No “New Cold War” Between U.S. and China

Illustration: Craig Stephens

People like stretching historical analogies over present-day problems, even when they don’t quite fit. It’s no wonder that the United States’ competition with China in trade and technology has been widely dubbed the “new cold war”, though it bears only a superficial resemblance to that period of ideological conflict.

What the world faces now is much more complicated than that. We’re entering a chaotic period of shifting, unprincipled relationships. It’s not a competition between the “free world” and “authoritarianism” any more but, rather, a world divided against itself, chasing short-term gains as nationalism rises.

Over the last several years, the values and opportunities that China and the US represent to the world have changed at a pace unique in recent history. Most countries have successfully navigated between China and the US, but if relations between the two sour much further, the pressure on other countries to choose sides might be impossible to ignore.

Countries are caught in the middle of a non-ideological battle between economic powerhouses.The US has changed dramatically under President Donald Trump. He has elevated an anti-immigrant, anti-global, anti-free trade agenda, targeting allies and competitors alike. He wields tariffs like a bludgeon over any country he determines to be working against his interests, ranging from Mexico (in the name of stemming the flow of illegal immigrants) to potentially Australia (on who knows what whim).

And he has trampled on cherished democratic norms and the legitimacy of the constitution, Congress, and courts. Gone are the days of the US as a beacon of human rights and open markets, and as the land of seemingly unending opportunity.

Other countries are noting that the world of strict alliances and the spheres of influence are changing. Consider the historically close ties between the US and the Philippines, which includes the Mutual Defence Treaty of 1951. Manila now seeks to re-evaluate the agreement that requires each side to go to the other’s aid in case of an attack. The Philippines conducts military drills with the US, but also takes part in Chinese-led naval exercises – even though Beijing currently controls territory in the South China Sea that Manila sees as its own.

Clearly, the Philippines feels compelled to sit on the fence, as do many other countries. Singapore drills with both the US and Chinese navies. Japan, a strong military ally of the US, has signed a cross-border investment agreement with China. Germany refuses to rule out the use of Huawei mobile-internet equipment despite Washington’s threat to cut off intelligence sharing with Berlin if it does not drop the Chinese vendor.

China is also changing rapidly. After decades of stellar growth, its economy is slowing and its export growth to countries around the world can’t go on forever. Beyond growth, politics is increasingly influencing business.

Source: CNBC

In the past, as long as countries avoided direct criticism of the Chinese government, they could keep access to the lucrative mainland market. Now, companies are increasingly targeted for purely political purposes and a blacklist is reportedly being created that might include US tech companies and Japanese firms that will no longer work with Huawei. Earlier this year, an unofficial Chinese ban on Australian thermal coal imports looked suspiciously like payback for Canberra’s decision to block Huawei, too.

China’s global campaign to win friends and influence neighbours worked well. Beijing spoke of biding its time and rising peacefully, and most observers didn’t bother to consider what China was biding its time for. However, its aggressive campaign to militarise the entire South China Sea has since shattered illusions of peaceful coexistence under international law.

A military build-up sized more for a global role has also became evident with China’s development of a third aircraft carrier and an army of state-backed hackers targeting foreign countries and companies at an alarming rate. Port agreements around the world have also raised the alarm about China’s naval expansion along with its global economic interests. To even the casual observer, a defensive posture is evolving into an offensive capability.

And here lies the danger of rushing into war rhetoric – trade war, cold war or otherwise. For the lens through which we view the world also limits what we see.

In war, one side wins, the other loses. In the complex world of international relations, however, that’s often not the case. The more that the antagonistic aspects of the US-China relationship get hyped, the less room there is to negotiate. People may then erroneously believe that conflict is inevitable.

At this moment in history, neither the US nor China represents an ideal to the rest of the world. Both want the world to conform to their specific versions of economic success. Both are challenging what it means to be allied with other nations. Tight configurations have loosened.

If the global order fractures along fault lines, there won’t be two sides like in the cold war, but many chaotic fragments that will be hard to make whole again.

This op-ed originally appeared on the SCMP website.

“Brand America” Falls Out of Favor With Foreign Investment

Trump understands that brand matters, and the latest version of brand America is failing badly. At this year’s World Economic Forum in Davos, business executives expressed not only concern, but outright dismay, over the investment climate in the U.S. And they aren’t just sitting on their capital waiting for better days.

Investors are voting with their money and heading for other countries. The statistics for Foreign Direct Investment in the U.S. (FDIUS) show a troubling trend. In the second quarter of last year FDI turned negative, a reversal of fortune not seen in years. That followed a drop of 41% year-on-year to $277 Billon in 2017, after peaking at nearly $472 billion 2016, according to U.S. government data.

Cyclical Decline in Foreign Direct Investment to the U.S.

Companies including Tesla, Unilever, and Foxconn are looking elsewhere to invest due in part to the uncertainty around the U.S.-China trade war. Imports and exports have been hit along with supply chain disruptions. While the upcoming trade talks in Washington were bathed in a positive light from governments on both sides of the Pacific, the outcome has been thrown into serious doubt after the Department of Justice announced criminal charges against Huawei and its CFO Meng Wanzhou. 

She is currently detained in Canada on an extradition request that is now sure to move forward. Trump has said he may intervene in her case if it serves the trade talks and U.S. national security. What he can actually do, politically or legally, remains unclear.

Trump Has Few Options
on Huawei Sanctions Trouble

The souring on brand America isn’t just about China trade disruptions. Trump’s immigration policies, his tacit acceptance of jingoistic and racist dog whistling by his most ardent supporters, and the perception that the U.S. is retreating from global affairs is turning away international students that might otherwise invest in a coveted U.S. education.

Enrollment in undergraduate programs dropped for the second year in a row with a 6.6% fall for 2017-2018. That’s putting new strains on colleges and universities that have grown accustomed to full-tuition paying foreign students.

The longer term cost to the U.S. will show up in worker shortages, primarily in science, technology, engineering, and math disciplines. These professions are already woefully short on trained graduates and unfilled jobs create a drag on economic growth.

While the administration touted $1.5 trillion dollars in corporate tax reductions that began in 2018, a survey by the National Association of Business Economics shows that companies are not in fact spending more. Trickle-down economics didn’t work under Reagan and it certainly isn’t working now even with a new, slick cover promising to make America great again.

A brand is only as good as what it delivers and so far Trump’s promises made continue to be promises broken. The U.S. accumulated a lot of good will over the decades. That hard-earned reputation is now at risk of being destroyed in only a few years.

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