The economic landscape between China and the United States is rapidly freezing over. Photo: iStock

Deal or no trade deal, the threat of a new Cold War between China and the United States is likely to turn the summer months into a winter of discontent.

During the past week, the mood music has become distinctly surreal. Ministry officials in the world’s second-largest economy have been relatively circumspect as tensions rise with Washington, waiting for instructions from Beijing.

President Xi Jinping has remained silent unlike his counterpart in the US, Donald Trump.

China’s state-run media has reported just the bare bones of hardening diplomatic rhetoric as round 11 of talks continued in the American capital.

Perceived to have “back peddled” by the White House on a mutually agreed accord, Trump upped the ante by doubling tariffs on Chinese imports worth US$200 billion on Friday.

Beijing later responded with a vague warning of “implementing countermeasures” after denying the charge of “backtracking.”

Naturally, global markets have remained volatile amid the shifting sands of realpolitik, 21st Century style.

“The US-China trade relationship has never been an easy one. Even when American companies thrived, their success would often have been even greater had the playing field been even. Over time, the failure of Chinese leaders to level this playing field has produced a sense of profound disappointment and frustration,” Elizabeth Economy, the director for Asia studies at the Council on Foreign Relations, said in a commentary, entitled Trade: Parade of Broken Promises, for ChinaFile.

“Most of the concerns highlighted by the Trump Administration, such as market and non-market barriers to entry, IP [intellectual property] theft, subsidies, and coerced technology transfer have been sources of contention for decades … Overall, Xi’s policies have signaled a significant reversal rather than an acceleration in China’s economic reform effort,” she continued.

“As a result, the policy and business communities in the United States – as well as those of other advanced economies – are no longer confident that it is simply a matter of time until China develops more fully the attributes of a market economy. And given the size and strength of the Chinese economy, many argue that the economic stakes are too high to continue to wait [for that to happen],” Economy added.


Indeed, the scene is set for a series of flashpoints between the world’s two largest economies. This, in turn, will have a major global impact, affecting supply chains and the way business is done in Xi’s China.

It will also run deeper and trigger a myriad of challenges, Yan Xuetong, the dean of the Institute of International Relations at Tsinghua University, pointed out in his seminal paper, The Age of Uneasy Peace.

He wrote:

“Unlike the order that prevailed during the Cold War [with the Soviet Union] … US-Chinese bipolarity will not be an ideologically driven, existential conflict over the fundamental nature of the global order.

“Rather, it will be a competition over consumer markets and technological advantages, playing out in disputes about the norms and rules governing trade, investment, employment, exchange rates, and intellectual property.

“Chinese leaders will, therefore, work hard to avoid setting off alarm bells in already jittery Western capitals, and their foreign policy in the coming years will reflect this objective. Expect recurring tensions and fierce competition, yes, but not a descent into global chaos.”

Stability above all else has always been the guiding principle of the Communist Party of China. The country’s legislature, the National People’s Congress, has rolled out new employment opportunities at a time when the economy is cooling.

Again, stability at home is paramount in a changing world where China is seen as an economic rival rather than an economic opportunity.

Diplomatic moves such as the mammoth Belt and Road Initiative, or ‘New Silk Road’ superhighways involving multi-billion-dollar infrastructure projects and strands of digital links, have generated global concerns about transparency.

At the heart of the program rolled out by Xi in 2013 was the perennial problem of China’s “excess industrial capacity.”

Crucial goals

“The BRI and China’s overseas economic activities are driven by crucial economic goals, including continued internal development. Chinese leaders hope to address problems of excess capacity by exporting capital and labor overseas (although there is some skepticism that the initiatives will be of sufficient scale to fully solve this problem),” Audrye Wong, of Princeton University’s Woodrow Wilson School of Public and International Affairs, wrote in a commentary for the Brookings Institution.

“Overseas investment projects involve contracts for Chinese firms and employment for Chinese workers, facilitating an alignment of economic and political goals. The Asian Infrastructure Investment Bank (AIIB), also rolled out under Xi, suggests that China is at least making an effort to signal its commitment to multilateral institutions – albeit one where China plays an important role – and reassure other countries of its intentions,” she added.

Xi’s “statecraft” has raised the country’s international profile.

At the same time, it has alarmed liberal democracies as China flexes its muscles on the world stage while retaining its “developing nation” status at the World Trade Organisation.

Now a major military power, the contradiction has not been lost among Asian and Western trading partners.

Containment rather than engagement appears to be the new clarion call on an array of geopolitical issues, emanating out of Washington.

As Economy at the Council on Foreign Relations explained:

“Even if the genuinely ‘trade’ elements of the trade war are peacefully resolved, the deeper challenge remains. As commentator Kenneth Rapoza put it, ‘The trade war is not just about manufacturing jobs. It’s the final battle between communism and capitalism.’

“The Chinese scholar Wang Jisi agrees in part, noting that the clash between the United States and China is a civilizational one. He argues, ‘We should pay adequate attention to the trend that the two countries are drifting apart over our value systems and try to contain political differences by deepening reform and opening up.’ Success in preventing the trade war from hardening into a new Cold War or even kinetic conflict may depend on both sides following his wise words.”

Or, waiting for cooler heads to emerge from the deep freeze.

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