Pandemic politics

The term ‘Cold War’ was actually coined by a Wall Street financier. Bernard Baruch – then an advisor to President Harry Truman – came up with it in April 1947 to describe the increasingly chilly relations between the US and the Soviet Union.

In a speech to the South Carolina House of Representatives he said: “Let us not be deceived, we are today in a Cold War. Our enemies are to be found abroad and at home. Let us not forget this: our unrest is the heart of their success.”

In recent weeks talk of a new era of Cold War confrontation has been getting more press coverage with references to the superpower rivalries of the past. For some of this talk we can blame the coronavirus pandemic, although the roots of the crisis actually extend much further back.

The politics of the pandemic

The pandemic might have been a moment for the Chinese and US governments to work together in a reprise of how Russian and American scientists collaborated on efforts to develop vaccines for polio and eradicate smallpox in the 1950s and 1960s. Instead it has driven a deeper wedge between the present-day superpowers, creating what The Economist magazine has been describing as the ‘new scold war’.

US Secretary of State Mike Pompeo is the villain of the moment in the Chinese media after suggesting on more than one occasion that the virus was hatched in a Wuhan lab, although his boss Donald Trump hasn’t done much to calm the mood. “We went through the worst attack we’ve ever had on our country, this is worst attack we’ve ever had. This is worse than Pearl Harbor. This is worse than the World Trade Center. There’s never been an attack like this,” he claimed in another emotive contribution last week.

Speculation about who is at fault for the spread of the virus shows no sign of subsiding, with German newspaper Der Spiegel publishing bombshell allegations that Chinese President Xi Jinping personally asked the World Health Organisation to ‘delay a global warning’ on the outbreak (the WHO has furiously denied the report, which was based on a leak from the German intelligence services).

China’s media outlets have been taking a different line with hints that the outbreak had its roots in a trip by US military officials taking part in the Military World Games in Wuhan last year. This month the newspapers seized on new reports in the French press that the first incidence of Covid-19 in France has now been dated back to November 16 last year, according to the Albert Schweitzer Hospital in Alsace. That is deemed significant. Citing classified government data, the South China Morning Post reported in March the first confirmed case in China could be traced back to November 17 (according to the WHO’s website, the first confirmed case in China was on December 8, while a report published in medical journal The Lancet by Chinese doctors put the date of the first known infection at December 1).

It seems unlikely that either side will ever accept the verdict of the other on who bears most responsibility for the havoc that Covid-19 has wreaked. What’s clearer is that the Chinese feel they need to fight their corner more aggressively, with Reuters reporting on the circulation of a high-level briefing among Beijing’s political elite that Washington is fuelling anti-Chinese sentiment on the back of the Covid-19 crisis.

The news agency even drew direct comparisons to Cold War history in claiming that the report is being seen as China’s version of the ‘Novikov Telegram’, a dispatch sent by the Soviet ambassador to Washington in 1946 that warned against the full extent of American economic and military ambitions. Novikov’s letter was itself a response to warnings from American diplomat George Kennan that the Soviet Union saw no chance of peaceful coexistence with the West, and that containment was the best long-term strategy, Reuters added. (That said, The Economist points out Chinese media are reluctant to use the term ‘Cold War’ because of the realisation the Americans won the original one.)

Both sides are stepping up the propaganda effort?

The People’s Daily was more direct in its assessment of the Trump administration, claiming that it had “tried every trick in the book” to distract from its own failings in handling the pandemic.

“Like octopuses emitting toxic ink as soon as they encounter a threat, US politicians are using their poisonous ideas to shield themselves, besmirch China and muddy the entire world,” another of its op-eds ruminated on Tuesday.

Other media outlets have tried different ways of getting their message across, including a widely viewed animation called ‘Once Upon A Virus’ released online by state news agency Xinhua. The cartoon mocks Washington’s slow-witted response to the pandemic and claims that it ignored warnings from the Chinese about the dangers that the virus brings.

A specialist in ‘information warfare’ explained to The Economist that the two-minute animation is part of a new struggle being waged on social media, citing it as further evidence that the Chinese are getting more sophisticated with their messaging and propaganda. “It’s like that scene in Jurassic Park where the velociraptors figure out how to turn the doorknob,” he told the magazine.

Where will Sino-US tensions surface next?

One possibility is in the US courts, where a group of American states have filed lawsuits alleging that the Chinese government concealed the initial outbreak of the virus. Few legal experts think that the actions will survive the Sovereign Immunities Act, which doesn’t allow for countries to be sued without their prior consent. The plaintiffs have tried to skirt the restrictions, including the argument that immunity doesn’t extend to the Chinese Communist Party, which is a political organisation. But the likelihood is that the legal battle will be fought over whether the cases should proceed in the American courts, rather than actions against the Chinese government itself.

China’s foreign ministry has still been dismissive of the lawsuits, describing them as “malicious” and “without factual or legal basis”. There’s also been talk of flipping the situation and countersuing the US government if the cases are allowed to continue. The argument is that the American authorities have been negligent in their own response to the virus, resulting in cases in which it was re-exported to China.

Probably the more pressing question is whether the pandemic will poison the chances of adding to the first chapter of the trade deal signed between the two governments in January.

Last week Treasury Secretary Steven Mnuchin tried to talk up dialogue with Liu He, China’s vice premier, saying that both sides agree that “good progress is being made”.

Yet the trade flows in the first quarter tell a different story. US exports to China were down a tenth on last year, when they were supposed to have increased more than a third on the basis of the deal in January. Some of the key areas where Washington was demanding huge hikes in purchases were particularly underwhelming: agricultural exports barely grew (target: up by half), while energy sales dropped a third (target: an increase of 160%)

The Chinese can counter that the pandemic has paralysed world trade, making it impossible to reach the targeted sales. Hawks in Washington are unlikely to be sympathetic, given their views on the origins of the virus and the reasons for why it has spread.

