Many conflicts we are witnessing in the world today stem from the clash between two systems of governance. Usually, this is framed as the clash between democracies and autocracies. But in truth, the conflict is between the Western colonialist system of "free trade" and anyone who rejects its demand for subjugation—be it Cuba, Venezuela, Bolivia, Russia, Belarus, China, North Korea, Yemen, or Iran. The geopolitical manifestations of this conflict are easier to discern, but its roots stem from its economic foundations, which determine the nature and conduct of the opposed systems.
Who rules the Heartland commands the World-Island;
Who rules the World-Island commands the world. «
1904 Heartland map by British imperialist strategist Halford Mackinder, depicting the strategic Eurasian landmass as the center of an emerging Eurasian geopolitical and economic world order, which the British must prevent and stop at all costs. After WWII, Mackinder's Heartland Theory shifted through US Admiral Alfred Thayer Mahan's naval doctrine into Nicholas John Spykman's upgraded Rimland Theory, redirecting American grand strategy from isolating the Eurasian core to the US, NATO, the Five Eyes, and the State of Israel militarily encircling its maritime coastlines and controlling resources, finance, and trade.
Free Trade vs. National System
Western colonialism favors and seeks to impose the British system of free trade. But those nations that prefer independence and wish to chart a sovereign path to their development prefer the national system of political economy, also known as the American System. The national system seeks to stimulate domestic manufacturing to accumulate capital at home, invested into the society's own development, infrastructure, education, research, innovation, culture, and other uses that raise the country's living standards and quality of life.By contrast, the British free trade system extracts wealth and concentrates it in the hands of a financier oligarchy and their largest corporate clients. Free trade entails removing all barriers to the unobstructed worldwide flow of capital, always in pursuit of the highest possible returns. Any costs that reduce the returns on capital must be slashed, including social spending and protection of the environment. Under the free trade system, nations are obliged to compete for investment capital by systematically depressing wages, job security, pensions, healthcare services, and education. Therefore, the free trade system amounts to a competitive race to the bottom.
The conventional debate between socialism and capitalism, or left and right, obscures this more fundamental distinction between a free-market system and a national system of political economy. A free-market system seeks to remove barriers to international capital flows. Nations then compete to provide investors with the highest possible returns, creating pressure to reduce costs—including wages, pensions, healthcare, infrastructure, and other expenditures that improve living standards. A national system of political economy instead seeks to retain the benefits of productivity within the nation and reinvest them in productive capacity, infrastructure, education, and healthcare.
The effects of the free-trade system in Great Britain and how it nearly destroyed her economy are as obvious and real as the examples of the United States, Germany, and Italy in the 19th and 20th centuries, and China in recent decades, where the national system boosted economic development and raised standards of living in rather spectacular ways.
The Historical American System of Political Economy
The national system of political economy has roots in thinkers such as Alexander Hamilton, Henry Carey, and Friedrich List. It helped transform the United States from a collection of former British colonies into an industrial power. Its principal components included a strong manufacturing base supported by tariffs and subsidies, extensive physical infrastructure, and a national banking system capable of directing credit toward productive investment.France, Germany, Russia, and Japan subsequently adopted variations of this approach. The historical record is therefore more complicated than the modern narrative that presents free markets and open trade as the uncontested foundations of development. The Roosevelt administration again incorporated elements of the national system during the 1930s and 1940s. After Harry Truman became president, the United States moved back toward a more liberalized international economic system. In this view, the resulting financialization encouraged wealth extraction rather than productive reinvestment.
1911 Wall Street and 1903 Detroit factory workers assembling automobile engines
—contrasting finance with America's emerging industrial economy.
The industrial-capitalist tradition associated with Hamilton and List regarded unrestrained free trade as potentially a form of "free-trade imperialism." The alternative, the American System, rested on manufacturing, infrastructure, and national banking. That model helped the United States become a major industrial power during the nineteenth century and influenced other nations. Nineteenth-century economic liberalism itself recognized the distinction between productive activity and economic rent. Thinkers such as David Ricardo and John Stuart Mill argued that rent extraction could undermine productive development.
