The Geopolitical and Market Risks of Afghanistan’s Fall: More China Conflict

August 24, 2021 Updated: August 25, 2021


The attack on 9/11 that killed almost 3,000 people in New York was a surprise to U.S. intelligence. Likewise, the rapid fall of Afghanistan over the last weeks has been a surprise, to the point where the United States and G7 allies, who meet Tuesday to discuss Afghanistan, are dependent upon Chinese, Russian, and Taliban largesse in order to continue Kabul’s evacuation. Surprise and dependency, in war as elsewhere, leads to failure.

The 2021 fall of Afghanistan is widely seen as a U.S. and NATO failure, and will have four long-term market effects: 1) upward global pressure on defense expenditures; 2) upward global pressure on energy costs; 3) more supply chain decoupling; and 4) increased domestic contestation in the United States and Europe about decoupling from China.

The United States and NATO got into, and lost the war, not only due to intelligence failures, but due to a lack of attention to Taliban finances and root causes. The Taliban obtained financing from opium production in Afghanistan, and from Pakistani military and intelligence elements. Pakistan, in turn, obtained billions in development financing from China, a country the United States has only recently begun to recognize as a serious competitor, much less an adversary or strategic enemy. The United States and Britain continue to approach China and Russia for “help” in Afghanistan, which is a strategic blunder. Asking favors of China and Russia means giving favors in return, which rewards their past support for terrorism and incentivizes more in the future.

China and Russia supported the Taliban through significant diplomatic cover, and likely through financing and military materiel. China benefited from the Taliban war against NATO as the war attracted the U.S. and allied defense expenditures that would otherwise have been devoted to the deterrence of China. Plus, the Taliban made the United States and NATO look ineffectual to the world. Officials in Beijing are likely popping champagne over the Kabul chaos as the United States and Britain are unable to control crowds of Afghans desperate to leave, much less control the entire country. After 20 years in Afghanistan, thousands of deaths, and billions in expenditures, we failed in our mission to build a stable democracy.

However, the United States and allies did at least achieve the following: first, we removed and punished the Taliban over its protection of Osama bin Laden; second, we enhanced credibility for NATO deterrence; third, we tested a major NATO operation for the first time; fourth, we degraded Taliban and terrorist forces in Afghanistan for 20 years; and fifth, we killed Osama bin Laden.

Bringing democracy to Afghanistan, and thus creating a strong ally in a strategic position of Central Asia, was always a subsidiary goal, but one that demonstrated the ethics, rationale, and strategy of U.S. and NATO foreign policy more broadly. Why did we fail in this subsidiary goal, and how is that failure being used against us?

Taliban terrorists patrol inside the city of Ghazni, southwest of Kabul, Afghanistan, on Aug. 12, 2021. The Taliban captured the provincial capital near Kabul on Thursday as the United States and NATO prepare to withdraw entirely from the country after decades of war. (Gulabuddin Amiri/AP Photo)

First, nation-building in a country wracked by decades of the civil war was expensive. Second, we naively believed that impoverished Afghans with little to no experience of democracy could adopt it after a few years and without indigenously developing their own democratic institutions themselves. Third, we did not punish Pakistan and China, which supported the Taliban militarily, economically, and diplomatically.

Ultimately we failed to go beyond Afghanistan’s boundaries in a fight with pan-regional causes, and as with the Vietnam War, we, therefore, failed to address the roots of the conflict.

This apparent American failure will embolden our adversaries, especially Islamic terrorists, China, and Russia. Pakistan, which was victorious through the Taliban, will be emboldened against its adversary India even as it suffers more from Taliban terrorism within its own country.

Increased terrorism internationally will put upward pressure on the price of energy, especially oil and gas.

China, Russia, and allies will respond with increased defense spending, and more malign foreign activity, including territory grabs and asymmetric attacks on U.S. forces and economic interests. China could seek to invade Taiwan within the next five or ten years. Russia could attempt to take the remainder of Ukraine or Georgia. Iran is eyeing a corridor through Iraq and Syria to the Mediterranean. North Korea still wants to take South Korea and threaten Japan, perhaps at China’s instigation. All four countries could coordinate by launching simultaneous invasions. This would be impossible for the United States to handle alone.

So the United States will push allies to build defense spending sufficient to deter these aggressions, as the United States is focused on deterring China. South Korea and Taiwan are unclear about whether the United States would militarily defend them against a Chinese invasion, given China’s possession of nuclear weapons that can range the continental United States.

Israel and Saudi Arabia will likely increase military spending to deter Iran. And America’s Asian allies, including Japan, India, South Korea, Australia, and Taiwan, will likely increase military spending, and potentially acquire independent nuclear deterrents against China.

