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The 21st century Cold War

How the superpowers compare. It’s impossible to predict the final outcome of the competition between the two major world economies.

by Minxin Pei
03 February 2020
16 min read
byMinxin Pei
03 February 2020
16 min read

This article is taken from World Energy (WE) number 43, "The Challenge". Read the magazine.

Judging by their rhetoric and action, the United States and China, the world’s two largest economies, are clearly headed toward a long-term strategic confrontation or, if you will, the 21st century version of the Cold War.  The return to great power rivalry is undoubtedly a geopolitical tragedy.  But in retrospect, it appears almost inevitable.  The leading cause is obviously the rapid change in the balance of power between these two countries that has resulted in America’s relative decline and rising anxiety about the loss of its global hegemony to China.  These startling numbers tell the most compelling story about the unfolding U.S.-China cold war.  In 1992, the year after the implosion of the Soviet Union, the Chinese GDP, measured in US dollars, was about 7 percent of the U.S.  Today, it is about 65 percent.  In other words, the gap of power between China and the U.S., in terms of the size of its economy, is now almost ten times smaller than 27 years ago.

To be sure, there are other factors driving the two countries toward conflict.  The rise of Xi Jinping, a strongman with an ambitious global agenda and a huge appetite for risk, led to the abandonment of China’s long-standing grand strategy of keeping a low profile on the global stage and avoiding conflict with the U.S. at all cost.  His signature foreign policy moves, such as building and militarizing artificial islands in the South China Sea and launching a $1 trillion global infrastructure project known as the Belt and Road Initiative (BRI), have only convinced America that China is now openly challenging its hegemony.  The constant frictions between China’s brand of state-capitalism and America’s free-market capitalism have greatly further exacerbated trade tensions and now threaten to unravel their $660 billion bilateral merchandise trade.

Conflict of geopolitical interests and ideological values

Given the fundamental conflict of geopolitical interests and ideological values between the U.S. and China, their strategic rivalry will likely be open-ended and last decades.  While some of the features of the U.S.-China strategic competition will resemble those of the Cold War, such as an arms race and jockeying for allies around the world, it will also differ qualitatively from the Cold War in two critical respects.  First, unlike the Cold War, which was essentially about containing the Soviet Union’s land-based military threat to Western Europe and nuclear threat to the U.S., the new “cold war” between the U.S. and China will be, in geopolitical and military terms, primarily a maritime conflict in the waters surrounding China.  That’s because none of the major countries with land borders with China, except for Vietnam, is an American treaty ally or possesses nuclear weapons.  This reality means the U.S. and China are unlikely to waste their resources preparing for a full-blown land war.  At the same time, American maritime dominance threatens China’s trading routes and security.  This situation is especially serious on China’s eastern seaboard because the U.S. is the treaty ally of Japan and South Korea and provides an implicit security guarantee to Taiwan, which China regards as a renegade province.

But America’s maritime dominance and alliance network are much weaker to China’s south.   Among countries in Southeast Asia, its only treaty ally is the Philippines.  Australia, another U.S. treaty ally, is too far away.  Most importantly, the U.S. maritime presence in the South China Sea is a shadow of itself after the closure of American naval and airbases in the Subic Bay and Clark in the Philippines more than two decades ago.  The relative weakness of the U.S. in this part of the world, coupled with the South China Sea’s potential energy resources and its importance as a critical sea lane for global commerce, makes Southeast Asia one of the key theatres of strategic competition between the U.S. and China in the coming decades.

The second qualitative difference between the unfolding U.S.-China conflict and the U.S.-Soviet Cold War is the role of technology.  With the world poised on the brink of another technological revolution featuring artificial intelligence, big data, 5G wireless communications, and quantum computing, it is commonly understood that whoever leads this race will likely gain insuperable military and economic advantages.  During the Cold War, the Soviet Union and the U.S. also engaged in a technological race, but that was limited exclusively to military applications.  Today, the technological competition between the U.S. and China is both commercial and military.  Indeed, judging by the ferocity of Washington’s campaign against Huawei, the Chinese telecom giant that leads the 5G race, it is no exaggeration to say that the U.S.-China “tech war” will be focused more on commercial than military applications in the years to come.

