and China,

“The U.S. approach is: We’ll build a better product and just win over all the countries,” says Mr. Lee. The Chinese approach is “we’ll fund the local partner to beat off the American companies.”

Asia’s rise as a startup financier is even starker in the biggest venture investments—those of $100 million or more. These megadeals have become an increasingly important part of venture finance as valuations have ballooned, with their proportion of deal volume growing from around 8% in 2007 to around half of the total last year.

In Southeast Asia, a flood of Chinese money into local startups—such as the $1.1 billion Alibaba-led investment into Indonesian online marketplace PT Tokopedia last year—is drawing the region closer to China

Chinese money is also playing a big role in India, which, with a population of 1.2 billion, has been described as the next big internet market. Chinese and Japanese investors each led nearly $3 billion in venture finance in India last year, ahead of the nearly $2 billion in deals led by U.S. investors

“Think of strategic investments and M&A as playing a game of go,” said Mr. Tsai, the Alibaba executive vice chairman, at the investor conference last year. “In a game of go the strategic objective is to put your pieces on the chessboard and surround your opponent.”

Although China is growing stronger, Mr. Xi has said, there are still many ways in which “the West is strong and the East is weak,”

“Xi Jinping strikes me as ruthless but cautious in erecting a durable personal legacy,”

In the eyes of China’s leaders, he said, “the response to the coronavirus was really a textbook example to the party of how you could bring things together in a short amount of time and force through a program.”

The Biden administration has signaled that it wants to press China on human rights and compete with it on technological advancements and regional influence in Asia

At home, China is grappling with an aging population and trying to overhaul an engine of economic growth that uses too much investment and energy for too little gain and too much pollution.

the Chinese legislature appears poised to back plans to drastically rewrite election rules for Hong Kong, removing the vestiges of local democracy in the former British colony.

The congress is part of the party’s stagecraft this year to reinforce the view that Mr. Xi is essential to safely steering China through momentous changes. Official Chinese media have recently hailed Mr. Xi’s campaign to end rural poverty as a major success

Having emerged triumphantly from the pandemic, Mr. Xi will look to further centralize his power,

Mr. Xi, 67, appears likely to claim a third five-year term in power, bulldozing past the term limits that had been put in place to restrain leaders after Mao Zedong and Deng Xiaoping.

in July, Mr. Xi will preside over the centenary of the founding of the Chinese Communist Party, celebrations that are likely to cast him as a historic leader like Mao and Deng.

“Containment and oppression from the United States is a major threat,” said Chen Yixin, a security official who served as Mr. Xi’s policy enforcer in Wuhan

“There is a vivid contrast between the order of China and the chaos of the West.”

officials have used such phrases markedly more often in recent months, underscoring the confidence — critics say hubris — enveloping the Chinese government.

The health of the economy will be crucial to whether that confidence survives. Government advisers have suggested that average growth could be 5 percent or higher over the next five years, if things go well.

But the country might not sustain that level of growth unless it becomes more innovative and reduces its reliance on investment in heavy industry and infrastructure,

China’s aging population will place growing demands on pension funds, health care and accumulated savings.

Such economic pressures could corrode public support for the party in the years ahead

Leaders in Beijing appear much more focused on the United States, which they see as remaining bent on hobbling China’s ascent, regardless of who is in the White House.

Chinese policymakers were alarmed when the Trump administration pulled back Chinese companies’ access to American technology. Many say that the United States will keep trying to hold back China by restricting its access to “chokehold technologies,” such as advanced semiconductors and the machines to make them.

Mr. Xi has portrayed China as moving closer by the year to regaining its rightful historic status as a great power, while established powers are riven by dysfunction.

“This is both an unplanned clash and a protracted war.”

Mr. Xi’s plan for addressing these shortcomings is to expand domestic innovation and markets to be less dependent on high-tech imports

He could dominate for years yet, making his decisions, or misjudgments, all the more consequential.

“Internally there are now few sources of opposition — no sources of opposition,” Xiao Gongqin, a historian in Shanghai, said in a telephone interview, “so the leader must be able to stay even-keeled.”

Taiwan is an arena for the rivalry between China and America. Although the United States is not treaty-bound to defend Taiwan, a Chinese assault would be a test of America’s military might and its diplomatic and political resolve. If the Seventh Fleet failed to turn up, China would overnight become the dominant power in Asia.