Taxing rent-seeking activity could prevent entrenched oligarchies while providing resources for infrastructure and education. The purpose was to strengthen national productivity and living standards. Today, proposals to redirect wealth accumulated through financial rent toward the physical economy are often characterized as socialism, despite their roots in the classical economic tradition.
China's Economic Ascent
The nation that certainly put the national system of political economy to its best effect over the last several decades has been China. Back in the 1970s, China used to be among the very poorest nations in the world. In the early 1970s, her annual GDP per capita was just over $100. By today, Chinese GDP per capita is nearing $15,000. In purchasing power parity terms, that figure corresponds to over $31,000 per capita—a massive jump from the $100 range where it was only 50 years ago. Importantly, China's economic development has been very broad-based. Having completed 14 sequential, national, government-directed five-year economic and social development plans, China has lifted some 800 million of its people out of poverty. And this blossoming of China has been nothing short of spectacular.
While it would be impossible to cover every aspect of China's development over this period, it is worth looking at some of her most remarkable achievements in implementing the national system of political economy. For example, starting from almost nothing in 2008, China has built the largest high-speed rail network in the whole world. In less than 20 years, they have completed fully 50,000 kilometers—more than 31,000 miles—of high-speed rail connections, which represents over 70% of the total global high-speed rail mileage, surpassing the combined total of high-speed rail mileage in all other countries in the world combined. This was accompanied by the construction of breathtaking railway stations and network hubs across China.
Recently, an entire train station in Longyan (frequently cited in connection with Fuzhou) in Fujian Province was upgraded in only nine hours. This year, they completed the construction of a massive high-speed railway hub in Chongqing, covering 1.22 million square meters in a place that only 38 months ago was a mountain. The whole structure is an impressive architectural masterpiece on the scale of the Egyptian pyramids. The construction of the whole edifice cost some $7.8 billion.
Over the last two decades, China has also advanced from almost nothing to being the world's leading producer of cars. In the year 2000, Chinese car manufacturers accounted for about 1% of the global auto market. By 2023, 39% of cars sold in the world were Chinese-made. They are progressively displacing American, European, and Japanese cars. And the competitiveness of Chinese manufacturers isn't just based on lower prices. Their models are increasingly beating Western manufacturers also in terms of innovation, features, and performance. And indeed, the innovation train in China is now advancing to such an extent that flying cars could become a reality in the not-too-distant future. In some cities, they already have autonomous flying taxis. And just in case anyone should dismiss this as an AI confabulation, I personally know people who have actually used the flying taxi service in China.
The Artificial Intelligence Race
Today, one of the strategically most critical industries where the United States sought to establish an unassailable primacy is artificial intelligence. In spite of a considerable head start and literally trillions of dollars in capital expenditure, China has rapidly caught up with the leading American platforms and even surpassed them on some performance metrics.
In January 2025, China's DeepSeek AI released a new artificial intelligence model, the DeepSeek-R1, marking what Marc Andreessen called a "Sputnik moment" for the industry. Just as the Soviet Union's launch of the Sputnik satellite in 1957 upended the assumptions about American technological dominance in space-related technology, DeepSeek announced a similar challenge to the recently prevailing assumptions in the AI tech race. From that moment on, new milestones would be reached and surpassed in quick succession. DeepSeek-R1 already matched the performance of leading American models, even though its total development budget was only $6 million.
On April 23 this year, OpenAI launched their most advanced model, GPT-5.5. DeepSeek responded the very next day with their own challenger, the V4 model, which nearly matched OpenAI's model in terms of performance. But the real, gaping difference between "Made in USA" and "Made in China" popped up in terms of cost. DeepSeek is up to 107 times cheaper than GPT-5.5. For heavy users, that difference could add up to tens of thousands of dollars a year—a make-or-break issue in the AI wars. Of course, DeepSeek is only one of dozens of Chinese companies in the artificial intelligence space, and their most popular models include Qwen, MiniMax, GLM, and Kimi. This last one, Kimi, launched their K3 model in late July 2026, which very nearly closed the performance gap with the most advanced American models and even surpassed them along some metrics like coding and agentic tasks.
