Strains between the US and China stem partly from the vast differences in the two country's cultural beliefs and outlook. Photo: iStock
A new Cold War between the US and China will inevitably impact the rest to the world. Photo: iStock. Photo: iStock

The previous Cold War was easy. The issue was business or no business: the West and it’s front were pro-business. The USSR and its allies believed business was the mother of all evils. Politics followed.

In the West, free politics was in tune with the free market and free business; with the Soviets, closed politics mirrored closed markets and vice versa.

The present Cold War is subtler, and it’s not about business or no business. It’s about what kind of business with what politics. Both the US and China are in favor of business – the Chinese are possibly even more pro-business than Americans – but it’s politics that makes a difference.

In America, the relationship between business and politics is in constant motion and the two sides influence each other in constant dialogue and friction.

In China the hierarchy is straightforward: politics is on top. Business can thrive, and must thrive, but only as long as it doesn’t challenge politics and helps politics. In the West, private property and its rights are the foundation of society and the state.

Private property holders must find a social dimension, must cooperate with fellow private owners, but can challenge the state if they feel their rights are infringed. In China, nope.

The state can seize private property if it deems so fit. This goes to the point that common people do know they don’t hold rights over their property as they would in the West.

This is very simplified and the two systems each have their competitive advantages in an all-out competition. But before going into this, we have to take a step back.

The Bretton Woods world or Tianxia

In 1944 in Bretton Woods, the US set up the order of the free world against the Soviet world. It was easy because it was, as we saw, a clash between two opposite economic systems sworn to annihilate one another.

The two openly claimed one could not survive if the other lived. In a way, the political-strategic confrontation was turned into an economic competition and vice versa. The most efficient economic system would prevail.

So it happened: capitalism prevailed over inefficient socialism. Business was by itself the winning idea, making money was the ideal and in reality that made people’s lives better than with socialism.

The simple idea, after the fall of communism in the USSR, was that extending this system to a global scale, with delocalization of production and technology transfer, would suffice to win the day. That is globalization was enough to fill the existing gaps in the world, ie extend the Bretton Woods framework and tweak it.

When the GATT (General Agreement on Trade and Tariffs) morphed into the WTO (World Trade Organization), old rules were hammered into a new shape to take into account the batch of newcomers into the “free world” (ie, the world without the Soviets) and the lack of direct confrontation and division of the world.

But it was not that easy.

China grew rich with a free market and a closed state. America and its like-minded partners mostly overlooked the mix of a special state and a special market that was China. Yet it had all been there.

China’s ultimate power over the relatively free market, and its top-down structure, had been there for millennia – it was no communist invention. Many Americans were and are surprised about the resilience of Beijing’s system and many now are lost about how they should behave vis-à-vis China.

Do business with China? Don’t do business? To what extent should they do it, or not do it? All are question marks because the old Bretton Woods framework didn’t fully consider an animal such as China.

On the other hand, in its internal order, Beijing completely overlooked the role of relations between states according to centuries of Western tradition, and its consequences for its domestic and internal affairs, politically and economically. It remained blissfully ignorant of the role of the world order.

This order has many unwritten rules, more important than its few written rules revolving around the UN and similar institutions. But also for this reason these unwritten rules are more difficult to comprehend for someone, like a Chinese person, outside this world.

China simply didn’t realize that, to use an analogy, America is the spider and the world is its cobweb. Both are mutually dependent. Without cobwebs, the spider would not exist, and even more so the cobweb needs the spider’s constant minding to be held in shape.

This is surely a very partial analogy. The world order is an extremely complex and intricate affair where the leading role has to be constantly managed and compensated for by paying attention to the ever-changing balance of power, but it at least gives us some references.

The modern balance of power

In China, philosopher Zhao Tingyang drafted a similar global view based on the Chinese experience. There, the world was the tianxia, all that is under Heaven. This didn’t mean the world in its actual entirety; it meant all that matters for the son of Heaven, the ancient political-religious figure at the center of this world.

