The policy recommendations in this Substack are rooted in a set of core, base-case assumptions. We’ll explore many of these in more detail in future updates, but I think it’s helpful to summarize everything concisely in one place.
In the course of time, some of these assumptions may need to be updated. This will therefore be a living document. As circumstances force me to change my assumptions, I’ll note my updates in new pieces and update them here.
Some readers will surely have different views, and I welcome feedback.
Global geopolitical environment
The risk of great-power conflict seems higher than at any point in decades. NATO is helping Ukraine defend itself against Russia’s unprovoked war of aggression. The Middle East is a tinderbox, with Iran on the verge of acquiring nuclear weapons. China is menacing Taiwan and ramping up maritime aggression against the Philippines. North Korea continues to expand its nuclear arsenal and is developing advanced ballistic missiles. Facing this combination of threats, US military power is spread worryingly thin.
The four hostile authoritarian powers are increasingly operating as an axis. The regimes in China, Russia, North Korea, and Iran have different domestic conditions and foreign policy priorities, but they share a common interest in undermining US leadership and building a new world order safe for authoritarianism. They are sharing advanced defense technologies and selling each other large quantities of lower-end systems, in what amounts to the construction of an integrated defense industrial base (DIB). North Korean troops are fighting alongside Russians in Ukraine. As all four countries shift from dollar payment networks to Chinese cross-border payments systems, they are also building resilience to sanctions, which will make it harder for US policy to stop them from cooperating in the future. The integration trend will continue over the next decade.
The more the four adversaries deepen their cooperation, the greater the possibility that conflict in one region could spread to others. Deterrence is therefore linked across regions.
Why the China challenge ranks first
The deterrence challenge is greatest in the Indo-Pacific. Here, unlike in Europe, there is no NATO-equivalent organization to support US efforts to maintain peace and stability. Instead, the United States has a “hub-and-spoke” network of allies and partners that it formulated long before China emerged as a major military power. Whereas the adversary America faces in Europe is a declining power, the one it faces in the Indo-Pacific is still rising. Among many superlatives, drawing on the largest industrial base in human history, China already has the world’s largest active-duty military force, ground forces, navy, other maritime forces, and overall conventional ballistic and cruise missile forces—including a suite of military capabilities specifically designed to hold US forces at risk.
The best way to deter Russia, North Korea, and Iran is to keep deterring China. Russia is unlikely to attack NATO without PRC support. Same with North Korea attacking South Korea. Pyongyang today is mainly focused on menacing its democratic neighbors and deterring Washington and Seoul from seeking regime change. South Korean and US forces could defeat a conventional North Korean invasion, despite the significant damage it would cause. Furthermore, Pyongyang understands that if it uses weapons of mass destruction against a US ally, it should expect devastating retaliation. Finally, deterring China is essential to slow Iran’s efforts to reconstitute its nuclear and missile programs.
The most dangerous and likely US-China flashpoint is Taiwan. Many Taiwan crisis scenarios can be imagined. They range from a formal blockade with warships to a quarantine with coast guard ships, to a smaller attack on the outlying islands of Kinmen and Matsu, to a full-scale invasion and war with the United States. China may pursue any of these strategies in combination or in sequence. Escalation to nuclear use cannot be ruled out. The United States must prepare for all contingencies.
China is currently deterred from attempting to revise the status quo by force—largely because it fears losing a conventional war against US forces. Based on our reading of the open-source evidence, I assess that Washington and Beijing currently share this assessment—but that China is narrowing the gap, and that as the gap narrows, the risks that China may miscalculate will grow.
Keeping China deterred over Taiwan must be the United States’ top strategic priority. Taiwan is an “unsinkable aircraft carrier” for projecting military power in the maritime space around Japan, the Philippines, the South China Sea, and the broader Western Pacific. If Taiwan were to fall, the US’s ability to defend regional allies such as Japan and the Philippines from future attacks would be severely compromised, degrading the credibility of US security assurances. Smaller countries in the region, especially in Southeast Asia, would likely submit to Beijing’s de facto regional hegemony.
A conflict over Taiwan would almost certainly lead to a devastating setback for the US tech sector. Either it would lead to the destruction or disabling of Taiwan's semiconductor industry, setting back the entire global economy by several years, or China would seize Taiwan’s chipmaking facilities (“fabs”) intact, which could then allow it to starve the United States and its allies of computation power and seize the commanding heights of AI. A conflict over Taiwan would also recast economic and trade relationships in the region and beyond. Both outcomes would make it far harder to ensure prosperity for future generations of Americans. They emphasize the importance of deterring the conflict from breaking out in the first place.