Again, at a fraction of the cost of the American models, the cost difference has had a significant impact even among the largest and presumably least cost-sensitive users. For example, within June of 2026, Microsoft canceled most of its Claude Code licenses for some of its own software products due to the very high token cost. That was quite a surprise given that Microsoft invested as much as $5 billion in Claude's creator, Anthropic. Also, Uber's CTO complained that their 2026 AI budget was already depleted by April of this year due to the heavy cost associated with Claude Code use. In fact, many companies found that the cost of American AI models significantly exceeded even the cost of human employees. One of them was Nvidia. Their vice president of applied deep learning, Bryan Catanzaro, said, "For my team, the cost of compute is far beyond the cost of the employees."
Ultimately, the result is that many American companies have been shifting to Chinese AI models. In an interview with Bloomberg News, Airbnb CEO Brian Chesky explained their preference for "Made in China": "We're relying a lot on Alibaba's Qwen model. It's very good. It's also fast and cheap. We use OpenAI's latest models, but we typically don't use them that much in production because there are faster and cheaper models." The same realization has rippled through the tech community, and the result is that China is now winning the AI race. Perhaps the most convincing verdict came from the most highly performance- and cost-sensitive market segment: Silicon Valley technology startups. According to the Andreessen Horowitz venture capital firm, 80% of these startups rely on Chinese AI models.
Now, one of the most extraordinary cases among them was that of Mira Murati's Thinking Machines Lab. Murati was formerly the CTO at OpenAI. So when she spun off her own company, she was able to raise $2 billion in investment capital. But rather than building on OpenAI models, Thinking Machines Lab adopted Chinese AI. The first product Murati's company released was a tool that helps developers fine-tune Alibaba's Qwen model. Indeed, the writing is on the wall, and China seems to be winning the arms race in high technology in general. In a December 2025 report for its investors, UBS Global Wealth Management rated Chinese technology companies as "most attractive."
Social Prosperity in China
But China's development is about so much more than AI, flying cars, or high-speed rail networks. On the back of its economic success, China's whole society is experiencing an extraordinary civilizational renaissance—a blossoming achievement of the human spirit that is making the world a better place for its people. An ordinary Chinese citizen today is more prosperous, wealthier, healthier, and freer than ever before. While China's public spaces are remarkably clean and almost uniformly safe, a Chinese working family can aspire to living in considerable comfort. As an example, a typical modern apartment in the southeastern province of Jiangxi. The monthly rent for this unit is about $27. Many new developments are conceived to offer residents a level of comfort that would be regarded as unaffordable, high-end luxury in most places in the world, featuring spacious living quarters and exceptionally large terrace areas. Apparently, these are now mandated for all new approved residential developments in China.
Young people in China have the choice of over 3,100 universities to pursue their education, which is affordable and accessible to all. Today, Chinese universities are among the world's most modern institutions, producing over 12 million new graduates every year. Chinese people also enjoy the benefit of one of the world's most effective healthcare systems and near-universal basic medical coverage. Chinese families don't suffer from anxieties that a trip in an ambulance or a treatment at a hospital might bankrupt them.
To help us appreciate just how well the whole system functions and how affordable it is, a young American woman named Jennifer posted a short video of her own experience. She had no health insurance of any kind in China, but she needed to see a doctor in order to obtain a prescription for some medicines. So, she walked into a public hospital, and 19 minutes and $12 later, she walked out with everything she needed. Here is her video:
» How much would it cost where you live?
And oh, by the way, I did all of this without insurance. «
If such a system could be created for China's 1.4 billion people, why could it not be created everywhere else? Why should this be out of reach for the American people? And why shouldn't it be as affordable for Americans as it is for the Chinese people?
