Talking Point

Last man standing

Is the China-US trade spat turning into a new Cold War?

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Declaration of war: Mike Pence unleashes a 40-minute broadside against China

The term ‘Cold War’ was first introduced by the author George Orwell to describe conflict pursued more by economic and political means rather than by military might. But historians tend to date the onset of the superpower rivalry that characterised the next 50 years to Winston Churchill’s famous warning in 1946 that an ‘iron curtain’ was dividing Europe between east and west, or else Harry Truman’s address to Congress the following year, which rallied the American nation for the struggle with the Soviet Union.

What seemed clearer was that the conflict was over by the time that the USSR dissolved in 1991, leading to proclamations like the political scientist Francis Fukuyama’s that “what we may be witnessing is not just the end of the Cold War, or the passing of a particular period of postwar history, but the end of history…”

Calling time on the Cold War might have been premature, however, with Vladimir Putin’s Russian government widely suspected of interfering in American politics, and adopting a more aggressive stance in much of its foreign policy in general.

And this month there was another twist to the theme, following the stormy response to a speech by the American Vice-President Mike Pence that highlighted the deteriorating state of Sino-US relations.

Since the address, commentators have even been asking whether the Cold War could be set for a new phase with a new protagonist – the Chinese.

How have we got from trade war to Cold War?

The sudden change in tone was triggered by the Trump administration’s first major policy speech on China.

Up to this point, the White House had talked tough on trade and slapped tariffs on more than $250 billion of Chinese goods. It had also widened its attack to the ‘Made in China 2025’ plan, where it contends that the Chinese are stealing American intellectual property or forcing its handover as a cost of doing business in the Chinese market.

The speech from Mike Pence on October 4 included these complaints but it also painted a much more expansive picture of Washington’s dissatisfaction with China’s behaviour, accusing Beijing – among other things – of interfering in the American electoral system, throwing its weight around in the South China Sea, bullying Taiwan and curtailing the religious and civil rights of its own citizens.

The tone was notably confrontational with references to China as a “rival”, “adversary” and “strategic competitor”. Commentators in the West picked up particularly on Pence’s remarks that Washington’s hopes that freedoms would flower in China have “all gone unfulfilled” and that Beijing has “chosen the path of authoritarianism, mercantilism and aggression”.

The implicit point was that the Trump administration is acknowledging something that its predecessors have either misunderstood or chosen to overlook – that the Chinese have no intention of joining the US-led international order in the way that Washington had hoped.

As such, Sino-American relations could be portrayed as reaching a fork in the road on the journey begun by Richard Nixon in 1972, when he visited Beijing in a bid to take advantage of a chill in China’s relations with the Russians, a few years before the opening up of its economy to the wider world.

How have the Chinese reacted?

The local media was slower than normal to respond because it was enjoying a few days off around the National Day celebrations. But once it got going the response was robust, with Xinhua putting out at least eight articles, one of which claiming ‘bemusement’ at Pence’s remarks that the Americans were central to building up China’s economy over the last 25 years.

“The claim that the United States ‘rebuilt’ China over the past decades is just preposterous,” the state media agency fumed in the piece headlined “China’s development did not come from other people’s charity or favours”.

A commentary penned by a pseudonym used by the Central Propaganda Department also took the Americans to task on allegations about China’s unfair trade policies, in a mocking tone that worryingly hinted at the potential for the two superpowers to clash militarily.

“The problem is not that China does not buy, but that the United States does not sell,” the editorial argued. “For example, is the US willing to sell its Ford-class aircraft carriers? If one piece is priced at $15 billion and the US sells four to China, we can immediately narrow the trade gap by $60 billion”.

Writing in The Diplomat magazine, Chen Dingding, a professor at Jinan University in Guangzhou, identified three main Chinese takes on Pence’s address.

The “pessimistic view”: it confirms that Washington is resolved to confront Beijing, or as Chen described it, “that the United States has finally dropped its hypocritical mask and shown its true colours, which is to contain China’s rise just like it did to the Soviet Union at the beginning of the Cold War”.

In this interpretation, the two nations are set on an irreversible course of conflict and it doesn’t really matter whether Trump is president or not.

The second conclusion Beijing might draw – in Chen’s view – is that a change in the immediate circumstances would dial down the tensions (a different president in the White House or a sudden slowdown in the US economy are both mentioned as potential examples).

Still, Chen observed that the modus operandi between the two countries is still more of competition than cooperation, but that a change in tactics would improve the atmosphere between the two sides.

The calmer view – in Chen’s characterisation – is that the speech was “old wine in an old bottle” and that there is little new in the Pence critique, which is being recycled for the American domestic audience in the lead-up to next month’s mid-term elections.

“Thus, Pence’s major speech was nothing more than noise in US-China relations, and because of this it should not be taken seriously,” Chen surmised. “This view also rebukes the claim that the United States and China might enter a new Cold War as there are still plenty of opportunities for cooperation – especially between the two societies.”

How far do the comparisons with the Cold War run?

Whomever the intended audience, Pence’s comments have fortified the arguments of those who sense a policy to prevent China from becoming a greater power. In this regard, they do boost the analogies to the Cold War – especially George Kennan’s classic doctrine of containment.

In other throwbacks to the Cold War era American and Chinese warships almost collided last month during aggressive manoeuvring in the South China Sea and the FBI has just trapped a Chinese spy in Belgium, bringing him back to the US for trial.

On the same day that Pence delivered his address Bloomberg also published a report alleging that the Chinese military had planted microchips in servers used by dozens of US companies and government contractors.

However, the wider situation is still very different to the rivalry with the Russians, and the manner in which the Americans eventually prevailed over their ideological foe.