How to deter China
To maintain military deterrence over China for the next decade and beyond, the US military must make Beijing believe that an invasion of Taiwan or a US treaty ally would be likely to fail, and that non-invasion attacks on a US treaty ally would not be worth it, either. In the Taiwan invasion scenario, there would likely be a clear division of labor between Taiwan and its external defenders. Taiwan would take primary responsibility for defeating an amphibious and aerial assault and denying the PLA a lodgment on its main island. Meanwhile, the United States and other allies would engage China’s surface combatants, submarines, and airpower operating around Taiwan, including by undermining their critical supporting systems. There are infinite variations.
In short: The surest way to persuade Xi Jinping that the costs and risks of provoking such a war would exceed any possible benefit is to show him that China’s air-naval power within the First Island Chain (FIC) would likely be destroyed during an all-out conflict.
Although China is the pacing threat, the US military must also remain agile enough to address threats worldwide. Russia is doubling down in Ukraine. Even in the Middle East, which I assume is a third- or fourth-priority theater, day-to-day operational demands can force hard trade-offs in resource allocation and readiness. Mindful of the increasingly dangerous global context, the United States must ensure that it has sufficient capacity—the scale and endurance to sustain large-scale operations over time, deploy sufficient forces across multiple theaters, and maintain readiness for multiple simultaneous conflicts.
Taiwan must do more to strengthen its own defenses and resilience, but unlike Ukraine it cannot prevail in a conflict unless the United States is organized, equipped, and politically resolved to defeat a PLA move. Demonstrating the capability to defeat the PLA will have a number of strategic benefits. It will give Taiwan’s vulnerable democracy the confidence to resist China’s gray zone tactics and give the Philippines the confidence to stand up to Beijing’s maritime aggression in the South China Sea. Moreover, a credible conventional deterrent would complement existing extended nuclear deterrence arrangements and reduce pressure on regional allies such as South Korea and Japan to develop independent nuclear capabilities. If for whatever reason Taiwan falls under PRC control in the future, it will be all the more important for the United States and its allies to have a dominant conventional force that can deter further PRC aggression.
Finally, while robust conventional military deterrence is necessary, it is not sufficient by itself. The US and China are economically interdependent nuclear-armed states in a highly globalized world. Of the nearly 200 countries on earth, the vast majority would want to stay neutral in any conflict, and all would have a stake in the outcome for strategic, political, and economic reasons. Deterring China therefore requires an integrated strategy with political, military, strategic, and economic dimensions that support rather than undermine one another.
Economic assumptions
The Trump administration’s trade negotiations have made the future of the U.S.–China economic relationship more unpredictable. But a few themes are highly predictable:
Another peacetime attempt at rapid, broad-based decoupling is now exceedingly unlikely. The attempt at rapid decoupling on April 9, 2025 (“Liberation Day”) failed. When tariff rates were abruptly raised above 100%, markets entered free-fall. Days later, the administration paused the tariffs.
The United States doesn’t want to bear political pain to achieve peacetime decoupling. Its pain tolerance in crisis or wartime is surely significantly higher. But no one knows how much higher.
“Decoupling” now means partial decoupling, focused on a narrow set of high-technology products. In other words, it means basically what “de-risking” meant during the Biden administration.
China knows this.
The global effects of the Trump tariffs are also unclear, but I work off the following assumptions:
Key U.S. alliances in Asia and Europe have been strained politically by the tariffs, but are not broken.
The WTO and “rules-based” international trading system are now largely irrelevant for trade disputes between great powers. But they still have normative force. That matters, in practice more for smaller countries than for larger ones.
On China’s economy, I make the following assessments:
The official economic data are not accurate. They should be read as propaganda tools for influencing markets and public narratives.
China’s economy is unhealthy but stable—not in crisis or imminent danger of collapse.
Deflation is now entrenched.
Consumption is weak but not disastrously slow.
Local government finances are in dismal shape, but central government finances are healthy, which is what matters for strategic competition.
Regulatory tools, capital controls, and FX reserves are robust enough to prevent any peacetime banking or financial crisis.
