US-China – Cold War, Tech War, or Something Different?

Romain/ août 19, 2020/ General/ 0 comments

People, and especially journalists, love to make comparison. Everyone knows Mark Twain’s phrase “history doesn’t repeat itself, but if often rhymes.”

Tensions between the PRC and the United States have often been referred as “the New Cold War”, or “Cold War II”. Indeed, China has become the second largest economy in the world by nominal GDP and their tech industry has become a real challenger for America. On the paper such an assertion seems to perfectly make sense. However, things are far more complicated than they look.

A Subproduct of Karl Marx and Adam Smith

Contrary to the real Cold War with the USSR, the US-China rivalry is not necessarily based on a clash of ideologies. Of course, Chinese regime was greatly inspired by Marxist ideas, leading to the Cultural Revolution from 1966 to 1976. But China changed significantly after Mao’s death, and headed toward a pure capitalist economic model characterized by free enterprise and innovation.

Even if strategic sectors have remained under the control of the government (e.g. oil & gas, finance) and despite a stric currency control, its domestic economy is more liberal than other countries (including France) and its start-ups ecosystem is now equivalent to the US. China has achieved this transformation thanks to Deng Xiaoping, who was inspired by Lee Kuan Yew’s policies and Singapore’s economic miracle.

Ironically, China has become a superpower again because it has embraced two main Western ideologies: communism and capitalism.

Before the rise of Mao, the country had experienced two centuries of internal chaos, and humiliations like the Opium Wars and the Japanese invasion. According to Alain Peyrefitte’s book The Immobile Empire, one key reason for the failure of such a multi-millenary dynasty was the fact that its system was suffocating on inertia, while some European countries were experiencing spectacular changes thanks to the Industrial Revolution.

After 1949, marxist ideology has served as an intersubjective framework to unify the country on a political basis, while capitalist ideas have enabled China to transform itself from a poor rural economy to the world biggest exporter, and then from a low-end manufacturer to a competitive first-calls industrial player.

Of course, China has no elected government and no free speech. But do not be misled by the Western way of thinking: most Chinese people might be proud of what has been achieved by their country and would not call for radical changes. I do not endorse the PRC, but it is important to understand how Chinese people regard their country.

Make China Great Again?

Another reason for a so-called “cold war” would be the fact that China is willing to expand its territory, with Hong Kong and Taiwan being brought up as evidence.

I do not say that those territories should necessarily belong to the PRC, but the truth is that they are Chinese lands. Taiwan as a country was born after an internal secession, when Chiang Kai-shek and his troops retreated to the island.

Hong Kong is a more complex story. In the 18th century, the British East India Company cultivated opium in Indian Bengal territories, selling it to private traders who sold it to Chine smugglers. In 1839, Commissioner Lin ordered the seizure of all opium in Canton, leading to the first Opium War. Great Britain defeated China and forced them to cede in perpetuity the Hong Kong Island in order to control opium trade in the region. In other words, Hong Kong enabled Western traders to sell drug to Chinese people. No glory in that.

Regarding the expansion in South China Sea, experts in geopolitics believe that China is trying to control this sea area because it is strategical for the operations of its nuclear submarines based in Hainan Island.

Despite those localized ambitions, it is unclear whether the PRC is trying to expand around the world and lay the ground for a territorial empire. Moreover, the regime’s main objective has always been to build a fully independent country, first on a political basis and then on an economic basis. The One Belt One Road initiative should be analyzed from that perspective, as the objective is to secure the trade of goods and services.

Somehow, “China First” could be the slogan of Xi Jinping. Very close to the Trump administration in fact, though more subtle and less noisy.

The Economic War

Instead of ideological antagonism or military war perspectives, US-China tensions might be the symptom of what French philosopher Bernard Stiegler called “the global economic war”. As capitalism has been the dominant intersubjective framework since the 18th century, such a concept could help to understand how capitalist societies have challenged each other, while large military conflicts have been exceptionally rare since WWII.

Therefore, the rise of China as an economic superpower is a direct threat to the US, especially as America is penalized by an ageing population, a manufacturing decline, a mounting debt problem, and huge investment bubbles.

US services had already warned on China at the beginning of the 2000’s, but 9/11 attacks forced the Bush administration to focus on other enemies. Things have significantly changed with Trump’s aggressive strategy, raising import tariffs on many products, rejecting M&A deals involving Chinese companies, and banning Huawei now TikTok from US territory. Nevertheless, it is worth noting that despite smiles and a positive tone, Barack Obama was already regarded as a tough president in Asia-Pacific when it came to contain China’s influence over the region.

Whether Trump is reelected or not, US-China tensions are likely to stay for a while as it is all about technology leadership. Indeed, China has made spectacular progress since 2000 in areas like computer sciences and artificial intelligence. Besides, China is likely to lead the coming fintech revolution, with the rise of Ant and WeChat Pay superapps and the integration of blockchain technology.

Beyond the PRC, the whole region is becoming a major innovation hub, with leaders in semiconductors in Taiwan and South Korea, first-class companies in robotics in Japan, and all the main EV battery makers localized in Asia.

2020 and the Lack of Global Leadership

The Covid-19 pandemic has revealed an absence of global coordination to face one of the worst crises since WWII. While China is suspected to have hidden information at the beginning of the epidemic, the US administration could also be blamed for denying the danger of the coronavirus and for spreading false information.

From a macroeconomic perspective, unlike 2008, China has refused to launch a stimulus program that will support US economy. As David Baverez said, Xi Jinping’s plan can be regarded as “Made in China, for China”.

This lack of global coordination is a very negative signal. First, the C-19 pandemic is not over, even if many countries like the US or Russia claim that a vaccine will be available soon. Second, the economy is still struggling and the risk of a global financial meltdown remains high.

Last but not least, the climate crisis might be a bigger threat for the world, and we should be afraid of the fact that no coordinated response seems possible.

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