Home The Washington Diplomat U.S.-China Cold War? It’s Here — And It’s a Battle Over Tech and Trade

U.S.-China Cold War? It’s Here — And It’s a Battle Over Tech and Trade

0
U.S.-China Cold War? It’s Here — And It’s a Battle Over Tech and Trade
The battle between the United States and China for global influence has increasingly become a fight over technological dominance, as seen in the U.S. pressure campaign to convince allied nations to drop the Chinese telecom maker Huawei from their 5G networks. (Image by farukgarib14 from Pixabay)

Washington is awash in talk of a coming “cold war” with China. Democrats and Republicans debate if one is really going to happen, or likely to happen or already happening.

Yet in all the talk, there is less chatter about what that future conflict would realistically look like, beyond the threat of a rapidly escalating exchange in the South China Sea. But many experts say a future conflict with China won’t resemble a traditional military clash. Rather, it will look like the scenario that’s already playing out.

“The nature of conflict is going to change. We’re not going to be fighting about resources on the ground. We’re going to be engaged in trade wars about technology and access to technology, which has to do with energy as well as other things,” said Meghan O’Sullivan, who served as deputy national security advisor for Iraq and Afghanistan in the George W. Bush administration and is now chair of the North American Group of the Trilateral Commission.

The issue of trade and technology access has been a primary focus of President Trump’s China agenda, which has diverged from the cautious cooperation of previous American presidents to one of outright competition.

Supporters say it is a long overdue course correction in response to China’s unfair trade practices, such as the theft of intellectual property, forced transfer of technology and cyber espionage.

Critics of this more confrontational approach — including the use of tariffs on Chinese imports — say that while it is necessary to tackle disputes with China, completely severing the relationship between the world’s two largest economies is not only impossible, but also self-defeating (China is America’s second-largest creditor, holding over $1 trillion in U.S. debt). This zero-sum calculation also misses areas such as climate change and nuclear nonproliferation where cooperation is still possible.

But it’s clear that cooperation is not an option in one area: sensitive technologies in critical sectors of the U.S. economy.

These technologies are not only key to national security, they will also determine who becomes the dominant global player in the so-called Fourth Industrial Revolution, which will transform our lives and workplaces through advances such as cloud computing, artificial intelligence and the “Internet of Things.”

Yet Trump’s aggressive new stance toward a rising geopolitical competitor isn’t all that new. The blueprint for beating Beijing in the race to secure advanced technologies was written decades ago, only back then the adversary was the Soviet Union.

A series of declassified National Security Decision Directives signed by President Ronald Reagan throughout the 1980s resemble U.S. efforts today. NSD 66, signed in 1982, noted agreements with allied nations to “require controls on advanced technology transfers” and harmonize allied procedures for licensing critical technologies. It also referenced an earlier agreement by the Organization for Economic Cooperation and Development to raise interest rates on Soviet entities to restrain their technology investments.

As the West slowly opened itself up to trade with the Soviet Union in the latter years of the Cold War, U.S. strategy was careful to “maintain the delicate balance between expanding [energy technology] sales by U.S. firms and preserving our security-minded allied consensus on the strategic aspects of East-West economic relations,” as NSD 155, in 1985, put it.

Chinese soldiers look on as President Donald Trump departs China on Nov. 10, 2017. Initially, the relationship between Trump and Chinese President Xi Jinping was relatively warm but grew increasingly strained over the issue of trade and Chinese access to sensitive sectors of the U.S. economy, with the White House eventually dropping any pretense of cooperation in favor of competitive confrontation. (Official White House Photo by Shealah Craighead)

The U.S. financial system is still by far the leader of the global economy, and the power to move assets held by U.S. banks, or impose sanctions on assets moving through those banks, is a tremendous capability unique in the American arsenal. A former Reagan administration national security official, who declined to be identified for this story, pointed to these as examples of some of the economic “tools” in America’s arsenal in its contest with China.

But Beijing has become skilled at fighting on America’s own turf. According to an article by Camille Stewart published in the Journal of National Security Law and Policy last year, China has used federal bankruptcy proceedings to exploit gaps in U.S. export controls designed to prevent sensitive U.S. technologies from falling into foreign hands.