Comparing Systemic Efficiency
Indeed, when we make comparisons of alternative systems of economic governance, something has to be said about the cost of things. We just saw how quick, easy, and inexpensive it was for Jennifer to obtain her medicines, even though she had no medical insurance at all. Earlier, we saw the comfortable living quarters available to Chinese families for just over $200 per month. For this unit here, the monthly rent is only about $84. It's more modest to be sure, but still quite nice and very affordable.
Now, if we take purchasing power parity into account, that amount in the United States or Western Europe would be about 200 dollars or euros per month, and 500 per month for the larger unit we saw earlier in this report. But that is still an almost unimaginable value for money in any Western city. As it turns out, China's affordable healthcare, affordable education, travel, and affordable living are in fact symptomatic of her entire system, which again sharply contrasts with the Western free trade system.
A massive high-speed railway hub in Chongqing was completed in only 38 months at a cost of $7.8 billion. It was not a small amount of money, but compare that to the projections for the repair of the Francis Scott Key Bridge in Baltimore. The bridge collapsed after it was struck by a large freight ship in March of 2024. Its reconstruction is expected to be completed by late 2030—more than six years from its collapse—at a cost that is currently estimated at between 4.3 and 5.2 billion dollars.
Thus, one system can build a brand new, modern piece of infrastructure at the scale of the Egyptian pyramids in 38 months, while the other struggles to repair an old bridge in twice the time frame and at a comparable cost. Consider again the cost and pace of high-speed railroad construction.
In May of 2024, the California High-Speed Rail Authority proudly announced the completion of the Fresno River Viaduct in Madera County. Although the viaduct measures only 1,600 feet in length, it took nine years to complete. Sadly, this was a rather typical example. In the 29 years since its establishment, the California High-Speed Rail Authority built 38 structures totaling 39 miles at a cost of $13.66 billion—nearly $350 million per mile of high-speed railroads that are still not remotely operational. Across the entire United States in 2024, there were some 30 sites of high-speed rail under active construction totaling 119 miles.
Meanwhile, in less than 20 years, China built over 30,000 miles at a cost of between 17 and 21 million dollars per kilometer, or 27 to 34 million dollars per mile. That is less than one-tenth of the cost per mile of American high-speed rail, which might never be operational. Then there is the AI industry again. Hundreds of billions of dollars were invested in the creation of the leading American models. China's DeepSeek spent a total of only $6 million in the development of their DeepSeek-R1 model—a very credible rival offering.
It is almost like the Western system was set up for systematic looting, so that just about everything costs ten times what it could or should cost. If that is true, it would follow that our system is systematically robbing us of the fruits of our labor and our creativity. We are forced to pay more for everything and get considerably less in exchange.
Western Societal Decline
The American people pay for by far the world's most expensive healthcare system, but they get some of the worst healthcare outcomes of any advanced economy in the world on almost any metric. For example, healthcare is the third leading cause of death in the United States. 50% of US adults and 30% of teens have prediabetes or type 2 diabetes. 40% of 18-year-olds have a mental health diagnosis.
The US has the highest infant and maternal mortality rate in the developed world, in spite of spending more than twice as much on infant and maternal care as other countries. 25% of American women are on antidepressants. 1 in 36 children has autism; in California, it is 1 in 32. Rates of myocarditis, pericarditis, and cancers among young people are exploding. Since 2019, life expectancy in the United States has been shrinking and is now 7.65% lower than in other developed nations—82.4 years versus 76.1 years based on 2021 data. I could go on enumerating case after case where the people in the West are shortchanged and robbed of their health, their wealth, their freedom, and their future.
And contrast that to the very different realities faced by the Chinese people. This all could strain the credulity of a Western audience as though it is propaganda. But it is not propaganda. It is the reality confronting any Western visitor to China today. Earlier this year, President Trump visited President Xi Jinping, and his visit focused the world's attention on China in a way that was hard to overlook or ignore. The large American delegation and all the international journalists who followed the diplomatic encounters in Beijing were clearly impressed with what they saw. Among them were Nvidia CEO Jensen Huang and Elon Musk—two individuals who should generally be hard to impress.
