By Santiago Hunt
Cover image by redcharlie
My written output has been sparse over the past year. Partly due to an embargo on a lengthy piece I wrote about investing in an AI-powered world. And partly because I’ve also gotten sucked into a couple of research rabbit holes, including one on China-Taiwan relations.
While going through my CN/TW deepdive, I came across the term “Gray Rhino”. It refers to a predictable event that has a high probability of occurrence. If the event does indeed happen, it has great negative impact (nobody wants to face a gray rhino!). A key feature of gray rhinos is that you can see them charging at you from the distance, yet there’s not much you can do to avoid them. The term was originally coined by Michele Wucker, and used by Chairman Rabbit, a Chinese blogger, to refer to the looming Taiwan Strait conflict.
Unlike their more famous “black swan” counterparts, little attention is paid to said rhinos. That’s why below I’ve listed 5 upcoming critical gray rhino events, with massive global implications.
- China Taiwan heating up
- The rise of India
- Climate crisis
- Pax silica is dead: The Mag 7 go to war
- Demographic poaching
1) China-Taiwan heating up
One thing should be clear from the get-go: I don’t see a Taiwan-China military conflict occurring soon. Not by 2027, which is the date touted by many commentators on the subject. Probably not even before 2030.
Nevertheless, a rise in cross-strait tensions is well underway and will continue. This escalation stems from a confluence of three factors: i) China is facing growing incentives when it comes to a potential military move against Taiwan ii) A rising sense of “Taiwanese identity” among the population weakens China’s claim to the island iii) The US views Taiwan as crucial to its technological dominance in the current global landscape.
China’s incentives to make a move are multiple: Rising military power. Economic slowdown (gdp per cap growth is converging at ~1980s figures). Taiwanese actions making the CCP “lose face”. And a size of the price worth way more than ever before. Put together, this creates a relevant window of opportunity. Furthermore, this window is time-constrained, given the demographic challenges faced by China. Couple this with a record 67% of Taiwanese who no longer see themselves as Chinese (compared to ~50% in the 2000s). The clock is ticking.
The US has taken note. Since Trump took office in 2016, researchers (McKinney and Harris) have identified 27 “firsts” changes in Taiwan-related US foreign policy. Notably, both Republicans and Democrats now seem to agree on a more assertive approach, including a potential move away from the longstanding “One China” policy. This shift has heightened tensions in the region.
Is military conflict unavoidable? No. An invasion of Taiwan would be costly for China, both economically and in terms of domestic stability. Additionally, the geographic challenges and potential for a prolonged conflict make an invasion unlikely. A blockade is also unattractive for China, offering limited gains at a high price.
What about the so called “deadlines” for an attack? Admiral Davidson’s 2027 comment regarding a possible Chinese invasion reflects personal opinion, not a clear deadline. As for Xi Jinping, he has stated that Taiwan reunification is paramount to achieve “national rejuvenation” (the CCP’s #1 goal by 2049). And although some people believe this puts a deadline on the CCP, I believe Xi made this date explicit to defuse invasion urgency.
What is unavoidable though, is tension escalation. Quoting Ben Hunt, Taiwan has become Arrakis. Just like Arrakis’ spice in Dune, Taiwan produces 92% of the world’s most advanced semiconductors, vital for modern technology. This economic power makes “peaceful unification” unlikely – Taiwan has no incentive, and the US has significant economic reasons to oppose it. This reality guarantees escalating tensions.
The implications are manifold: this is THE geopolitical conflict to watch out for moving forward. If an attack were to happen, economic chaos would ensue. Consequently, Defense and Cyber budgets destined to Taiwan will continue to grow. And efforts to de-risk the semiconductor supply chain, which are well underway, will only increase moving forward.
Expect multiple false starts and strong war rhetoric on all sides in the coming years. Hopefully, it will only be rhetoric.
The rise of India
India’s population sits at 1.45B people and has become the highest in the globe. It’s GDP per capita is now roughly at 2500 usd. This figure is critical. Cracking the 2000/2500usd threshold for GDP per cap means sufficient critical mass is in place to ignite a reinforcing “middle class” economic loop. Given this budding middle class will be the biggest population group in the planet, a “China 2000s” repeat may be in the cards (It is not coincidental that this GDP level is where China’s trajectory inflected as well).
Investors know this. The Indian stock market, despite its high multiples, has been the clear and consistent winner from the Pandemic to today (even surpassing the S&P 500).
I’ve been vocal about the India opportunity in the past and remain incredibly bullish. Demographics are destiny in the long run (more on this in “Demographic poaching”).
One word of caution though: I’m bullish on the direction of the Indian economy moving forward. It still offers good risk/reward. Will this translate to society? Hopefully yes, although here I am way more concerned. India is rife with poverty, corruption, infrastructure gaps and violence (esp. gender/religious). One thing the “Chinese miracle” had was that there was a societal push and alignment behind it. These conditions are essential for Indian success, yet it is unclear if they will materialize.
3) A warmer world
Take a look at this chart.