A Chinese cybersecurity firm, Qihoo 360 — which has ties to China’s People’s Liberation Army — “founded a venture capital fund in Silicon Valley in order to support start-ups that it considers strategically significant,” wrote Stewart, the former senior policy advisor for Cyber, Infrastructure & Resilience Policy at the Department of Homeland Security in the Obama administration.

Because of the rapid failure rate of tech start-up companies, Chinese investors like Qihoo 360 have been able to acquire, in bankruptcy proceedings, start-ups that had produced sensitive technologies.

The maneuver, according to Stewart, allows Chinese government-linked firms to circumvent review by the Committee on Foreign Investment in the United States (CFIUS), an agency designed to block foreign control of U.S. firms engaged in operations deemed critical to national security.

Policymakers on both sides of the aisle are increasingly focused on the threat posed by China’s presence in sensitive areas of the U.S. economy. As part of the National Defense Authorization Act for fiscal 2019, for example, Congress passed legislation that expands the list of economic sectors deemed critical to U.S. national security, broadening CFIUS’s mandate.

In a number of largely bipartisan moves, Congress has banned U.S. companies from selling component parts to Chinese tech giants Huawei and ZTE Corp., called for the divestment of Chinese firms from federal pension funds and urged an allied consensus that 5G networks be built without Chinese technology.

Concerns about Chinese spying on sensitive U.S. projects have also spread to American college campuses, where Chinese researchers have come under increasing scrutiny by U.S. authorities and dozens of Confucius Institutes have been shut down in recent years, as The Diplomat reported last year.

The interconnectedness of the two economies, which experts said once insulated them from a cold war, may in fact be what leads to one. The contours of a future reckoning in U.S.-China relations are already emerging.

As a former staffer in the Office of the U.S. Trade Representative, who declined to go on record, said, a cold war is not just in the offing.

“We are in a cold war.”

The Trade Fight

A common refrain among China experts when the inevitable cold war comparisons arise is that the U.S. is far more interconnected with China than it ever was with the Soviet Union.

“When the United States started NATO, none of the NATO countries had major trading relationships with the Soviet Union. Now, every one of our partners, both in the region and around the world, considers China a major — if not the largest — trading partner of them,” said Ryan Hass, a Brookings Institution fellow who previously served as the director for China, Taiwan and Mongolia on the National Security Council from 2013 to 2017.

Arthur Kroeber, the managing director of Gavekal Dragonomics, a research firm in Beijing, noted that the total revenue of U.S. companies and affiliates in China in 2017 alone was $544 billion. “We can remove a few of those tangles, but the cost to the U.S. economy of removing them all would be unacceptably high,” he told The New Yorker earlier this year.

Is this beginning to change?

U.S. companies Facebook and Netflix have faced stiff resistance breaking into the China market because government regulators want to be able to control, and censor, their content. Some companies — particularly in low-wage production — have relocated manufacturing out of China to avoid trade war uncertainty or take advantage of lower labor costs in countries like Vietnam. But other U.S. companies like Tesla are expanding their operations in China, whose growing middle class and population of 1.4 billion people make it a difficult consumer base to ignore.

“So it’s a pretty mixed, murky picture, not sort of a unidirectional picture,” Hass said.

But the economic instability wrought by COVID-19 could accelerate efforts to diversify production away from China, as the pandemic exposed just how vulnerable countries are to disruptions in medical supply chains. The U.S. was made painfully aware of this dependence when it experienced a shortage of masks, gloves, testing kits and other personal protective equipment at the onset of the pandemic.

People in Guangzhou wear facemasks in February 2020. The coronavirus pandemic, which began in China, exposed how vulnerable nations are to disruptions in global supply chains. (Photo by zhizhou deng – street photo in Guangzhou city, CC BY 2.0)

Companies also became aware of how dependent they are on Chinese supply chains when factories of all kinds shut down in China during the initial outbreak, sending ripple effects throughout the global economy.