The government in Beijing insists it has a duty to bring about unification—even, as a last resort, by means of invasion. The Taiwanese, who used to agree that their island was part of China (albeit a non-Communist one), have taken to electing governments that stress its separateness, while stopping short of declaring independence.

Some American analysts conclude that military superiority will sooner or later tempt China into using force against Taiwan, not as a last resort but because it can. China has talked itself into believing that America wants to keep the Taiwan crisis boiling and may even want a war to contain China’s rise.

Xi Jinping, China’s president, has not even begun to prepare his people for a war likely to inflict mass casualties and economic pain on all sides. In its 100th year the Communist Party is building its claim to power on prosperity, stability and China’s status in its region and growing role in the world. All that would be jeopardised by an attack whose result, whatever the US Navy says, comes with lots of uncertainty attached, not least over how to govern a rebellious Taiwan. Why would Mr Xi risk it all now, when China could wait until the odds are even better?

America requires weapons to deter China from launching an amphibious invasion; it must prepare its allies, including Japan and South Korea; and it needs to communicate to China that its battle plans are credible. This will be a tricky balance to strike. Deterrence usually strives to be crystal-clear about retaliation.

It is a small island of just 24 million people, but it is at the center of the battle for global technological supremacy. Pound for pound, it is the most important place in the world. As the Cold War between China and the United States intensifies, that importance will only continue to grow.

After World War II, only two major emerging economies managed to grow faster than 5 percent for five decades in a row and to rise from poverty into the ranks of developed economies. One was Taiwan, the other South Korea

They kept advancing up the industrial ladder by investing more heavily in research and development than did any of their rivals among emerging economies. Now they are among the research leaders of the developed economic world as well.

How did they accomplish this feat? Competent governments played a major role. South Korea nurtured giant conglomerates like Samsung and Hyundai, which exported consumer products under their own brand names. Taiwan cultivated smaller companies focused on making parts or assembling finished products for foreign brands

Today the flexibility goes a long way toward explaining its success.

Mixing overseas experience with young local graduates, the science parks became hothouses for entrepreneurial start-ups.

Going forward, many tech analysts predict that Taiwan’s business model gives it a clear edge. Most customers prefer a pure foundry that does not compete with them to design chips or build devices, and only Taiwan offers this service.

That is a big reason Apple has been switching from Samsung to T.S.M.C. for the processing chips in the iPhone and why Intel is expected to outsource production of its most advanced chips mainly to T.S.M.C.

Taiwan has tried to position itself as the “Switzerland” of chips, a neutral supplier, but it increasingly finds itself at the center of the jousting between China and the United States

Historically, the importance of Taiwan was calculated in geopolitical terms. A small democracy thriving in the shadow of a Communist giant stirred sympathy and support in Washington. Now, as a byproduct of its successful economic model, Taiwan has become a critical link in the global tech supply chain, adding economic weight to the geopolitical calculations.

With so many needs met, economists estimate China now has to invest about $9 to produce each dollar of GDP growth, up from less than $5 a decade ago, and a little over $3 in the 1990s.

Returns on assets by private firms have declined to 3.9% from 9.3% five years ago, according to Bert Hofman, head of the National University of Singapore’s East Asian Institute. State companies’ returns have retreated to 2.8% from 4.3%.

China’s labor force, meanwhile, is shrinking, and productivity growth is slowing. From the 1980s to the early 2000s, productivity gains contributed about a third of China’s GDP growth, Hofman’s analysis shows. That ratio has declined to less than one sixth in the past decade.

Changing that would require China’s government to undertake measures aimed at encouraging people to spend more and save less. That could include expanding China’s relatively meager social safety net with greater health and unemployment benefits.

Much of the debt was incurred by cities. Limited by Beijing in their ability to borrow directly to fund projects, they turned to off-balance sheet financing vehicles whose debts are expected to reach more than $9 trillion this year,

only about 20% of financing firms used by local governments to fund projects have enough cash reserves to meet their short-term debt obligations, including bonds owned by domestic and foreign investors.

The solution for many parts of the country has been to keep borrowing and building. Total debt, including that held by various levels of government and state-owned companies, climbed to nearly 300% of China’s GDP as of 2022, surpassing U.S. levels and up from less than 200% in 201

Household consumption makes up only about 38% of GDP in China, relatively unchanged in recent years, compared with around 68% in the U.S.,

The most obvious solution, economists say, would be for China to shift toward promoting consumer spending and service industries, which would help create a more balanced economy

i and some of his lieutenants remain suspicious of U.S.-style consumption, which they see as wasteful at a time when China’s focus should be on bolstering its industrial capabilities and girding for potential conflict with the West, people with knowledge of Beijing’

The leadership also worries that empowering individuals to make more decisions over how they spend their money could undermine state authority, without generating the kind of growth Beijing desires.

