US-China competition not the same as a Cold War

By URBAN C. LEHNER

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During the Cold War, trade between the combatants was minimal. In 1989, a relatively robust year, US-Soviet two-way trade totaled US$5 billion, less than 1% of total US trade. The US imported only $700 million in Soviet goods that year.

Thirty years later, the trade numbers with another rival nation are orders of magnitude bigger. US-China trade in 2019 totaled $558 billion, more than 10% of America’s trade with the world.

Tense exchanges between the US and China have become a nearly everyday affair, so it’s understandable that the term Cold War is back in vogue. Google “Cold War with China” or “New Cold War” and you’ll get hundreds of millions of results. I confess, I’ve used the term once or twice myself.

But ultimately it’s a misleading term. The two countries are engaged in a serious and often antagonistic competition, no question. But the Cold War is the wrong historical analogy.

Trade with the Soviet Union was a half-hearted, tactical affair. American companies built plants in Russia in the 1920s and 1930s but after World War II investment was rare, technology transfer rarer.

When you’re in a nuclear arms race with another country, you don’t do anything to strengthen its industrial base. (At times during the Cold War from 60% to 80% of US exports were agriculture products.)

No nuclear arms race

As contentious as the US-China relationship has become, it’s not a nuclear arms race. Moreover, both sides have already done much to strengthen each other’s economy.

In addition to a voluminous trade, consider the investments. As of the second quarter of 2020, the United States had $258 billion invested in factories and other facilities in China while China had $154 billion in such investments in the US.

Thus, the two countries are economically interdependent in a way the US and the Soviet Union never were. They are definitely rivals, serious rivals, but they both benefit from the interdependence. The nature of their rivalry, then, will inevitably be different from the US-Soviet rivalry.Then Chinese Vice President Xi Jinping and US Vice President Joe Biden at a luncheon in a file photo. Image: AFP/Getty Images

Many talk of an American “decoupling” from China, but there are limits to how much decoupling is likely to take place. That’s clear even to China hawks such as Matt Pottinger, who was President Donald Trump’s main China advisor.

“No one in Washington is seriously threatening a wholesale decoupling of the two economies,” Pottinger writes in a Wall Street Journal op-ed piece. “That’s a straw-man argument put forward by Chinese propagandists and a few alarmists here at home.”

But as Pottinger goes on to say, “Decoupling of a more limited variety – particularly in key technologies – is well under way, as it should be.”

As I’ve noted previously, President Joe Biden’s call for $50 billion in incentives for semiconductor manufacturing targets that industry for partial decoupling.

If decoupling remains selective, economic interdependence will continue even as the US and China compete economically, technologically and ideologically. The Cold War playbook will be of limited value in dealing with this somewhat contradictory situation. A new strategy and new tactics will be needed.

American high-tech companies will have to do more of their manufacturing domestically. Consumer-products companies will have to navigate between the conflicting demands of politically motivated consumers in China and the West.

The Swedish clothing company H&M learned this the hard way when Chinese consumers, egged on by state media, boycotted its products. Its products disappeared from online searches. The location of its stores disappeared from map apps.

H&M’s sin? Promising not to use cotton from China’s Xinjiang province. H&M had said it was “deeply concerned” about reports of forced labor there.

A week after the boycott began, H&M began pulling its punches, saying it was working to restore the trust of Chinese customers. Problem is, if it bends too far to please China H&M risks being boycotted by socially conscious Western consumers.A worker is seen inside a cotton mill in southern Xinjiang. Chinese state media say not too much manual labor, let alone forced labor, is involved in the region’s cotton production. Photo: Xinhua

As a Wall Street Journal article put it, “A new consumer decoupling between China and the West – driven less by security concerns than by values and nationalism – may have begun.”

Optimists reason that while Chinese officials frequently stoke the nationalistic fires, they won’t want to see large-scale consumer decoupling. They know their companies could become the targets of consumers in the US and Europe.

They also know some foreign companies are important players in China. A Bloomberg opinion piece points out that Nike’s products are still available on the Chinese internet even though Nike, too, has said it avoids Xinjiang cotton.

“Perhaps that’s because Nike accounts for more than a fifth of the Chinese sportswear market, and thus a tremendous amount of jobs and sales,” the Bloomberg piece opines.

Pessimists such as William Reinsch of the Center for Strategic and International Studies (CSIS) see what Reinsch calls a “train wreck” ahead. China’s behavior is getting worse, Reinsch maintains, making more sanctions and counter-sanctions inevitable. Western companies will find themselves in “untenable positions.”

They’ll be forced to choose between doing business in the US or China, with further decoupling the likely result.Derelict barn in a wheat field in northern Wyoming, USA. Photo: AFP / Aaron McCoy / Robert Harding Premium

American agriculture commodities, being unbranded, may escape the worst of China’s countersanctions. But it would be wise for American farmers to assume the pessimists are right and redouble their efforts to develop other markets.

If things go well, US agriculture will still have the huge and profitable Chinese market. If US-China tensions worsen, they’ll have a backup plan.

Whoever prevails, the optimists or the pessimists, the path ahead for America’s private sector will be an obstacle course. The new US-China relationship may not be a Cold War replica, but whatever it’s called it won’t be any fun.

Former longtime Wall Street Journal Asia correspondent and editor Urban Lehner is editor emeritus of DTN/The Progressive Farmer. This article, originally published April 19 and republished by Asia Times with permission, is © Copyright 2021 DTN/The Progressive Farmer. All rights reserved.