U.S. Trade Representative Robert Lighthizer declared in a May 11 New York Times op-ed that the era of offshoring U.S. jobs is over. Not only did the pandemic reveal the dangers of American reliance on Chinese manufacturing, he argued that many companies have realized that while offshoring creates short-term cost efficiencies, it comes with long-term risks such as corruption, labor unrest and intellectual property theft.

While many experts agree the pandemic has forced U.S. policymakers to take a hard look at supply chains, some point out that once the pandemic ebbed in China, it was China and other Asian nations that stepped up to deliver less-expensive (and much-needed) masks to Americans.

“The challenge really is that China has 50% of the world’s production capacity, particularly for masks. So are we going to move an entire supply chain over?” said Cameron Johnson, a Shanghai-based trade consultant, in a recent AP-Frontline report on the breakdown of medical supply chains. “It’s just not going to happen. Manufacturing, as we know it, is never going to return.”

Many economists agree that President Trump’s vision of reviving the golden era of American manufacturing is unrealistic, both because companies will simply shift production to other low-wage alternatives like Vietnam or (closer to home) Mexico — but also because many manufacturing jobs have been permanently lost not to globalization, but to automation.

Security-Driven ‘Decouplings’

Yet the picture is more nuanced when it comes to national security concerns, which have led to a series of high-profile economic “decouplings” from China over the last two years.

For instance, in 2019, amid fears that Chinese state-owned railcar manufacturer CRRC could install spyware in the subway cars of the nation’s capital if it won a contract to build cars for the Washington Metropolitan Area Transit Authority, all four senators representing Maryland and Virginia sent a joint letter to WMATA with a list of recommendations for ensuring the system’s security. In response, WMATA updated its request for proposals with stricter cybersecurity requirements.

Senate Minority Leader Chuck Schumer (D-N.Y.) then asked the federal government to investigate if CRRC’s plan for new subway cars in New York City could also pose a threat to national security.

Meanwhile, responding to fears that U.S. pharmaceuticals are largely manufactured in China, or made with ingredients produced there, a 2019 report to Congress by the U.S.-China Economic and Security Review Commission recommended that Medicare, Medicaid, Veterans Affairs, the Department of Defense and other federally funded health systems purchase their pharmaceuticals only from U.S. production facilities.

The Trump administration has also launched a global pressure campaign against Huawei, warning allies not to contract with the Chinese telecom giant to build their 5G networks — or face the consequence of reduced U.S. intelligence-sharing. This pressure campaign finally bore fruit in mid-July when the United Kingdom reversed a decision and formally banned Huawei from having a role in building its 5G network.

In addition, the White House has sounded the alarm that Chinese-owned apps could be personal information goldmines for Chinese intelligence. In July, the administration threatened to ban the popular app TikTok unless its Chinese owner, ByteDance, sold it to a U.S. company. (Oracle and Walmart are now set to take a 20% ownership.) In March, the gay dating app Grindr was sold to a U.S.-based company after CFIUS deemed its acquisition by Beijing Kunlun Tech Co. to be a national security threat.

In July, the Trump administration threatened to ban the popular app TikTok unless its Chinese owner, ByteDance, sold it to a U.S. company, citing security concerns. (Photo by Solen Feyissa from USA – TikTok, CC BY-SA 2.0)

Meanwhile, in May, FOX Business reported that Trump ordered administration officials to cut investment ties between federal employees’ pension funds and Chinese equities tied to the PLA. The companies include military contractors responsible for Beijing’s widespread surveillance of its citizens and involvement in detaining Uighur Muslims in Chinese “re-education” camps, as well as ZTE, which has been fined for violating U.S. sanctions.

While the administration used China’s slow response to COVID-19 as justification for calling the nearly $4 billion in Chinese assets “risky,” the move had been brewing for months.

Trump was lobbied by, among others, the Committee on the Present Danger (CPD), a revival of an anti-Soviet group of hardliners formed in the 1970s, which gathered in Washington last November. The result of the pension fund’s investment in Chinese military subcontractors is that “our uniformed military [is] funding advanced weapons systems that are targeting them,” Roger Robinson, former senior official on the National Security Council during the Reagan administration, said at the meeting.

Robinson also warned that many Americans, in various sectors, could wake up several years from now to find that majorities of their retirement portfolios are invested in Chinese companies. In that event, any U.S. action to constrain China or call out its human rights abuses would be political suicide, given the consequences to Americans’ retirement accounts.