If you just breathed in sharply, you’re not alone. The once-theoretical threat of climate change now shapes our daily lives, with extreme weather events and scorching summers becoming the norm. “Degrowth” offers no solution; instead, we must adapt to a warmer world. Energy, food security, and infrastructure require immediate focus.
The energy point is critical. If we want society to advance, then energy consumption must do so at well. However, there is still too much emphasis put in renewables. Don’t get me wrong, renewables are a net positive for society. But way less so than most believe. Yes, they are clean(ish), provided you don’t squint too much at battery supply chains. But their EROIE (Energy Return on Invested Energy) is suboptimal. In other words, you spend a lot of energy to generate renewable energy.
Which poses a question: What if we had an energy source which is both clean and powerful? Enter Nuclear.
Nuclear renaissance, which has been kicked off by the pandemic and the UKR war, will only strengthen moving forward. Additionally, the E in ESG will be rapidly dropped as energy discussions become much more sincere in the hopes of a true realistic countermeasure to global warming.
When it comes to food security, expect increasingly higher spikes in specific commodities as climate cycles become sharper. While lower odds, there might be an inflationary event in the next 10-15 years driven by a (short term) food dislocation, which may generate civil unrest and political contagion depending on where it happens. As for infrastructure, we will see a revolution in terms of building materials, as we work to find more efficient energy consumption options that can deal with increased heat.
Bottomline, this one will be a slow burn (no pun intended). But of all the rhinos listed here, this is the one which I believe is 100% unavoidable.
4) Pax silica is dead: The Mag 7 go to war
We live in a world where the most powerful “entity” is the Magnificent 7 conglomerate: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla. This entity surpassed the USA Government (the prior most powerful force) somewhere in the mid 2010s. The pandemic marked the formal passing of the baton, as it became clear who was in control of the driving wheel.
Truth be told, it is somewhat unfair to call the Mag 7 a conglomerate. While technically distinct entities with separate ownership and leadership, these companies, in the past, have subtly collaborated toward a shared objective: the ascendance of Big Tech as the ultimate global powerhouse.
Presently, the Mag 7 commands a combined market cap of around $13 billion, constituting 28% of the S&P 500 and reaching historic highs. Furthermore, the U.S. stock market has outpaced all international competitors over the past two decades. This underscores that the collective economic might of the world’s top seven companies is now at an unprecedented peak.
Up to now, the growth opportunity had been big enough for all to thrive. This will no longer be the case. Tensions have been on the rise for the past 24 months. A few examples of this:
- Microsoft + OpenAI partnership posing a direct attack on Google Search (Sam Altman called Google a “lethargic search monopoly”)
- Elon Musk (Tesla) filing a lawsuit against OpenAI (directly impacting Microsoft).
- Apple fully implementing its ATT Privacy Policy, diminishing Meta’s ad targeting capabilities, and unveiling Vision Pro in direct competition with Meta’s Oculus push into the AR/VR space.
- Most of these companies developing in-house semiconductor capabilities, posing a mid-term threat to Nvidia, their current key supplier.
- Intensifying competition among cloud providers, with Azure (MSFT) and, to a lesser extent, GCP (Alphabet) aiming to seize market share from AWS (Amazon).
This list goes on. The pivotal point is that the “pax silica” that defined the 2010s has dissolved. Gone are the days of a shared, implicit goal among these companies: to become influential enough to make the U.S. government reliant on them, all without raising too many opposing voices.
These players have known this was coming since day 1. We are reaching the point where the preexistent equilibrium will no longer hold. There is simply not enough space. The next decade will be marked by the Mag-7 going head to head against each other like never before. Who will win/lose?
5) Demographic poaching
This is the mother of all gray rhinos. Not enough attention is paid to the following chart.
The graph shows that 2015 marked a peak for working population (%). In other words, it’s likely we will never again have so many workers compared to the number of children and older people. Another way to look at the same problem from a different angle.
This is a big issue. And it is slow moving. So slow that there are little incentives for institutions and public policy to address it. We know it’s coming, yet we seem paralyzed by it.
The causes are multiple. But they’re not the point of this article. Instead, I want to highlight the upcoming demographic poaching wars. We will see a battle for immigrants (and not against) starting in the 2030s. This seems hard to believe, particularly given the strong pushback against immigration we’re seeing across the globe. The current reaction is a knee-jerk one, caused by the very same issues generated by demographic decline, such as higher tax pressure and slower economic opportunities. Governments across the world are kicking the can forward and overspending – in the hopes somebody else figures this out. But truth is, most pension systems globally are broke.
However, this unsustainable trajectory will reach a breaking point. Economies will demand manpower to address pressing issues like childcare and eldercare. Presently, China stands out in this regard, actively strengthening educational ties with African nations. While not a comprehensive solution, it underscores actionable intent. The role of Africa becomes a pivotal question mark—it is poised to become the world’s most robust demographic engine, with young people evolving into a scarce resource.
Unless we crack a massive productivity hack, we may face a systemic shift 10-15 years from now. The highly bloated institutional landscape is unsustainable. It will need to redesign itself. The trick though, is that it will happen slowly. At first. And then, all at once.
Click here to read more thoughts on what’s coming: This isn’t the future we were promised