With hindsight the US was always well ahead of the USSR in economic terms, for instance, with estimates that the Soviet economy was never more than two-thirds the size of America’s.

That disparity isn’t nearly as pronounced between China and the US – indeed, the Chinese economy is said to be larger on some criteria, especially in purchasing power parity terms.

The tactical playing field differs too. During the Soviet era the Americans built a bulwark of alliances to counter the Communist threat, but the Trump administration is doing a lot less to foster the same kind of friendships, after picking fights with Mexico and Canada over NAFTA and struggling to find common ground with European leaders.

There is no real sense that the Europeans see China as the same kind of threat as the former Soviet Union and no compelling evidence of a broader coalition forming up against the Chinese. Critics have also questioned Trump’s decision to pull the plug on the Trans-Pacific Partnership, a trade pact that would have provided an alternative to Chinese leadership in the Asia-Pacific region by grouping its major economies closer to Washington.

The efforts to curtail the spread of Soviet influence in the past were bolstered by massive rounds of American loans and investment, most notably through the Marshall Plan. Such behaviour is again less in evidence today – indeed, the US has nothing to match Beijing’s Belt and Road Initiative, a multi-year effort to invest in the infrastructure of China’s trading partners across Africa, Asia and Europe.

Time to pick your partners?

Trump and Xi Jinping may meet at the G20 meeting in Argentina at the end of November – an encounter some hope could help reset relations. That said, many of China’s neighbours are being pulled in two directions, especially in regions like Southeast Asia, where longstanding allies of the Americans are now much more dependent on the Chinese for trade and investment.

Situations like these underline the “economics versus security” conundrum confronting other nations, including Australia, which was warned by the China Daily last week not to be “led by the nose” by the Americans and to avoid “the Cold War paranoia that has already taken hold of the US” (Canberra’s error was to support a statement condemning Chinese militarisation in the South China Sea).

More of this kind of sentiment would signal a splintering of global politics into two camps, something that seems to be happening in the worlds of internet and tech, where distrust between the Americans and the Chinese is fostering two distinct ecosystems (see WiC426 for how this is spilling over into an ‘arms race’ in artificial intelligence as well).

Nonetheless, there isn’t the same sense of separation that characterised the Cold War era, when cross-border trade was limited and the populations of the two nations stayed distant from one another.

In contrast, the economic interests of China and the US are much more intertwined and their peoples are much more accustomed to doing business.

More than 350,000 Chinese are currently studying in the United States, for instance, and more than three million Chinese visited America last year, according to government data.

Over the last few months there have been reports that applications from Chinese undergraduates to American universities are falling, perhaps because of the less welcoming climate since Trump took office. And like the student flows, the tourist data is being watched closely for signals that ordinary Chinese are choosing not to go to America in the same numbers. For instance, in another anecdotal indicator, travel search site Skyscanner (owned by Chinese travel giant Ctrip) reported a 42% drop in flight bookings from China to the US during this month’s National Day holiday week, compared to the figures from last year.

It’s just business…

Another of the fundamental forces pushing back against a deeper fissure between China and the United States is business ties. A long list of executives from Fortune 500 firms have already warned about the impact of Trump’s tariffs and have pointed out that it is wholly undesirable for larger companies in the US to step back from business in China, where many enjoy a significant portion of their sales, or rely on local manufacturers in their production cycles.

As we noted in WiC420, few are more sensitive to the situation than Apple, which makes about a quarter of its smartphone sales to Chinese consumers, and has a supply chain that is dependent on Chinese partners.

Politically the Californian giant has already come under pressure from Trump to relocate some of its iPhone plants back to its home market. But its boss Tim Cook travelled in the opposite direction on a week-long tour of China, arriving almost immediately after Pence’s speech.

Dropping in on Li Qian, the Party boss of Shanghai – where he discussed Apple’s investments in the city ­– Cook also sent out a wider greeting to his followers on weibo, including a four-character phrase in Chinese meaning “all rivers run into the sea”. The subtext, opined the Washington Post, was that Apple was positioning itself as open-minded and flexible, in contrast to some of the policies coming out of its government. Cook also flew to Beijing to visit the bosses of Bytedance, one of China’s most powerful tech unicorns, and he held meetings with Tsinghua University, one of its leading educational institutions, where Apple is building a research centre to explore advanced technologies.

It’s hard to imagine these kinds of dealings taking place during the Cold War, with Chevrolet’s boss championing a partnership with Moscow State University or Kodak’s chairman currying favour by taking snapshots in Red Square.

Indeed, Cook’s tour underscores how interconnected China and the US have become over the past few decades. And while relations between the two governments are undoubtedly fraught, were they to emulate the deep freeze of the last superpower rivalry a notable number of American companies would become collateral damage too.

Ergo some American CEOs may be quietly hoping for a change of control in the House of Representatives early next month. After all a Democrat majority could tie up Trump’s time in congressional enquiries plus subpoenas over his taxes, all of which would divert his attention from China. Tellingly Bob Woodward’s book Fear: Trump in the White House has a conversation between Rob Porter and John Kelly in which the then White House Staff Secretary warns the Chief of Staff of just this sort of thing: “I’m concerned, because there have been some times in the past, especially after the appointment of the special counsel – the Comey, Mueller period – where the president got so consumed and distracted that it was a challenge to do the work and make the decisions – effectively to be president. And to give the direction that the rest of us needed to carry on the work of the government.”

Porter goes on to predict that a future House investigation – relating to Russia or “who knows what” – could “lead to an incapacitation of the entire West Wing”. Based on that ex-staffer’s insight, imagine if there were multiple Trump investigations unleashed by the Democrats?


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