The White House was also backed by a bipartisan group of senators — led by Marco Rubio (R-Fla.) and Jeanne Shaheen (D-N.H.) — who wrote an October letter to the chairman of the Federal Retirement Thrift Investment Board urging the divestment of Chinese assets.

Ideology vs. Investment

Many experts point out that China has the luxury of authoritarianism, which allows it to mobilize national resources and set long-term economic strategies without the debate and dissent that comes with democracy. That’s why they say Washington needs to put its partisanship aside if it wants to better compete with Beijing.

It’s also important for the United States to team up with like-minded allies in the region.

“The priority for the United States will have to be its regional alliances and friendships. Nothing is more important in this kind of situation — where China, on a whole series of fronts, is testing out the U.S. willingness to lead on a regional scale — than keeping those in order,” said Odd Arne Westad, a professor of history and global affairs at Yale University and author of the seminal text “The Cold War: A World History.”

This is in essence what President Obama’s so-called Asia pivot aimed to do: re-establish the United States as a Pacific power by strengthening its relationships with like-minded allies. Beijing viewed the pivot as a thinly veiled attempt to contain its rise and perpetuate America’s century-long hegemony in China’s own backyard.

And in many ways, the pivot was meant to curb Chinese hegemony in the region. But Obama also stressed that China was welcome to join the club, so to speak, if it agreed to play by the same rules when it comes to trade and international norms.

The Trump administration completely reversed course, notably by withdrawing from the Trans-Pacific Partnership trade deal, and argued that decades of engagement with China had failed to liberalize its political system — or prod it into becoming a responsible actor on the world stage.

So, while the 2015 U.S. National Security Strategy praised the “unprecedented” cooperation between Beijing and Washington, the 2017 document labeled China a “strategic competitor” that seeks to “shape a world antithetical to U.S. values and interests” and “displace the United States in the Indo-Pacific.”

But the world is no longer split along clean ideological lines. There is no equivalent China-led “bloc” or, conversely, the ill-fated geopolitical fantasies of the Cold War era, such as the so-called “arc of crisis” stretching from Angola to Afghanistan envisioned by Zbigniew Brzezinski, President Carter’s national security adviser.

In today’s globalized world, economics often trumps politics.

“The U.S. and the Soviet Union were locked in Eastern bloc-versus-Western bloc standoff in Europe,” said Bonnie Glaser, director of the China Power Project at the Center for Strategic and International Studies. “We don’t have anything like that with China. China doesn’t have a coalition of countries that support it. It doesn’t have really a single ally, from my perspective.”

What China lacks in allies, however, it is trying to make up for in what O’Sullivan called a “web of countries” dependent on its products. This is, after all, what the Belt and Road Initiative (BRI) is: a strategy to build the infrastructure that will create demand for Chinese goods in developing markets, while leaving the bill for that infrastructure — usually, a significant amount of debt to China — to the host countries.

The Port of Shanghai’s deep water harbor in Hangzhou Bay has been the world’s busiest container port since 2010. China’s ambitious Belt and Road Initiative seeks to finance the building of ports, roads, airports and other infrastructure from Asia to Africa to Europe. (Photo By Gmbsfd – Own work, CC BY-SA 4.0)

The BRI is a prime example of Beijing’s approach to the post-World War II multilateral system. Unlike the Soviet Union, it does not seek to export its communist ideology. And unlike the United States, it does it seek to promote democracy or shape other nations’ political systems (lest its own authoritarian system come under scrutiny).

It does, however, seek to increase its global influence and restore its prestige after what it sees as decades of Western dominance through a policy of political noninterference coupled with economic investment.

It’s a strategy that has won some converts in the developing world who felt neglected by the West — or did not want to abide by the good-governance strings attached to Western aid and investment. So, despite concerns about the BRI’s debt trap diplomacy and potential security threats, many governments from Asia to Africa to even Europe have welcomed the much-needed investment to build up their infrastructure.