A plan announced in late July to promote consumption was criticized by economists both in and outside China for lacking details. It suggested promoting sports and cultural events, and pushed for building more convenience stores in rural areas.

Instead, guided by a desire to strengthen political control, Xi’s leadership has doubled down on state intervention to make China an even bigger industrial power, strong in government-favored industries such as semiconductors, EVs and AI.

While foreign experts don’t doubt China can make headway in these areas, they alone aren’t enough to lift up the entire economy or create enough jobs for the millions of college graduate

a speech made by Xi six months earlier to senior officials, in which the leader emphasized the importance of focusing on long-term goals instead of pursuing Western-style material wealth. “We must maintain historic patience and insist on making steady, step-by-step progress,” Xi said in the speech. 

When viewed with the Inflation Reduction Act, which the House is poised to pass later this week, and last year’s bipartisan infrastructure law, a major shift in congressional climate spending comes into focus. According to the RMI analysis, these three laws are set to more than triple the federal government’s average annual spending on climate and clean energy this decade, compared with the 2010s.

Within a few years, when the funding has fully ramped up, the government will spend roughly $80 billion a year on accelerating the development and deployment of zero-carbon energy and preparing for the impacts of climate change. That exceeds the GDP of about 120 of the 192 countries that have signed the Paris Agreement on Climate Change

The law, for instance, establishes a new $20 billion Directorate for Technology, which will specialize in pushing new technologies from the prototype stage into the mass market. It is meant to prevent what happened with the solar industry—where America invented a new technology, only to lose out on commercializing it—from happening again

the bill’s programs focus on the bleeding edge of the decarbonization problem, investing money in technology that should lower emissions in the 2030s and beyond.

The International Energy Association has estimated that almost half of global emissions reductions by 2050 will come from technologies that exist only as prototypes or demonstration projects today.

To get those technologies ready in time, we need to deploy those new ideas as fast as we can, then rapidly get them to commercial scale, Carey said. “What used to take two decades now needs to take six to 10 years.” That’s what the CHIPS Act is supposed to do

By the end of the decade, the federal government will have spent more than $521 billion

Congress has explicitly tasked the new office with studying “natural and anthropogenic disaster prevention or mitigation” as well as “advanced energy and industrial efficiency technologies,” including next-generation nuclear reactors.

The bill also directs about $12 billion in new research, development, and demonstration funding to the Department of Energy, according to RMI’s estimate. That includes doubling the budget for ARPA-E, the department’s advanced-energy-projects skunk works.

it allocates billions to upgrade facilities at the government’s in-house defense and energy research institutes, including the National Renewable Energy Laboratory, the Princeton Plasma Physics Laboratory, and Berkeley Lab, which conducts environmental-science research.

RMI’s estimate of the climate spending in the CHIPS bill should be understood as just that: an estimate. The bill text rarely specifies how much of its new funding should go to climate issues.

When you add CHIPS, the IRA, and the infrastructure law together, Washington appears to be unifying behind a new industrial policy, focused not only on semiconductors and defense technology but clean energy

The three bills combine to form a “a coordinated, strategic policy for accelerating the transition to the technologies that are going to define the 21st century,”

scholars and experts have speculated about whether industrial policy—the intentional use of law to nurture and grow certain industries—might make a comeback to help fight climate change. Industrial policy was central to some of the Green New Deal’s original pitch, and it has helped China develop a commanding lead in the global solar industry.

“Industrial policy,” he said, “is back.”

Germany would promote economic links with Russia and China under the doctrine of “Wandel durch Handel” — change through trade — which asserted that integration with the world economy would promote democratization and rule of law.

And rather than forcing nations to get along, globalization seems to have created new frontiers for international confrontation.

Three years ago the international relations experts Henry Farrell and Abraham Newman published a prescient paper titled “Weaponized Interdependence: How Global Economic Networks Shape State Coercion.” They argued, in effect, that conventional trade wars — in which nations try to exert economic power by restricting access to their markets — are no longer where the action is. Instead, economic power comes from the ability to restrict other countries’ access to crucial goods, services, finance and information.

the big surprise on the economic side of the Ukraine war was the early success of the United States and its allies in strangling Russian access to crucial industrial and capital goods. Russian imports have begun to recover, but sanctions probably dealt a crucial blow to Vladimir Putin’s war-making ability.