US-China strategic competition in Southeast Asia

As America’s maritime dominance and alliance networks in Southeast Asia are far less robust than in Northeast Asia, China can exploit this relative weakness in competing against the U.S.  The contours of Beijing’s three-pronged strategy in Southeast Asia are becoming more visible.  The most important prong is economic engagement through trade and investment.  China is the largest trading partner of Association of Southeast Asian Nations (ASEAN), which encompasses all the countries in the region.  In 2018, two-way merchandise trade between China and ASEAN reached $587 billion, more than twice the two-way merchandise trade between the U.S. and ASEAN in the same year ($272 billion).  Direct investment from China (and Hong Kong) in ASEAN in 2017 was $19 billion, almost three times that of the U.S. in the region.  In 2018, China was also the largest source of international visitors to the six major ASEAN countries (Indonesia, Thailand, Malaysia, Vietnam, the Philippines, and Singapore), accounting for 20 percent of their 120 million international tourists. Obviously, by integrating its colossal economy with those of Southeast Asian countries, China hopes to make it very costly for these countries to line up with the U.S.

The second prong is intensification of diplomatic engagement.  Taking advantage of its geographical proximity, China is able to maintain an active schedule of high-level visits to ASEAN to boost diplomatic ties.  President Xi Jinping has visited nearly all the key countries in the ASEAN – Malaysia and Indonesia in October 2013, Singapore in November 2015, Cambodia in October4 2016, Vietnam in November 2017, and the Philippines in November 2018.

The last prong of China’s strategy is to undermine the credibility of America’s security commitments in the region through the expansion of its military presence and escalation of intimidation against Vietnam and the Philippines, the two key claimants in the South China Sea dispute.  The most critical step taken by China is, without doubt, the building and subsequent militarization, of artificial islands in the disputed areas of the South China Sea.  Although the military utility of these islands is probably marginal in the event of an outright conflict with the U.S. (they can be easily destroyed by American firepower), the psychological impact of China’s escalation cannot be underestimated.  By demonstrating to ASEAN nations that even the U.S. could not stop it from building and militarizing these islands, Beijing wanted to send the message that these nations should not count on the U.S. to come to their aid in the future because Washington’s pledge has been proven to be hollow.

Obama’s “pivot to Asia” and the Bush breakthrough

To be sure, Washington began to counter China’s three-pronged strategy in 2010 when the Obama administration announced its “pivot to Asia” strategy.  However, so far its results are mixed.

On the economic front, the U.S. supported the Trans-Pacific Partnership (TPP), a free-trade zone that explicitly excluded China.  The long-term strategic objective was to reduce Southeast Asian nations’ dependence on trade with China.  Unfortunately, domestic political opposition to free trade in the U.S. delayed the ratification of TPP in Congress and, after Donald Trump won the presidential election in 2016, the first thing he did upon entering the White House was to withdraw the U.S. from the TPP, effectively ceding Southeast Asia to China’s ever-growing economic influence.  Of course, Trump’s position could change.  Should the U.S.-China trade war escalate to the full extent, we can imagine that the U.S. will be tempted to return to the TPP after the 2020 presidential election.  In fact, the second Trump administration, freed from re-election concerns, would be even more likely to re-join the TPP than a new Democratic administration.

In response to the lack of diplomatic engagement under the administration of George W. Bush, the Obama administration paid greater attention to ASEAN.  Besides more frequent cabinet-level visits, President Obama himself visited Southeast Asia multiple times (Indonesia in November 2010, Thailand in November 2012, the Philippines in April 2014, and Vietnam in May 2016).  President Trump also visited the Philippines and Vietnam (respectively in 2017 and 2018), the two countries that have vigorously contested Chinese claims in the South China Sea.

Militarily, American response to Chinese actions has been subtle but firm.  Washington has intensified its freedom of navigation operations (FNOPs) around the islands China has built or seized to challenge China’s sovereignty claims, and is planning large-scale  naval exercises joined by its major allies, such as Japan, Australia, and the United Kingdom, to demonstrate its resolve of pushing back against Chinese expansion in the South China Sea.  The U.S. has also increased military aid to the Philippines and Vietnam and signed new basing agreements with the Philippines to deter further Chinese aggression.

It is too early to tell which country will prevail in their strategic competition in Southeast Asia.  Each country possesses unique advantages and disadvantages.  The most valuable asset the U.S. has is the desire of most Southeast Asian countries for the U.S. to continue to serve as the protector of the region’s peace.  Its chief disadvantages are the tyranny of distance and the growing isolationism, unilateralism, and protectionism of the Trump administration.  As for China, its primary advantage is its geographic proximity and the powerful pull of its giant market.  But this is counterbalanced by its neighbors’ fear of its bullying and domination.  So for the foreseeable future, we are likely to see an inconclusive contest between the U.S. and China in this vital region, with most ASEAN countries refusing to take sides in this titanic clash.