Policy statements about “rebalancing consumption” will not be meaningfully carried out. China’s overcapacity problem will get worse
Technology and the character of warfare
U.S.-China technology competition matters for the military, economic, and political fronts of strategic competition.
I assume the pace of innovation in relevant technologies will basically follow recent trends. This assumption is open to debate, particularly in the case of AI, where many smart analysts see exponential improvement. However, exponential and linear curves look pretty similar over the short term.
Competition in AI will shape U.S. and Chinese industrial competitiveness and provide the basis for new kinds of strategic partnerships with other countries. But the most direct application of technology for strategic advantage is in the military.
Warfare is in the midst of a technological transformation. In some respects, the images from the trenches in eastern Ukraine recall the horrors of World War I. But in other respects, this war is like no other in history. As a result of drones, satellite communications, precision munitions, and other new capabilities, targets that can be spotted by the enemy are often destroyed within minutes, even many kilometers behind the front line.
Militaries are competing to adapt to this new situation. The Russian and Ukrainian armed forces have adopted new models for logistics and resupply and changed the way units maneuver. They have repurposed existing capabilities for spotting and strike and invested in countermeasures such as air defenses, decoys, and electronic warfare (EW). The battlefield in Ukraine has become a sandbox of innovation. We don’t know exactly what lessons Xi Jinping and the PLA are learning from Ukraine—but a similar adaptation race is underway in the Indo-Pacific, too. China’s focus on adaptation and modernization suggests they think the speed of technological change is rapid and possibly accelerating. The United States will therefore have to both modernize its force and find innovative ways to integrate new technologies with existing platforms.
The US military can’t view emerging capabilities merely as replacements for legacy systems. Rather, it must leverage new technologies to enhance the effectiveness of proven platforms, creating additional margins of advantage through their combination. It must demonstrate not only technological superiority in specific capabilities, but also the capacity to keep adapting its armed forces and defense industrial base (DIB) to be able to prevail in a protracted, high-intensity conflict.
To achieve these objectives, Washington needs to break from the status quo and start taking China deterrence more seriously. Over the past two decades, China has conducted the largest military buildup since World War II. It is systematically developing a force capable of disrupting US operations in the region, backed by a vast DIB. Although the US Department of Defense (DOD) has made progress in responding, it is moving too slowly. Over the next decade, the DOD will need more resources, better coordination with industry in the United States and allied countries, and pressure from Congress to use its resources wisely and enact necessary reforms. Preserving deterrence will require more money, but it is not just a question of money. It is, more fundamentally, a matter of political will. The world’s major democracies must work more closely together to deter a great-power war, and this collaboration will require American leadership. It will not happen organically.
Trends in spending and the military balance
Left unchecked, China may seize the relative advantage in the military balance within the next five years. At that point, it might promptly launch a direct military attack on US interests in the region. Alternatively, it could display its superiority and threaten war to coerce the United States or its allies, while pressing to increase its margin of advantage. As US Indo-Pacific Command Commander Admiral Samuel Paparo put it in February 2025: “We operate on increasingly thin margins for error.”
China’s military spending will continue to grow faster than that of the United States, even as China’s overall economic growth continues to slow. Following the Congressional Budget Office, I expect the US baseline defense budget to grow by around 2 percent per year in real terms through 2040 (to roughly $1.4 trillion annually)—assuming the United States is not pulled into a great-power war before then. However, these incremental funding increases will go largely toward personnel salaries and maintenance costs and to be insufficient to support many major new capital expenditures.
Congress and the DOD face hard choices ahead. Some existing programs may have to be downsized or eliminated to free up funds for more urgent priorities. Higher spending will have a nonlinear impact on readiness, but with a lag of several years, and only if the money is allocated to high-impact programs. Substantial special appropriations to enhance deterrence are likely, potentially totaling hundreds of billions of dollars over the next decade—but the precise timing, size, and content of these packages will likely be hard to predict in advance, which will make it harder for the DOD and key contractors to plan effectively.
DOD Budget, Historical and Projected, October 2023 (Congressional Budget Office)
Source: Congressional Budget Office, Long-Term Implications of the 2024 Future Years Defense Program, October 2023. The base budget does not include special appropriations, which is how Congress often chooses to fund ongoing US military operations in specific countries.
Incremental reform is much more likely than wholesale reform. We should focus on identifying key gaps in the current force structure that can be addressed at relatively low cost through incremental, bipartisan reforms.