Another one was Bill Gurley, an investor who took the occasion to spend 10 days in China. As a learned observer, Gurley knew all about China, but like other visitors, he was still taken aback by what he experienced there. Among other observations, he mentioned that the high-speed rail network transports millions of people daily at 300 kilometers per hour quietly, comfortably, and on time. What impressed him was the very fact that such monumental pieces of infrastructure even exist, since their building involves monumental investments.
This brings us back to the purpose of this report, which was to point at the systemic drivers of China's advancement, as well as the systemic factors that have caused Western powers to fall behind.
Lessons from China's Success
China's success was not the result of Adam Smith's "invisible hand," nor his system of absolute free trade where private interests only need to focus on pursuing their own selfish objectives, expecting that they thereby magically create the greatest possible benefit to the collective.
China built itself up through a concerted effort and a strategy formulated and pursued by its central government in the form of 15 consecutive five-year plans. On October 29, 1955, Chairman Mao Zedong announced his government's intent in his address at the Symposium of the Socialist Transformation of Capitalist Industry and Commerce. Mao said:
"Our goal is to catch up with and surpass the United States. As for how many decades it will take, depending on everyone's efforts, it will take at least 50 years, perhaps 75—which is 15 five-year plans. Only when we catch up with and surpass the United States can we finally breathe easy."
This was during the period of socialist transformation in the mid-1950s, around the time of the First Five-Year Plan, which ran from 1953 to 1957. Deng Xiaoping's leadership focused on the Four Modernizations, aimed at turning China into a moderately prosperous society by the year 2000.
In this way, by setting goals and formulating explicit plans, successive Chinese governments mobilized the creative potential and hard work of the Chinese people toward achieving specifically set objectives. The capital China gradually accumulated was invested in the buildup of the nation's infrastructure, including large investments in educational institutions, research and development campuses, and healthcare. And most importantly, China today provides the most concrete example of what is possible and what is achievable with competent and constructive leadership.
It is also the most undeniable case for the superiority of the national system of political economy and the legitimacy of the government's role, as opposed to the laissez-faire approach and the unrestrained system of global free trade. There are zero reasons for us to subordinate the future development of our societies to the failed ideological framework imposed by those who use it to systematically loot wealth from our economies, preventing them like a parasite from attaining their full potential in a way that benefits every member of the collective.
A Major Turning Point
The ideologues will screech "socialism!" But by this time, a simple grasp of the obvious should suggest that if we want to transcend our present predicaments and build a better future, we need to reexamine our convictions and especially our certitudes. The world is approaching a major turning point. Understanding history, economics, and geopolitics is essential to navigating it. Modern society possesses an unprecedented accumulation of knowledge and technological capability. No previous generation had comparable access to information and communication.
If enough people study, research, and contribute to the construction of a future society, the present transition can become an opportunity to build something substantially better. As Isaac Newton famously expressed it, scientific progress comes from standing "on the shoulders of giants." The same principle applies to society: we inherit accumulated knowledge and can build upon it. The existing order is under increasing pressure. That creates both danger and opportunity—and the outcome will depend on what replaces it.
If enough people study, research, and contribute to the construction of a future society, the present transition can become an opportunity to build something substantially better. As Isaac Newton famously expressed it, scientific progress comes from standing "on the shoulders of giants." The same principle applies to society: we inherit accumulated knowledge and can build upon it. The existing order is under increasing pressure. That creates both danger and opportunity—and the outcome will depend on what replaces it.
Alex Krainer (b. 1970) is a Croatian-born market analyst, author, and former hedge fund manager based in Monaco who specializes in commodity futures, systematic trend-following, and geopolitical risk analysis. Drawing on over two decades of experience in oil trading and asset management—where he developed the proprietary I-System Trend Following model—his work explores the intersections of Anglo-American financial empire, global debt markets, and multipolar geoeconomics. He is best known for his critical geopolitical commentary and books, including Grand Deception (an investigation into the Bill Browder/Magnitsky case) and Mastering Uncertainty in Commodity Trading.