As tensions between China and the United States are escalating, there is much talk among scholars and commentators about a new Cold War between the two powers. US officials have also indicated that they are thinking of relations with Beijing in those terms. Yet, the situation in global politics and economy today is quite different from the post-World War II era, when the Soviet Union and the US faced off. Back then, countries were stuck between a rock and a hard place and had to choose a side.
Of course, there was the non-aligned movement, which promoted decolonisation and sought to stave off an escalation into a nuclear war between the USSR and the US, but many of the members of the movement still had to choose a camp to join. What sphere of influence a country would fall into was determined not only by ideology and the interests of political leaders, but also by threats and coercion coming from the great powers. Indeed, throughout the Cold War, Washington and Moscow backed a series of coups and insurgencies in Africa, Latin America and Asia, trying to sway countries into their spheres of influence. Today, the ability of superpowers to instigate regime change with impunity is considerably more limited. That is because they risk an immediate and massive backlash from global public opinion, which is amplified by technological interconnectedness and social media. Furthermore, China, unlike the Soviet Union, is not just a strategic rival to the US, but also an economic one. This means countries caught in the middle of the China-US rivalry would be able to “bargain” not just on defence but also on economic terms.
Globalisation also makes the choice of exclusive alignment much more costly. Today, choosing a side would mean turning one’s back on economic gains from investment and trade with the other camp. That is why it is unlikely that history will repeat itself and deliver a cold war similar to the one in the previous century. The tensions between the US and China are playing out in a different way in the global arena today. Alignment, for example, is not exclusive, as states try to engage with one power in one sphere and with the rival in another. This means that the process of de-globalisation which some observers have warned about is unlikely to dominate in the coming years. Instead, what we are likely to see is re-globalisation. That is, globalisation is taking a new path that is defined by global interconnectedness due to technological advances and which is no longer solely driven by the pursuit of efficiency in trade and investment. In other words, the process which in the past created global supply chains and entangled great powers and smaller countries into tight trade relations is changing to reflect new global realities.
Tensions between the US and China and their attempts to isolate each other economically are influencing trade and investment decisions. Superpowers now have new considerations in approaching trade relations, such as the security of supply and rewards for partner countries. The US and its allies are arguing that outsourcing production in key industries to China and maintaining a high level of technological integration with Chinese companies are threatening national security. That is why they have started moving such production to other countries which may not provide the best conditions for it from an economic standpoint but which are nevertheless perceived as more politically dependable. Small and middle countries are, thus, being rewarded with investment and trade or even aid for helping with this process of “decoupling” – or “derisking”, as European Union Commission Chief Ursula von der Leyen recently called it. Instead of just offering lower taxes to foreign corporations and reducing the cost of doing business, smaller countries can now take advantage of these new geopolitical rents from the great powers, which have to spend much more political and economic capital to create new allies and keep old ones. Countries at the forefront of that re-globalisation include large emerging markets, exporters of fossil fuels and critical materials for the energy transition and digitalisation, and countries in geostrategic locations. Large emerging markets such as Brazil, India, Indonesia, Mexico and Turkey are flirting with both superpowers and making the most of their multi-layered relationships. Gulf countries, especially Saudi Arabia, have long been exclusive allies of the US which was backstopping their security in exchange for energy supply. That exclusive relationship is shifting, not least, because the US has become energy independent. China, which has become a major importer of oil from Saudi Arabia and other Gulf countries, is gaining influence in the region. Gulf countries are now courted by the two superpowers and that allows them to get political and economic favours from them more easily.
In Africa, countries, such as the Democratic Republic of the Congo (DRC) have long been open to large investment projects in infrastructure and mining from China. Today, the US and its European allies are also engaging the DRC, trying to pull it closer with promises of vast export markets for its raw materials, major investments and development of their electric vehicle battery value chains. By contrast, the Solomon Islands, which is located in the South Pacific, an area of a traditionally strong military presence by the US and its allies, has recently rebalanced its relationship in favour of China. The island nation not only granted Beijing major infrastructure projects to develop, including ports, but it also signed a new security pact with it, which could pave the way for a Chinese military base on its territory, considerably expanding its reach in the region. While some nations may benefit from China-US tensions, the world as a whole is likely to suffer. This is because re-globalisation will undoubtedly lead to a loss in economic efficiency and potentially exacerbate poverty. Trade and investment flows overall are likely to decrease, undermining the economies of many developing countries. This would curb wealth and job creation and affect millions of households.
Furthermore, re-globalisation will not mitigate the risks associated with the growing tensions between the US and China. The conflict in Ukraine, which some see as a proxy war between the US and China, and tensions over Taiwan reflect the dangers of their rivalry. The temptation of the two superpowers to weaken each other by provoking regional conflicts could heighten the risk of direct military confrontation.
In this respect, the new cold war resembles the old one, with the shadow of a global war and nuclear annihilation looming large. Lessons from history must be learned and the US and China need to establish effective mechanisms of de-escalation. Dialogue and trust building between the two superpowers could limit the economic and geopolitical fallout of their clash for the rest of the world.