Here there are two sides of this tianxia. If the system was a way to begin to approach, understand and combine the traditional Chinese and Western worldviews, then this is a very positive effort to understand each other.

If conversely, the tianxia system is to be construed as an alternative to the dominant world system, based on Western ideas dominating the planet for half a millennium, then it’s a different story. If tianxia were to be an alternative, then it would challenge the present global order and would be by itself disruptive.

A similar approach can be seen in an earlier book, Xin Zhanguo Shidai (The New Warring States Period) by Qiao Liang, Wang Xiangsui, Wang Jian and Li Xiaoning. It describes the present world order by drawing a comparison with China of the Warring States Period in the 4th century BC, recognizing the necessity to keep a balance of power.

Again, if this comparison was a way to draw China closer to a deeper understanding of the modern balance of power, it was a great cultural contribution. If it became a way to offer an alternative against the modern balance of power, that would be a very different issue.

This is a point not about the authors of these two works, but perhaps more for the readers.

The point of all these efforts was to come to grips with what China perceived as US hegemony in the world, and maybe also to begin to think about how its own global hegemony could take shape.

The Chinese idea of hegemony, of course, comes from its own history, from the time, before the Warring States Period, between the 8th and 5th centuries BC, the time of Springs and Autumns, when scores of small statelets were annihilated and absorbed in larger states. Then different ba, hegemons, held sway in the central plain.

The ba was an interesting role. The most powerful state was recognized explicitly, with a special congress, or implicitly according to later historical records, as the hegemon. This was a confusing time, when the Zhou emperor was very weak but he still had religious and cultural influence.

Then a powerful duke would rule in his stead. This was perhaps also the cultural inspiration for the Japanese system of Shoguns ruling in the name of a weak emperor.

Then modern China is thinking of modern America according to its own old cultural framework. This can be helpful if properly adapted, with a series of successive approximations.

It can be outlandish and misleading if the comparison is taken at face value. This is history but also logic. According to Aristotle, analogy can work as an illustration of a concept, but truth can be searched according to a process of induction and deduction.

Yet, as DC Lau argued, ancient Chinese logic, and especially Mencius’s analogies, take a life of its own. They are not simple illustrations but they can prove or refute a point.

Then does China really understand the “American hegemony” in this world or is it lost in a sophisticated yet perverse game of mirrors? The latter seems perhaps the case.

Weapons of US hegemony

If China wants to transform the world into a tianxia system like in ancient times, it should make Chinese the international language, but this could take many decades, if not centuries.

It took centuries in fact for English to take over from French, which was the official international language until a few decades ago. In the process, English also changed itself.

International English is very far from the standard Shakespearean or Dickensian English. It is spoken in a myriad of accents with many grammatical variations and nobody feels embarrassed or awkward about it.

So far, Chinese for foreigners has been mostly seen as some kind of circus stunt to show off to Chinese people how good or bad these freak foreigners speak our language. Moreover, what is the goal of learning Chinese? The answer is not clear.

Is it to become Chinese, as happens in America, where foreigners can have the realistic hope to contribute to the wellbeing of their country of immigration? Or is it what the Nazis planned for Slavs in occupied territories, to teach them some pidgin German to better serve their masters? The difference is huge, like between life and death.

Moreover, there are differences between the US and China in a possible arms race. The cost of production of some weapons systems, like nuclear devices or missiles, could be lower in China than in the US.

Then, if an arms race were to start, China might bankrupt America. The US, with President Ronald Reagan in the 1980s, imposed an arms race that eventually contributed to bankrupting the USSR. Therefore, China could be tempted to go this way. But this is only part of the story.

In a recent essay, Tai Ming Cheung writes that expenditures for internal and external security far outstrip defense expenditures. The party is extremely concerned about its own security and has expanded it to unprecedented levels.

