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April 18, 2019

Responding To: Debating the Prospects of a New Cold War

A Cold War by Any Other Name

Aaron Baum

The Economist was right to call the U.S.-China relationship a “new kind of cold war” in May, but they called it decades too late. Since China opened up, it has treated the rest of the world as a strategic, national security threat to its economic growth, and only recently has Washington realized that it is seen by Beijing as a foreign combatant. However, this new Cold War is an opportunity for the Trump Administration to learn from the past and avoid the costly mistakes that prolonged the original Cold War. Unfortunately, the first volleys fired back by the United States have shown the Trump Administration’s commitment to the expensive strategies used during the 1980s that disrupted an international order that was still trying to find its footing.

Washington failed to recognize China’s “Cold War” strategies because this economic dispute is fundamentally different than the geopolitical competition with the Soviet Union. Whether you think China’s leaders seek global hegemony, or, as I’m convinced, merely want State and Party stability (see Sulmaan Wasif Khan’s recent book Haunted by Chaos) and are threatened by stagnating growth and an aging population that may soon stop believing in the economic growth for authoritarianism bargain, China is trying to create separate supply chains and international economic institutions that favor Chinese over American growth. China understands the ECON 101 theory of comparative advantage, meaning that if the United States is the best at innovation, semiconductor design, and AI technology, China will not be. Fearing the “middle income trap,” China decided to steal and subsidize its way to becoming a 21st century economy capable of supplanting the United States as the center of the global economy. And while these tactics don’t threaten the United States with nuclear destruction, they treat the bilateral relationship as adversarial and zero-sum, just as in the Cold War. Americans were too proud for too long to acknowledge this as the threat to American livelihood that it is.

As Americans brought China into the international system and promoted engagement on global issues, China treated foreign economies as foes in its battle for economic dominance. The West grumbled, but in the end tolerated, China’s reluctance to open its markets to foreign competition. When China banned Facebook, Google, and Twitter, America treated the Great Firewall as a free speech question and not a bid to promote Tencent, Baidu, and Weibo. The United States never imposed reciprocal joint-venture, industrial subsidy, or market access policies on China, hoping that the complaints from American companies operating in China were speed bumps and not stumbling blocks on the road towards China as a free and open economy. Not only did China double-down on these domestic policies, it also began creating parallel economic institutions to those of the liberal financial order as it lambasts those traditional bodies as “imperialist” and unfair.

Now, the United States is metaphorically shooting back. It became clear that the United States is treating the bilateral relationship as a new Cold War when the Trump Administration banned companies from doing business with Huawei. No longer is the Administration prosecuting specific complaints against China, or even imposing broad tariffs to secure compromises on semi-related industrial policy questions. Instead, it is simply aiming to cripple a large Chinese company. The Administration’s much-maligned European tour to convince countries and companies against using Huawei equipment was at least backed up by accusations of Huawei’s potential to spy on foreign governments or otherwise leverage their telecommunications access, but in this case there is no security downside to allowing American software (Google) or hardware (Qualcomm) companies to sell their goods and services to Huawei. That is, unless you see any Chinese innovation and growth as a threat to the American economy. And indeed, it is. But a Cold War mentality is not the way to address that threat.

The original American tactics used during the 1980s to oppose the ideological and geopolitical threat of the Soviet Union in many ways sowed the instability in Latin American and the Middle East that plagues the world today. Similarly, treating any economic gain for a foreign country as an economic loss for the United States imperils the international and domestic ideology of fair competition that enriched the United States in the first place. As the earlier mentioned Economist report points out: “Rather than China becoming more Western, America is becoming more Chinese.” Becoming more Chinese may win a short-term victory against China and ensure an additional decade or so of American economic dominance, but even if we win this battle, those advocating a tit-for-tat approach to Chinese trade fail to project a future in which the United States is unseated by an economic foe that utilizes the same tactics the United States is using to keep China down. America opens itself up to attack by attacking others.

It is not irrational for Americans to feel threatened by China’s rise. Both countries, in fact, are responding to economic anxiety. Despite the disastrous 2008 economic recession, the Obama Administration did not fundamentally question the fairness and future of the U.S. economic system, and as a result did not feel particularly threatened by China’s economic Cold War tactics. Trump, on the other hand, has convinced the American public that China is to blame for their stagnant wages. Simultaneously, inequality and slowing growth is gnawing away at public sentiment in China. This mutual fear paved the way for the trade war. But rather than pick the obvious route of unilateral tariffs and aggression, we ought to work harder in convincing other nations that China’s unfair tactics are bad for business in the long run. Re-committing to multilateral solutions to bad actors will set a good precedent for a future in which the United States can prove in a fair marketplace that it remains the best marketplace for business and new ideas.

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