Europe, including Turkey, will increase military spending to deter Russia and Iran. Turkey may seek an independent nuclear deterrent over the next 10 to 20 years.

After a perception among allies of unilateral failures by a series of four American presidents, as well as pandemic nationalism and the rise of political risks from China, Russia, and Iran, our allies will likely mitigate risk by increasing defense expenditures. There will also be a political push in the United States and Europe to increase the sourcing of strategic goods locally, though supply chains are so interlinked now that it will be highly challenging to remove strategic dependencies upon China.

Britain is upset with the United States for Biden and Trump’s unilateralism in pulling out of Afghanistan, and is seeking a stronger European military power to which it can turn when the United States is unavailable. Britain and Europe are likely to increase defense spending and institutionalize closer military relations, including through French President Macron’s idea of a permanent EU military force that could someday become equivalent to the U.S. military in terms of spending. Increased EU military spending will improve U.S. national security.

However, the effects of that spending on increased European military development will take years. Meanwhile, the continent is militarily dependent on the United States. But they do not fully trust that the United States will come to its defense if Russia invades and there is a risk of nuclear war.

As noted, the same is true for U.S. allies in Asia. If our Asian allies achieve independent nuclear deterrents without causing a war of preemption launched by China, the resulting ring of nuclear powers surrounding China may stabilize its territorial ambitions, but only somewhat.

As nuclear weapons proliferate, Islamic terrorists feel emboldened by successive U.S. and NATO failures. In Vietnam, Iraq, and Afghanistan, for example, they will increase their long-standing attempts to acquire and use a nuclear weapon against the United States, Britain, Israel, or India. The probability of such an attack over 10 years, including the use of a dirty bomb, is over 50 percent, according to Harvard’s Professor Graham Allison. Three such attacks against the United States simultaneously could finish us as a superpower and pave the way for China’s economic and military ascendancy. So China is incentivized to assist state sponsors of terrorism, which is exactly what it does in its support for countries like Pakistan, Iran, and North Korea.

Epoch Times Photo
Chinese People’s Liberation Army (PLA) soldiers taking part in military training at Pamir Mountains in Kashgar, northwestern China’s Xinjiang region, on Jan. 4, 2021. (STR/AFP via Getty Images)

Like Mao during World War II, Xi Jinping would like to sit out the next big fight, degrade China’s allies and enemies, and then emerge victorious without firing much of a shot.

China will see the Afghan failure as proof that it is right about the weakness of democracy and its military power. It will use the failure as grist to encourage more military adventurism by its allies Russia, Iran, Pakistan, and North Korea.

China surpassed U.S. GDP in 2017 when considering purchasing power. It has used our free provision of security in Afghanistan and Iraq as cover for its own purchase of mineral rights in those countries, including copper and oil.

The end of the war in Afghanistan will facilitate China’s development of the Mes Aynak copper mine. In 2008, China contracted, for $2.9 billion, a 30-year license to extract and process high-quality copper ore from the area. Mes Aynak is reportedly the world’s second-largest copper deposit, holding an estimated 5.5 million tons of ore. The Taliban will cooperate with China in the mine’s exploitation despite China’s persecution of Uyghur Muslims because the Taliban’s Afghanistan, like other Muslim countries, typically prefers their own revenue streams over Muslim solidarity.

The copper, oil, and other natural resources of Afghanistan will flow into China’s industry and exports. China will seek to maintain the international system of free trade, from which it hugely benefits, and so it will support its allies, including U.S. and European corporations, to continue promoting and engaging in free trade with China.

China’s sustained drive into Western markets will continue to create domestic strife between elites who largely prefer free trade, and voters, who increasingly see that trade as predatory and deleterious to average citizens. This puts pressure on both political parties in the United States to proceed with decoupling, though typically in a slow manner, and with plenty of loopholes. China trade over time increases China’s power, and accumulates risk for democracy, free markets, and capitalism on a global scale.

With China’s rise, the U.S. and European capital is increasingly at risk even as some of China’s preferred investors obtain outsized short-term gains. Those gains are likely based on principles closer to a ponzi scheme, than on fundamentals, given political risk and the purposefully opaque reporting requirements and shell companies (i.e., variable interest entities) into which China-bound investments often flow.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

Anders Corr
Anders Corr
Anders Corr has a bachelor's/master's in political science from Yale University (2001) and a doctorate in government from Harvard University (2008). He is a principal at Corr Analytics Inc., publisher of the Journal of Political Risk, and has conducted extensive research in North America, Europe, and Asia. He authored “The Concentration of Power” (forthcoming in 2021) and “No Trespassing,” and edited “Great Powers, Grand Strategies.”