But this is extremely pricy and could possibly by itself weigh down the whole Chinese economy. External information is extremely critical.

Beijing wants to control political dissidents abroad: the Falun Gong, Uighurs, Tibetans and Hong Kong and Taiwan activists. So far, it may have relied on Chinese abroad, the Huaqiao, who felt patriotic and have been handsomely paid.

But as the political clash intensifies, and the crackdowns in Hong Kong or Xinjiang become more apparent, the patriotic appeal of the Beijing story among Huaqiao weakens, and they may need more money for motivation while the quality of the information may decrease.

This is very different from the USSR, which could rely on an ample network of communist idealists abroad who helped Moscow for no material reward, but for the international idea of communism.

Here there is no international idea; there is just the interest of China with a vague “win-win” strategy for other countries. Win-win means that China will pay, and we go back to square one: the growing cost of information that is increasingly less reliable.

Conversely, the US still has international appeal, despite misgivings about its “America First” policy. It stands for liberty and the rights of man, and thus it becomes a natural beacon of hope for the crowd of people dreading the communist rule in Beijing.

Not paradoxically, it is this appeal that is perhaps the greatest strength of America in the present international competition with China. America’s use of armed forces to solve its political nightmares scares everybody in Asia and China.

Violence should be used in very extreme cases, as abuse of violence bestows incrementally smaller returns.

Into new woods?

The Covid crisis in China has provided a major reason to fast-track its plans for total control of the population. Catching a plane or a train or a bus; getting in or out of a building, a restaurant or a shop will leave an electronic trace in China because everybody will have to be tracked on their phones or stay home.

The state will not bother with the vast majority of people who will be allowed to carry on with their financial or moral peccadillos or indiscretions as they wish. But the massive amount of information can be used for data mining and to trace back possible offenders of various kinds.

The people were willing to sacrifice their privacy in return for security from the virus, and so far it worked. Beijing had a plan and implemented it.

On the other hand, the US and the EU will spend trillions in the next few years to revive their economies, cut off at the knees by Covid-19. It is still unclear how they will spend it, but it is very likely they will make sure that little or none of this money will benefit China.

This anyway will be a once in a lifetime opportunity to change the economies of the US and EU, and the China element will probably play a role. Average Americans are unhealthy, with little education and poor infrastructure.

In all these areas, China has been investing far more than any other country and one can see the results. Human capital, better health and better education, starting from primary schools and then up to high schools, are especially important as these are the fields where the state can and should spend for long-term programs.

China is also improving its civil-military link for research and development, the one where once the US had unparalleled primacy. The only, no small feat, area where the US is better is the market.

America has a better functioning market with free circulation of goods and ideas that create an unparalleled virtuous circle. Yet this can’t be sustained without long-term spending on healthcare, education and infrastructure.

The US would need money to finance all of this. Where will it come from? Taxes? Printing money will eventually be repaid, a usual way is through inflation, which is a form of taxation on the poor.

China in this picture

Meanwhile, where will China exactly be in this picture? If the US wants to decouple, this objectively puts in jeopardy the Chinese assets in US dollars. They were earmarked to finance and anchor bilateral trade.

The US bought Chinese goods with money borrowed from China. But if the US buys less from China, why should China hold so many US Treasury bonds in reserve? Moreover, with the looming threat of suits claiming trillions from China as damage for starting Covid, these assets might be seized by some belligerent US court.

In fact, the authoritative Chinese newspaper Global Times reported that Beijing may gradually cut its holdings of US Treasury bonds and notes, in light of rising tensions between Beijing and Washington.

With Sino-US relations deteriorating over various issues including the coronavirus, trade and technology, global financial markets are increasingly worried that China will sell the US government debt it holds as a weapon to counter rising US pressure.

China will gradually decrease its holdings of US debt to about US$800 billion under normal circumstances, Xi Junyang, a professor at the Shanghai University of Finance and Economics, said to the newspaper, without giving a detailed timeframe.

