Gray rhinos in our future

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.

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.

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).

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.

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.

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.

Click here to read more thoughts on what’s coming: This isn’t the future we were promised


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