The irony is that when the trade deal was signed it was seen more as a way of taking the sting out of tariffs that were doing direct damage to both countries. But the stop-gap solution hasn’t bought either side much time and the situation is now being enflamed by the tensions stirred up by the pandemic. In more pragmatic times the two sides might have rolled over the assessment period or adjusted the amount of goods that the Chinese were committed to purchasing, because of the circumstances. That seems unlikely in the current context, however. Trump’s political opponents would seize on a revamp as a sign of weakness, especially as campaigning for the presidential election gets into full swing. His political instincts are rarely conciliatory either, which increases the chances of another round of loud disagreement.

On Thursday the noise level went up as Trump told Fox Business he no longer wanted to speak to Xi and declared America would save $500 billion if Washington “cut off” the bilateral relationship.

This suggest a more punitive response from Washington might include new tariffs or even the cancellation of the agreement completely. That’s not something that either side ought to want at a time when economic activity is at its weakest in decades. But the politics of the virus row is obscuring the economic realities, with the Global Times describing a “tsunami of anger” against the Trump administration at a senior political level in China.

“It’s in fact in China’s interests to terminate the current Phase 1 deal,” an unnamed adviser also told the newspaper, citing the struggling US economy and the upcoming presidential elections. “The US now cannot afford to restart the trade war with China if everything goes back to the starting point.”

Ideology to the fore?

Allowing the trade deal to fail would be a classic case of politics vanquishing economics. It would also reverse a long trend in Sino-US relations in which both countries have preferred to focus on profit rather than political principles. Thousands of American companies have been willing to set up operations in China since Deng Xiaoping launched the reform era. The Chinese were more than prepared to accommodate them as a way of developing a modern economy of their own and there has been something in the arrangement for both parties ever since. Chinese factories have profited from billions of dollars of contracts, while American brands have cashed in on the rise of hundreds of millions of new Chinese consumers. Finance and expertise from the US has helped the Chinese in building their industrial economy and Chinese purchases of Treasury bonds have supported US deficits for years.

The question is whether this relationship (long viewed by economists as mutually beneficial) is moving into an era in which a “fundamental difference in ideology” is more of a driver, says Chen Zhiwu, a professor at the University of Hong Kong. That’s partly linked to frustration among ideologues in the West that the Chinese haven’t moved towards the free market and more liberal political system in the way that they were expected to. China’s leadership now seems more determined to plough its own furrow as well, even if that means clashing more openly with the West.

“Between 1978 and 2012, the Communist Party (CPC) put aside its communist roots and focused on developing economic strength. Once China succeeded economically, the CPC went back to refocus on its original intentions,” Chen explained to the Financial Times last weekend, adding that the trend has accelerated since Xi took over as president.

Separation anxiety: not a new story but one that is getting louder

A dramatic distancing between the two superpowers is almost impossible to achieve after two generations of economic integration. While an Iron Curtain may have separated eastern and western Europe, a more complex web of supply chains and economic relationships meshes the East and West far more closely together today.

It’s true that China and the US are much more intertwined than the Cold War competitors of the past. Millions of their nationals visit the other country as tourists every year and there are hundreds of thousands of Chinese students at American universities, in just two examples. There wasn’t an equivalent crossover between the Americans and the Soviets and these links were traditionally portrayed as limiting the chances of confrontation between Beijing and Washington in the present day.

Yet maybe it’s worth asking whether some of these points of contact might achieve the opposite effect by creating new fault lines in relations. Tariffs have become a major test of the relationship simply because the two nations trade together so heavily. Rows over the spread of Covid-19, and its impact on both economies, are based in part on the flows of people and goods between the two countries.

It’s also apparent that relations have been on a deteriorating trend for some time. Short term indicators include the value of new Chinese direct investment in the United States, which fell to just $200 million in the first quarter, according to Rhodium Group, a market research firm. Most of the decline can be blamed on the virus but investment from China had dropped to its lowest level for a decade last year, before the pandemic took full effect.

The Trump administration has also been pulling up the drawbridge in key areas of the American economy for a while, including bans on sales of tech components to many of China’s leading firms. In other moves that pre-date the worst of the virus, scrutiny of Chinese bids for American assets was already getting more onerous and there are indications that it will soon be more difficult for Chinese firms to access US investment capital. Of course Washington is also taking the campaign to isolate the Chinese beyond its own border, by pressuring other nations to block companies like Huawei from building their telecoms networks.

This week there was yet another arrest in the world of academia too, with industrial espionage again being alleged. Simon Ang of the University of Arkansas received a grant from US space agency Nasa to research “weather resistant technologies”. However, he was arrested after it was discovered he’d not disclosed he was also on the payroll of the Chinese government, The Times reported, citing court papers.

Not that the Chinese haven’t been making efforts to put more distance between themselves and the Americans as well. In fact they’ve been talking about ‘indigenous innovation’ for years in a policy push that is effectively decoupling by another name. Massive subsidies are directed towards homegrown firms in industries such as semiconductors, while favourable policies promote local pioneers in battleground businesses like artificial intelligence and new energy vehicles. Local champions in the internet world have been carefully protected from international rivals too.

Some of the same motivation extends to Chinese efforts to internationalise the yuan, which are often seen as a bid to erode the dominance of the dollar. The redback still trails the greenback by some distance as an international currency. But in a special report last week The Economist noted the Chinese have been playing the long game by prioritising the renminbi in payments for trade, as well as encouraging more of its use in investment and as a growing share of sovereign reserves.

Taken together, these forces are hardly indications of the warmest of relationships between the two superpowers. The relationship is showing more signs of diverging and worsening – and the trend shows no signs of being reversed.

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