That's the hash war phase. It comes when the outlaw period fails. The States mines empty blocks, and the market fights back by increases fees to motivate more hashpower to come online and overpower the censor. It's a little more nuanced than that, but that's the general idea.

What would that do? It would cost about 72 billion dollars a year today to cut the tx rate to a tenth of current assuming other miners kept mining. Transactions will still confirm fees will be juicy. Ecash btw on the same mint would be untouched. Would probably explode. Harder for me to say what Lightning would do. And we’d probably see it coming from a mile away because nobody would be able to buy miners for a long time.

Bitcoin and the State (as we know it) can't both survive, especially the US. With suffient hashpower (of the levels that "Soft War" guy are advocating the Pentagon to acquire), mining empty blocks makes Bitcoin completely useless because transactions can't be put into blocks. The State has nuclear power plants and ASIC fabs (ask the NSA). This will not be an easy fight and it could go either way.