In fact, according to the Council on Foreign Relations, more than 60 countries, representing two-thirds of the world’s population, have signed on to, or expressed interest in, Chinese-financed projects such as the development of railways, highways, bridges, dams, seaports, energy pipelines and the creation of special economic zones.

There are parallels in the competing views on Huawei. For the West, the Chinese telecom equipment maker is a security Trojan horse. But for developing countries, Huawei represents the only feasible way to build up the high-speed 5G networks needed to grow their economies. If the U.S. continues its blacklisting of Huawei, some fear it could lead to the bifurcation of the internet, forcing countries to choose between the U.S. and China — reminiscent of the choice countries were forced to make between the U.S. and the Soviet Union during the Cold War.

President Donald Trump delivers remarks on America’s 5G deployment strategy on April 12, 2019, at the White House. Unlike China, the United States does not have a national 5G strategy. (Official White House Photo by Tia Dufour)

And while the Trump administration argues that Huawei’s growth was made possible by its alleged links to the Chinese Communist Party and its intelligence apparatus, the fact remains that the company has invested heavily to become a center of innovation that produces high-quality, lower-cost technology.

In fact, China has prioritized developing its own advanced technologies to decrease its reliance on foreign suppliers. The strategy is part of “Made in China 2025,” an ambitious national policy to surpass the United States as the dominant global player in high-tech manufacturing, which includes industries such electric cars, telecommunications, advanced robotics and AI.

That’s why many Democrats — including presidential nominee Joe Biden — argue that punitive measures against China’s trade and technology practices are only one side of the coin.

The other side is investing in American innovation at home — just as China is doing.

To that end, a group of Democratic senators recently introduced the America Labor, Economic Competitiveness, Alliances, Democracy and Security Act (America LEADS) to invest $350 billion over a decade to shore up the nation’s manufacturing, infrastructure, science and technological capabilities.

“I would never bet against America when it comes to innovation as being the key to future competitiveness,” O’Sullivan of the Trilateral Commission said.

But she pointed out that China has — at least until recently — been the global leader in investment in renewables and energy technologies. Whether China maintains and expands that lead is an open question given the need to stimulate domestic growth in the wake of COVID-19. Still, China’s head-start has left a gap in innovation leadership, and the U.S. has “no time to waste if it wants to be able to lead in innovation,” she said.

Money Talks — And Silences

The tremendous economic gains that China has made now allow it to flex its muscles and prevent foreign businesses from speaking out against the country’s controversial policies.

When, in October, the general manager of the Houston Rockets posted “Fight for freedom. Stand with Hong Kong” on his Twitter account, “Chinese sponsors pulled funding from the Rockets, merchandise disappeared from e-commerce sites, and state television cancelled broadcasts of games,” Evan Osnos wrote for The New Yorker.

Rather than coming to the general manager’s defense, the NBA released a statement saying it was “disappointed in the inappropriate remarks.” Still, the NBA suffered substantial financial losses in what is the NBA’s biggest market outside the U.S.

The kowtowing is not too surprising. China is a market many companies cannot afford to ignore. It is home to 20% of the world’s population. It is more investor-friendly than other emerging nations like India and Brazil. And it accounts for a substantial portion of profits for huge multinationals such as Apple, KFC, Boeing, General Motors, Nike and Walmart.

Skyscrapers and cars make up the bustling skyline of Shanghai. Unlike the Cold War with the Soviet Union, China does not seek to export its communist ideology. Rather, it spreads its influence via economic might. (Image by wei zhu from Pixabay)

As Hass acknowledged, “U.S. companies have fiduciary responsibilities to their shareholders to maximize profit. And at the moment, there are still a significant number of companies that consider China important for their competitiveness.”

Haas argues that Beijing is not throwing its economic weight around to take the reins of global leadership — and all of its responsibilities.

“China is opportunistically revisionist. They’re not seeking to upend the entire international order, but they’re also not a status quo power. Their proximate focus seems to be making changes on the margins to make the world safer for its form of government. They would like to erode international support for democracy, individual rights and Western-led standard setting,” Hass told The Diplomat.

China’s success in pursuing economic growth while preserving its authoritarian system has led to questions about what the U.S. can do to compete with — or even live with — a no-longer-rising, but risen, China.