Katherine Tai, the U.S. trade representative, gave a fairly startling speech calling for U.S. industrial policy aimed in part at protecting national security. She denounced China’s “state-directed industrial dominance policies” and declared that the efficiency gains from trade liberalization “cannot come at the cost of further weakening our supply chains [and] exacerbating high-risk reliances.” On the same day, the Biden administration announced its new export controls aimed at China. Suddenly, America is taking a much harder line on globalization.

it’s a dangerous world out there, and I can’t fault the Biden administration for its turn toward toughness — genuine toughness, not the macho preening of its predecessor.

Second, our margin of safety is shrinking: The power of American deterrence in the Far East is declining. While there are some favorable long-term trends, for the next few years at least, China and North Korea are likely to see more reasons to test the will and the power of the U.S. and its allies.

If China decides on forcible unification with Taiwan, it has two principal options. It can invade the island directly, or it can try to blockade it. Taiwan, which imports 97% of its energy supply and also depends on food imports, is vulnerable to such a blockade.

Whether China invades or blockades, the regional and global consequences would be the gravest shock to the global economy since World War II.

Regionally, the effect of closing the South China Sea and the waters around Taiwan to international trade would be calamitous. South Korea and Japan are both heavily dependent on imported fuel and food. Both economies depend on the ability of their great manufacturing companies to import raw materials and export finished goods. A suspension of maritime trade would effectively put both economies on life support, while making it difficult for tens of millions of people to heat their homes, run their cars or feed their children.

North Korea, seeing an opening in the global and regional chaos, would take the opportunity to attack at a time when U.S. forces would have enormous difficulty reinforcing and resupplying the South.

China would also be hit. Ships wouldn’t travel through war zones to Shanghai, Qingdao or Tianjin. The U.S. would likely, in addition to sanctions, enforce a blockade against ships seeking to supply China with goods deemed important for war.

For the rest of the world this would mean a massive supply-chain headache. From Taiwan’s semiconductors, vital for many industries and consumer products, to all the things that China, Japan and South Korea produce, the products of the Far East would vanish from inventories and store shelves.

Globally, makers of the raw materials for those countries, as well as growers of such agricultural commodities as soybeans and grain, would lose access to major markets.

the financial consequences of the war could pose insurmountable challenges for the world’s central banks. Stocks would crash. Currencies would gyrate. Debt markets would implode as sovereign borrowers like China and Japan faced wartime conditions and corporations dependent on Asian economies struggled to manage their debts.

Lulled into complacency by a long era of peace, most of us have yet to appreciate fully the dangers we face. Vladimir Putin’s invasion of Ukraine and the Hamas attack on Israel should have made clear that we live in an era when the unthinkable can happen overnight. These days, we must not only learn to think about the unthinkable, in nuclear strategist Herman Kahn’s phrase. We also need to prepare for it.

So fear creates recessions in the long run — and if we continue to have rising fear, the probability of a European recession grows and the probability of a US recession grows. Geopolitics is playing a bigger role in everyone’s equations.”

Geopolitical risk is a major component in shaping all our lives. We are having rising fear throughout the world, and less hope. Rising fear creates a withdrawal from consumption or spending more.

“When the Russian invasion occurred in Ukraine, we said that the peace dividend is over,” Larry Fink, chief executive of investment giant BlackRock, told The Sunday Times. “Now, with the instability in the Middle East, we’re going to almost a whole new future.

Dimon noted that inflation had “levelled off a little bit” overall, but said: “It’s not clear to me that long-term forces are not inflationary … And that’s why I’m saying rates could possibly go up from here. That’s life in the fast lane.”

Higher borrowing costs have started to hit debt-fuelled sectors that boomed in the zero-rates era — such as commercial property, where $80 billion (£65 billion) of assets across the US are in some form of financial distress, according to MSCI, and private equity.

[the legendary investor] Warren Buffett says you see who’s swimming naked when the tide goes out. Not everyone is really ready for 6 or 7 per cent rates, but I wouldn’t rule them out.”

Fink pointed out that the transmission of rate rises into the US economy was less direct than in the UK

“I’m a fundamental believer that we’re going to have higher inflation for longer, and it’s going to require the [Fed] to raise rates higher — probably one or two more tightenings — and that will ultimately be the way we get into recession.”

