Changes Unseen - a Retrospective
Looking back at Vermilion’s 3 Jan 2023 assessment
This article is a retrospective on Vermilion’s first Changes Unseen article published 3 January 2023. The trends we identified about two years ago remain vigorous.
The Global Economy is Devolving into Two Competing Trade Blocs: Trend Accelerating
At the birth of 2025, it seems almost certain that the incoming Trump administration will at least continue if not accelerate this trend.
As Greg Jensen wrote in the Wall Street Journal, “we are all mercantilists now.” The rise of the PRC’s economy was driven by the CCP’s mercantile policies, and this will change policies in Washington as well as Asian and European capitals.
The greatest beneficiary of this new global trading system will be the US. As Jensen points out, within a mercantile framework, the nation on the buy side of the trading system has by far the most power. The US will increasingly be less willing to shoulder the major trade deficits that have benefited the European Union and the PRC.
Both Washington and Beijing will be surprised to discover that the open free trade system structurally favors the PRC while a friend-shored reciprocal trade system favors the US.
We predict that the world will continue bifurcating into two mercantile blocks. This does not mean globalization has ended. Quite the opposite, globalization will just split into two poles with increased interconnectivity within each block.
The US-led bloc will be wealthier on a per-capita GDP basis and maintain its status as the preferred place to actually live and do business.
However, in terms of warfighting capability, the blocs will be peer players. Over the course of 2024, the Russian economy did not fall apart and neither did it experience double digit contraction (as many predicted it would). Ultimately, manufacturing capability between the two blocs today is roughly even. As the North Korean defense industry has underlined, this is the part of the economy most important for wartime mobilization.
China and Russia are Forming a Lasting Union: Trend Accelerating
Most analysts only see Moscow and Beijing as entering a tenuous modus vivendi, and they are flat out wrong.
Westerners fail to understand Beijing’s geographic position. CCP decision makers are in a tough bind. If the CCP focuses on strengthening the PRC’s continental position, it must focus inward, allowing the US a free hand in maritime Asia. The result has been a strong America defending the first island chain with her allies and partners.
If however, the CCP chooses to focus eastward and project into the maritime domain, Beijing runs huge risks in losing control not only of defensible borders (steppe, desert, and the Himalayas) but also internal control over a populace agitating for self-autonomy. History has underlined these threats time and time again to Chinese decision makers.
The Politburo has achieved a Sino-Russian partnership without limits in order to project power eastward. Xi Jinping can only reach for Taiwan if he has Moscow’s overwhelming support. Otherwise, the Russians and the Chinese would undermine each other as they did during the Cold War.
There are few analysts giving Xi Jinping his due; Xi understands that fighting a two-front war would be disastrous for Beijing, just as it was disastrous for Imperial Germany, National Socialist Germany, and Imperial Japan.
As Bismarck understood (and Alcibiades failed to understand), step one of becoming a regional hegemon is to never fight a war on two fronts. It is that simple.
The Sino-Russian alliance also has major benefits for Moscow. For the time being, Putin does not have to worry about a resurgent PRC reclaiming the Russian Far East. In this way, both powers are free to project their pathology outwards.
This is exactly what we are seeing today. The PRC and North Korea have revitalized the Russian defense industrial base. Economic and military cooperation continues to strengthen, including North Korean troop deployments to Ukraine.
If the Ukraine War drags on, China’s GDP Per Capita will exceed Russia’s for the first time in the modern era and the juxtaposition between Moscow and Beijing will be complete. For Western observers, this will be seen as a huge change, but it is only incidental to the players themselves. The Russian and Chinese see their civilizations as neighboring projects of millenia. They will always exist in some form, side by side. Additionally, these two polities are not Western. They simply do not see economic growth as a means to prosperity but only an instrument for power.
We predict that Russian, Chinese, and North Korean cooperation will continue to increase in scope, scale, and depth.
Japan is Rearming: Trend Accelerating
Little needs to be discussed on this trend. It is clear that Tokyo will return to great power status with the help of Washington. The effect of this change needs constant monitoring and adjustment.
Historical parallels for the reconstruction of Japanese military power can be found in Weimar Germany and the Meiji Restoration. Washington must be extremely prudent in tying Japanese power into an existing alliance framework. This is an historic level of escalation which must be managed so as not to cause undue strain on the existing American-led coalition and only cause the intended level of fear in CCP decision maker’s minds.
We predict an extremely rocky road for the Japanese rinascita in a regional sense, even if it is welcomed in Washington, Canberra, Taipei, and European capitals.
Taiwan is Preparing to Repel a Future Invasion: Trend Accelerating
In the Year of the Snake, Taiwan will continue to get serious about military defense. However, Taipei’s definition of serious is unlikely to match Washington’s. Americans will be frustrated that Taiwan wants to defend their territory in their own way. But such friction is natural in coalition warfare.
We predict the Trump administration will not significantly slow down the delivery of military aid to Taiwan. This is in direct contrast to what President Trump may say in public about Taiwan, which is meant as a maneuver space for negotiation.
As of 2023, the Ukraine War is a Complete Toss-Up: What About 2025?
After reviewing the record at the end of 2022, we assessed that the war in Ukraine was stuck in stalemate. This has continued due to structural reasons: 1) Neither combatant has achieved a successful combined arms doctrine, 2) neither combatant has converted into full wartime mobilization in order to go for the jugular, 3) none of the proxy supporters (US, PRC, DPRK, NATO) are willing to provide decisive support if 1&2 have not been successfully implemented.
We predict that the war will continue to drag on in the Year of the Snake. There is far more untapped warfighting potential not only in each combatant nation but also resident within the proxies.
The short pole in the tent is Ukraine’s military manpower. A very rough calculation is that Ukraine only maintains about 18% of its available military manpower in the armed forces. Based on historical data, it is possible for Ukraine to double this during times of acute emergency.
For Kyiv, military failures could certainly cause a collapse in resistance; or they could have the opposite effect and make clear to Ukrainian citizens the urgent need to sacrifice more.
The US Military is Not Close to Ready: Turning the Page
While the DoD is still not close to ready, the department is making active efforts on all fronts to adjust. Defense industrial base modernization, investments in new technologies, the fielding of TRAM, the Marine Corps’ ongoing modernization, fleet capacity initiatives, air defense efforts, and the coming reforms of the Trump administration will put the American military on more solid footing in the out years.
Our prediction is that DoD will enter 2026 more prepared for conventional war than at any time since 1991. The current fad surrounding discussions about advanced tech capabilities will be interleaved with more discussion surrounding warfighting development: being prepared and trained for employing the capabilities currently resident within the force.
The Primary Theater is Asia, not Europe: Trend Accelerating
While Europe and the Middle East are important, the consensus of Asia’s strategic primacy continues to grow.
With the outbreak of another major war in CENTCOM, the Pacific focus has been duly tested and continues to survive. The cockpit of the great game will be in Asia as all eyes turn to Taiwan.