Portraits of Mao Zedong and Chinese President Xi Jinping are seen in a shop in China.

Is a Coherent U.S. Counter-Strategy Possible? 

One might get the impression from Trump administration officials’ tough talk of “decoupling” — such as the president’s threat in early May to “cut off the whole relationship” — that there has been a pendulum-swing from Obama’s “strategic engagement” to Trump’s new confrontational competition.

Former Defense Secretary Ash Carter’s 2018 report that proposed building an “inclusive” and “informal network” of relationships in Asia — “inclusive” in that China would be a welcome member — feels long ago.

But Kurt Campbell, Obama’s China hand, and Jake Sullivan, director of policy planning in Obama’s State Department, wrote in Foreign Affairs last year that “the era of engagement with China has come to an unceremonious close.”

Today, despite the polarized atmosphere, there’s rare bipartisan consensus that the U.S. needs to take a tough approach to China.

Still, some experts warn that the U.S. shouldn’t go too far and risk another cold war.

“It should seek to achieve not a definitive end state akin to the Cold War’s ultimate conclusion but a steady state of clear-eyed coexistence on terms favorable to U.S. interests and values,” wrote Campbell and Sullivan. “Such coexistence would involve elements of competition and cooperation, with the United States’ competitive efforts geared toward securing those favorable terms.”

To a degree, that is already happening in Congress. For example, lawmakers on both sides of the aisle have called for the White House to appoint a senior official to coordinate a national 5G policy.

Hass said U.S. policymakers will have to walk a difficult diplomatic tightrope.

“I’m not trying to offer a Pollyannaish argument about, ‘Can’t we all get along?’ I’m saying that China presents real challenges, another one of which is that China is a strong economy at the heart of the global economy. The Soviet Union was not. And because of that, it requires more diplomatic dexterity for the United States or others to rally collective pushback against China in our areas of concern,” he said.

Exploiting the Internal Discord

Westad argues that the United States should exploit growing internal discord in China, where some fear there has been “an element of overreach” in the government’s policies and that “the trade wars were to some degree self-inflicted.”

Those fears have only been heightened by the economic damage wrought by COVID-19.

But U.S. policymakers will still have to tread carefully because while many in China have grievances against their government, they also feel the West hasn’t given their country the recognition it deserves.

After all, China has lifted more than 850 million people out of poverty — more than two and a half times the total population of the U.S. — and became the largest individual contributor to global economic growth over the last decade.

This nationalist pride is embodied by the country’s powerful president, Xi Jinping, who has declared that — after a century of war, famine, domestic dysfunction and foreign dominance — “No force can stop the advance of the Chinese people and the Chinese nation.”

But some in China now wonder if Xi has overplayed his hand with controversial policies, among them: launching a major crackdown in Hong Kong; interning over one million Uyghurs; creating a massive surveillance state; militarizing the South China Sea; concealing information about the pandemic; and embracing protectionist, exploitative business practices that have alienated not only the U.S., but also nations around the world.

There has been growing discord within China’s Communist Party over whether the country has overreached in its foreign policies. (Photo: Dong Fang)

According to Westad, “There is enormous disagreement within the Chinese leadership, with some people saying, ‘We have to stand tall. We have to make sure that we’re not taken advantage of. What Trump is trying to do is an economic containment of China. In reality, it’s not about trade; it’s about stalling China’s rise.’”

The other side in the debate argues, “The last thing China wants at the moment — the very last thing China wants — is trade wars that would seriously impact the Chinese economy at the moment when the Chinese economy is in transition,” Westad said.

The key to a successful U.S. strategy that furthers its own interests in a multipolar world — with China as one of those intransigent, unmovable poles — could lie in exploiting these internal disagreements.

“So there has to be a strategy somewhere on the U.S. side that’s looked at these Chinese debates and says, ‘OK, so this is where we want to move in making use of the various division points and the various uncertainties or even fears that there are on the Chinese side, not just in the short run but in the intermediate- to long-run as well,’” Westad said.

Ryan R. Migeed (@RyanMigeed) has contributed to The Washington Diplomat since 2017. He is currently studying national security law at The George Washington University Law School.