The race for technological domination

If China has a slight advantage over the U.S. in competing for influence in Southeast Asia, it is a clear underdog in the tech race, the second front of the unfolding U.S.-China cold war.  As the global leader in technology, the U.S. seems to have little fear from China, which has a quarter of its per capita income and is considered a technological laggard.

Yet, judging by Washington’s fevered rhetoric about China’s infamous “Made in China 2025” program and America’s unrelenting campaign against Huawei, one can easily develop the impression that the U.S. is slipping behind.  In the short-to-medium term, such fears may be unnecessary.  American technological dominance, by any standard, is certain to endure.   In terms of fundamental research, the U.S. continues to a disproportionate number of Nobel Prizes in medicine, chemistry, and physics while only one Chinese scientist has won one of these prizes.  American research universities remain the best in the world.  U.S. companies dominate leading technological sectors, such as new materials, biotech, aviation, software, and semi-conductors. 

However, Washington is right not to be complacent because China is catching up fast.  The rapid growth of the Chinese economy now allows the country to invest more in R&D.  In 2017, total R&D spending in China was $445 billion, not too far behind the $538 billion in R&D investment in the U.S., the global leader.  In terms of talent, China can draw upon its large pool of scientists and engineers (even though America’s openness still gives the U.S. a considerable edge in attracting top-flight talent unless the Trump administration’s anti-immigration policy destroys this advantage).

As China continues to close the technological gap with the U.S., the primary theatre in their race for technological dominance is emerging technologies, such as AI, 5G, and quantum computing.  The reason why these new technologies are regarded by both the U.S. and China as critical to their future security and prosperity is two-fold.  First, these technologies are disruptive and can radically alter the landscape of economic and military competition between the U.S. and China.  Whoever gains an initial lead could reap outsize benefits and even gain lasting dominance.  Second, while the U.S. possesses enduring edge in some critical sectors such as semi-conductor, materials, and aviation, its lead over China in these frontier technologies is relatively small, if not non-existent, since scientists and engineers in both countries are roughly at the same starting point.  This raises the odds that China may outrace the U.S. in the acquisition of certain frontier technologies (as is now apparently the case in 5G, which Huawei is ahead of its Western rivals).

American response to these risks is a strategy focused on denying China the access to frontier technologies.  So far we can see several components of such a strategy.  One is to restrict access of Chinese scientists and students to leading American universities by denying or limiting their visas.  Intensification of a crackdown on economic espionage focused on ethnic Chinese scientists and engineers in the U.S. is also designed to plug suspected leakage of key technological secrets to China.  Revised national security reviews regulations now make it all but impossible for Chinese entities to purchase U.S. companies with advanced technologies. The American campaign against Huawei, which deploys criminal prosecution, pressures on allies to ban Huawei from their 5G networks, and potential denial of access to U.S.-made technologies, seeks to prevent the Chinese telecom giant from dominating the 5G space.  There is even talk in Washington of resurrecting the Cold War-era Coordinating Committee for Multilateral Export Controls (CoCom) so that the U.S. and its allies can work more closely to deny China access to advanced technologies.

The USA is predicted to win

While it is impossible to predict the eventual outcome of the unfolding U.S.-China strategic competition, the odds at the moment appear to favor the U.S.  It not only is a stronger power, but also has more allies and more robust and efficient domestic institutions.  But the outcome in individual theatres of their battle for global supremacy is likely to be different.  For instance, their fight for geopolitical influence in Southeast Asia advantage is likely to be inconclusive because they are more evenly matched in the region in terms of their capabilities.  At the same time, odds favor the U.S. in winning the race for emerging technologies simply because it possesses not only far greater capabilities and incumbent advantages but also because it has – and is willing to use – all the tools at its disposal to prevail against China.

The author: Minxin Pei

An expert on governance in the People’s Republic of China, U.S.-Asia relations and democratization in developing nations, he serves as the director of the Keck Center for International and Strategic Studies at Claremont McKenna College and is a non-resident senior fellow with the Asia program at the German Marshall Fund of the United States.