On another front, the US seems to be reverting to ties with China reminiscent of the 1970s. Then the relationship with Beijing was still not as important as that with Taiwan. Some are working on a visit to Washington by Taiwan’s President Tsai Ing-wen, something that would be a major blow to Beijing’s hopes of reunification with the island.

“Today, a similar threat is looming as concerns rise that a miscalculation on either side could lead to another military confrontation between the world’s two largest economies, with far-reaching implications for the entire world,” argued Wang Xiangwei.

The message seems to be: “Don’t push the status quo with Taiwan or we shall be forced to move in.”

But in Washington people may feel that if the status quo is not challenged Beijing will not hold it. Besides, in the 1970s, North Korea was largely independent from its neighbors, shuffling partly under the USSR and under Chinese patronage.

Now North Korea is de facto totally under Chinese control. Is it fair to leave Taiwan dangling there, alone, vulnerable to Beijing’s change of heart? The problem is, there is no trust in this complex bargain.

The slippery Moscow card

In this game of fast-moving pieces, Russia may be changing its stance. The weak economy has undercut its main asset, oil prices, which finances its internal welfare and foreign ambitions.

There is less money for Putin’s complex political balance. The elections in Belarus and the poisoning of Russian dissident Alexei Navalny are putting Putin on the spot. Belarus’s President Alexander Lukashenko has botched the recent elections.

Massive demonstrations are contesting the results and his rule. Then Lukashenko and Putin are in a bind.

If Lukashenko calls in Putin, the Russians might restore order but Lukashenko might forfeit his own independent power. If Lukashenko doesn’t call in the Russians, he may be overwhelmed by the protests.

Similarly, if the Russians step into Belarus, they would irk lots of European and American sensibilities and be caught in a bigger quagmire than in Ukraine.

Here there is lots of room for careful horse-trading with Putin by the EU and the US and this could also bring the EU and US closer together. Germany, with good ties with both Russia and China, could consent to cooling ties with Beijing in return for a more level-headed approach with Moscow, which is nearer and thus more important.

The recent cold shoulder given by Berlin to Chinese foreign minister Wang Yi’s visit could be a sign of this. Washington may also be inclined to strike some kind of bargain with Putin in Belarus, in return for Moscow cooling down with Beijing.

Moreover, the poisoning of Navalny may have weakened Putin’s hold on Russians. Poisoning spies and traitors abroad is one thing; trying to kill dissidents loyal to Russia at home may be another.

Weaker Russian ties may make Beijing even more nervous and could further spin a Cold War paranoid mindset in Beijing, something that will make everything even more complicated and costly for Beijing.

Here there are two ways out for Beijing. One is to pursue the present course and rely on the great ingenuity of the Chinese people to find stopgap measures to gain time.

The other course of action is to think out of the box and start something very new by accepting the world as it is, and the US role in it, and not trying to change it, openly or not.

The Chinese are pragmatic and their choice will depend also on what the US does. If it tries to advance only its own national interests forfeiting those of the world, just like a spider forgetting its cobweb, it will fall and fail.

If the US presents itself as part of a global concern, China may choose to act differently. So far, the impression in China is that the US has chosen to go alone, although in the past year or so Washington has started changing tack.

If this change in the US foreign policy persists, and domestically America will spend more on long-term physical and non-physical infrastructures, it could make a lot of people in Beijing think harder.

Perhaps at the end, this is the biggest difference with the first Cold War – this one could be nipped in the bud. To do that China should fully understand the foreign world-cobweb and take the necessary reforms to adapt to it and take into consideration all the foreign demands of many of its neighbors.

On the other hand, the US-spider should mend its own cobweb and dramatically improve its own domestic system. Short of this, both sides may believe they have better chances in keeping the present course which eventually may lead to a violent clash or an irredeemable freeze, far worse than the first Cold War.

Used with permission of Settimana News. Read the original here.