Many senior figures on Wall Street worry about the US government’s ability to finance itself in the medium term. As in the UK, the market for government debt was underpinned by huge waves of quantitative easing (QE) after the financial crisis, as the Federal Reserve, in effect, bought assets including Treasuries to boost the economy. Following a revival of the programme during Covid, it came to an end in March last year.

The withdrawal of QE, combined with lacklustre appetite for Treasuries among US banks and international investors such as China, could force the government to pay higher prices at a time of near-record borrowing.

“It might be a 20km headwind right now, but next year it’s going to be 25km and it’s going to grow,” a top investor said of the decreasing international demand for US government debt.

US stock market floats and fundraisings, the heartbeat of capital markets, slumped to their lowest level since 1998 last year as the spike in interest rates punctured valuations of growth stocks in sectors such as tech and healthcare.

The cautious mood on Wall Street comes against a backdrop of surprisingly strong US growth. The economy expanded by an astonishing 4.9 per cent in the third quart

the Biden administration is shovelling stimulus into the system via big pieces of legislation promising to accelerate America’s adoption of renewables, rebuild its advanced semiconductor industry and increase its spending on roads, bridges and broadband.

We have huge stimulus,” said Fink. “People are not factoring in the Inflation Reduction Act, the Chips Act and the Infrastructure Act, which are about $970 billion of stimulus. Those are the largest stimuluses ever when there’s not a pandemic or a financial crisis ... And it’s at a time when you can have unions win a 25 per cent labour increase … These are very inflationary, whether it’s the fiscal stimulus or these wage increases.”

It all comes back to that word. Unexpectedly high growth, massive government stimulus and now two wars that threaten to spill out into broader crises — it all spells inflation. The flurry of hope in markets that Fed and the Bank of England have reached the top of their rate-raising cycles may yet prove premature

While there are substitutes for Russian nickel, there’s no good substitute for the U.S. dollar and U.S. technology. It is very hard to get paid for things you sell if you can’t use SWIFT messaging and have been cut off by the U.S. regulated financial institutions that “clear” transactions in dollars. And it’s hard to build sophisticated machines without semiconductors that are made with U.S. intellectual property.

The barrier isn’t just that the payment networks of Russia and China are three or four decades behind. Others also fear how they would abuse these networks if they controlled them. The United States has its problems, but it at least provides some legal protections to businesses and countries that have fallen afoul of its harsh measures.

Often, U.S. officials treat these rules as an obstacle preventing them from taking strong actions. Yet these restrictions provide America with a strategic advantage: They give foreign countries and businesses some reason for trust.

Overreach, then, is the more immediate threat

they illustrate a deeper danger. As a new book by the historian Nicholas Mulder emphasizes, the “economic weapon” of sanctions and blockades doesn’t work nearly as predictably or effectively as its proponents imagine. The more powerful sanctions are, the greater the danger that they will lead to an unpredictable response. As Mr. Mulder demonstrates, fears of sanctions helped propel Nazi Germany’s territorial ambitions

measures should be just harsh enough to reach specific goals: to protect Ukrainian independence and to limit, to the greatest extent possible, Russia’s aggressive gains.

The United States should also explicitly lay out the circumstances under which the executive branch will apply such economic measures, the range of permissible goals that they can accomplish, the review procedures that will ensure they are proportionate and the circumstances under which they will be withdrawn.

Russia and Ukraine are major wheat exporters, while Russia and Belarus (a Russian proxy) are big in potash, an input into fertilisers.

Their delivery might be disrupted if physical infrastructure such as pipelines or Black Sea ports are destroyed. Alternatively, deeper sanctions on Russia’s commodity complex could prevent Western customers from buying from it.

The longer-term fallout will be a further debilitation of the system of globalised supply chains and integrated financial markets that has dominated the world economy since the Soviet Union collapsed in 1991.

Russia may retaliate by deliberately creating bottlenecks that raise prices. America may lean on Saudi Arabia to increase oil production and prod its domestic shale firms to ramp up output.

America is thus likely to put much tougher Huawei-style sanctions on Russian tech firms, limiting their access to cutting-edge semiconductors and software, and also blacklist Russia’s largest two banks, Sberbank and VTB, or seek to cut Russia off from the SWIFT messaging system that is used for cross-border bank transfers.

The banking restrictions will bite immediately, causing a funding crunch and impeding financial flows in and out of the country.

Russia will turn to China for its financial needs. Already trade between the two countries has been insulated from Western sanctions, with only 33% of payments from China to Russia now taking place in dollars, down from 97% in 2014.