The Aging Empire versus Slowing Empire: Trump-Xi Meeting

What matters is that Chinese and American officials understand the long-term trends.

For the US, the Chinese dragon is not an existential threat anymore. For China, cooperation with the US is essential to boost the economic growth and avoid devastating wars.

The Thucydides Trap is no more

SL Kanthan, May 14, 2026, https://slkanthan.substack.com/p/the-aging-empire-versus-slowing-empire?utm_source=post-email-title&publication_id=844398&post_id=197610098&utm_campaign=email-post-title&isFreemail=true&r=1ise1&triedRedirect=true&utm_medium=email Excellent graphs on original.

A decade ago, Harvard professor Graham Allison warned that the US and China will likely fall into the “Thucydides Trap” — a term named after the war between the rising Athens and the ruling power, Sparta in 400 BC. Of course, anyone who knows a bit about history doesn’t need a grand theory to understand geopolitics’ law of the jungle.

However, Allison’s prediction is no longer true, and the reason is simple: China is no longer an inexorably rising power.

By the way, Xi Jinping actually mentioned Thucydides Trap during the high-stakes summit with Trump in Beijing today.

This article will show some of the ways that China is declining rapidly and becoming “Japanified” to some extent. The silver lining in this decline is that the US-China war is no longer imminent or inevitable.

From another point of view, if the declining empire and the slowing empire cannot militarily defeat one another and, in fact, need each other economically to prosper, the strategic calculations change dramatically.

What happened to Japan?

If you remember, Japan was a serious threat to the US in the late 1970s and 1980s. Then — ignoring the reasons such as the Plaza Accord — the Japanese real estate and stock market bubble crashed. Astonishingly, Japan’s GDP today is 25% smaller than it was in 1995! Even population today is a bit smaller than it was 30 years ago. Many Japanese stopped marrying, having kids and even dating or having sex. Japan lost its edge in technologies — remember how Japanese electronics dominated the market.

Economy has numerous second-order effects.

China — No longer the roaring Dragon

While China is not an exact replica of the 1990s Japan, many symptoms are similar.

For example, China’s GDP growth has decelerated steadily and dramatically —from 14% in 2007 to 4.5% this year — the slowest since 1990. (And IMF says that if the Iran war continues, China’s GDP growth will be around 3.9%).

Look at China’s GDP in US dollars over the last five years. Not impressive — the GDP grew merely 7% during this period.

How bad is it? Consider that from 2006-2010, China’s GDP grew a whopping 120%. This is the slowing empire, the tired dragon.

The number of marriages and new born babies have fallen by about 60% since Xi Jinping came to power (it’s not his fault though). And the median age is increasingly steadily — from 30 in 2001 when China joined the WTO to become the world’s factory to 41 today.

In a recent survey, nearly half of all young Chinese women (aged 18-24) say that they do not want to have ANY children.

China’s population has now decreased four years in a row. Worse, the Chinese youth population (aged 20–40) has fallen by a whopping 60 million over the last decade. This is the demographic group that determines the vitality of a nation — in terms of productivity, consumption, innovation etc.

At the same time, China’s real estate is where it was 20 years ago. Although Beijing prudently started deflating the real estate bubble in 2020, the damage to the economy is real and painful. The average Chinese household has 70% of its wealth invested in homes.

Real estate construction also supports numerous other industries such as construction, steel, cement, home appliances and more. Thus, tens of millions of jobs are threatened by the anemic property sector.

Unique to the Chinese system, the local governments are primarily funded by sale of land. So, you can imagine the consequences — more debt, cuts to spending on infrastructure, schools, hospitals etc., which cause more unemployment, slower economic growth and bigger burden on the governments. It’s a vicious cycle.

Young Chinese are not willing to do work in factories, construction sites, and mines anymore. These were the jobs that once made China great. Now, robots are taking over factories, and millions of new college grads are unemployed.

There has also been a social phenomenon called “lying flat” or “tang ping,” when young people simply give up on the rat race — the infamous 996 lifestyle. (9am to 9pm, 6 days a week). Now, the Chinese government is trying to blame evil foreign forces for this societal malaise.

Another indicator of China’s to demographic challenges and economic slowdowns is consumption. Look at the annual auto sales in China. The number of cars bought by Chinese consumers has been stuck in a narrow range for a decade.

While the US government is drowning in debt, China is no different. Capitalists and communists are addicted to debt alike. The total debt-to-GDP ratio in China — including government, corporations and households — is about 400%. There are also a lot of hidden debts, whose true size is unknown. Chinese banks are helping zombie companies stay alive in order to protect jobs as well as the banks’ balance sheets (by not revealing the true stats about non-performing loans).

The Chinese government now spends 125 yuan for every 100 yuan it gets in revenue.

Finally, China’s military also has a lot of problems with corruption and lack of meritocracy. Xi Jinping has recently fired a surprising number of PLA generals; and two former defense ministers just got death/life sentences. Perhaps the performance of Chinese weapons such as radars and air defense systems in Venezuela and Iran played a role in these purge

n terms of military, Japan is trying to drop pacifism from its constitution under the new PM Takaichi. And Japan is selling warships to Australia, and carrying out drills in the Philippines. All of these will not happen without the blessing and encouragement from the US.

Conclusion

China is doing reasonably well today and is not quite fully “Japanified” yet.

China’s manufacturing and exports are still robust — with $1 trillion of trade surplus last year. However, just like “China shock” sucked manufacturing jobs away from the US, now lower-wage countries such as Vietnam, Mexico and India will steal labor-intensive jobs in China.

What matters is that Chinese and American officials understand the long-term trends.

For the US, the Chinese dragon is not an existential threat anymore. For China, cooperation with the US is essential to boost the economic growth and avoid devastating wars.

That’s why President Trump has brought in a whole bunch of top CEOs to Beijing. For them, the #1 ask is that China open up more. For Xi Jinping, the biggest priorities are the three T’s: Tariffs, Taiwan and Technology (like Nvidia chips). The negotiations won’t be easy, but both sides will be happy to make incremental progress.

In summary, the aging empire and slowing empire will find cooperation to be a strategic imperative, while competing gently in some areas. There is no reason to fall into the Thucydides Trap, and that’s good news for the US, China and the world.