World feels the chill of another cold war

Donald Trump and Xi Jinping have tipped each other into a confrontation neither seems willing to abandon.

Illustration: Eric Lobbecke

Four months into the COVID-19 crisis, the world and Australia confront a worse problem — the ­descent into a version of cold war between the US and China, many years in the making but now apparently sealed in the great-power animosity unleashed by the virus.

The virus will be conquered by scientific, rational and logical public policy. But such elements are absent on the US-China front where Donald Trump and Xi Jinping have tipped each other into a confrontation neither seems willing to abandon, with escalation the most likely result.

The coronavirus pandemic that recognises neither nationality nor ideology should have brought the leading powers into co-operation but the opposite has happened — the threat to humanity has exposed the true descent in the US-China crisis. The warning lights are flashing on emergency.

A week ago an alarmingly ­erratic Trump warned he “could cut off the whole relationship” with China, saying bafflingly it would save $500bn, prompting China’s Foreign Ministry to call on the US “to abandon its Cold War and zero-sum mentality” — while Xi exploits the virus to push China’s trade and strategic interests yet engages in subtle accommodation of the “evaluation” resolution into the virus as pushed by Australia and the EU.

In his 30,000-word analysis for the Centre for Independent Studies, veteran analyst Alan Dupont argues a geopolitical transformation is under way — the US-China conflict over trade, technology, strategy and values “has precipitated a new cold war” that constitutes “an adversarial contest for global supremacy” between “diametrically opposed political systems and associated values compounded by their sense of exceptionalism”.

Dupont told Inquirer: “The test for Australia is not that often posed: having to choose between the US and China. The problem now is we need to rethink virtually every area of policy because our major trading partner has become actively hostile towards us and our principal ally is capricious and self-interested. Not only is this the most challenging security environment we have experienced since the second world war, it comes when we face the worse economic crisis since the Great Depression. It is a dual dilemma the like of which we haven’t ­experienced before.”

While assessments vary and many economists are appalled at the cold war label — correctly saying the trade conflict is an act of mutual self-harm — Dupont says the crisis far transcends a trade dispute. “The trade and tech wars are symptomatic of a deeper and more dangerous geopolitical divide,” he says in his CIS brief.

“China’s expanding toolkit ­includes propaganda, aggressive diplomacy, sophisti­cated disinformation campaigns, media manipulation, subversion, financial inducements, theft of intellectual property, lawfare, coercion and the use of economic and military pressure for strategic purposes.”

Dupont’s thesis is that China’s leaders decided some time ago their challenge to US primacy depended on matching and surpassing US military power projection in the Western Pacific and reversing the US lead in cutting-edge technology. The essence of China’s challenge as an authoritarian state lies in its “mobilising all elements of national power” with Xi’s method of political warfare resulting in a potentially more formidable adversary than the old Soviet Union.

China’s strategy is designed to expose the vulnerabilities of democratic states. But it also “reflects the ideology of an insecure state that feels imperilled by liberal values”. Dupont quotes China watcher Elizabeth Economy’s conclusion that Xi “considers constitutional democracy, human rights, academic freedom, judicial independence and freedom of the press as fundamental threats”.

Dupont identifies the six distinguishing features of the cold war: “First, the US-China conflict is between the world’s two most powerful states, one a liberal democracy and the other avowedly communist. Second, it is a system-wide contest for supremacy. Third, it is about ideology as well as national power. Fourth, it will be a multi-decade struggle for global ascendancy. Fifth, a second geopolitical bifurcation of the world is likely. Sixth, neither side wants a full-scale military confrontation.”

While a “hot war” remains a “distinct possibility”, a comprehensive political war will still be “corrosive” and the world will pay a price. It will “usher in an extended period of great-power competition that could roll back the gains from more than 70 years of trade liberalisation, disrupt global supply chains, Balkanise the internet and bifurcate the world into two mutually incompatible political systems”.

The personality and character of leaders Trump and Xi is pivotal. Xi abandoned China’s previous caution in favour of a drive to shift the regional and global order in China’s favour, while Trump ­rep­udiated the US global leadership model since World War II, launching an “America First” assault on China having decided it was the winner from the existing order.

Under pressure, Xi and Trump are only likely to double down on the narratives that underwrite their domestic power. The outlook is grim. Xi’s prospects of retaining power must be rated as superior to Trump’s prospects of re-election this year. But bedrock sentiment has changed. Historian Niall Ferguson says “middle America is awake to the Chinese threat, not just the elites”, while Xi has fanned China’s nationalism and turned it against the US.

In his recent Foreign Affairs article, Kevin Rudd wrote: “Neither a new Pax Sinica nor a renewed Pax Americana will rise from the ruins (of the virus). Rather, both powers will be weakened, at home and abroad. And the result will be a continued slow but steady drift towards international anarchy across everything from international security to trade to pandemic management. With nobody directing traffic, various forms of rampant nationalism are taking the place of order and co-operation. It may not yet be Cold War 2.0 but it is starting to look like Cold War 1.5.”

Dupont says the rethink in government attitudes in Australia began under Malcolm Turnbull and has accelerated under Scott Morrison. He says: “The realisation of how Beijing operates through a China Inc approach to the world and its use of political warfare is now broadly accepted within the Morrison government.

“Although the new cold war is playing out across the world, its geographic centre of gravity is the Indo-Pacific, not Europe. The US and China are both Pacific powers. Their rivalry will be felt most keenly in the Indo-Pacific, particularly in the maritime domain where their interests collide. North Korea and the East and South China seas are the most likely candidates, but Taiwan and Hong Kong are potentially arenas for conflict.

“Xi has elevated interference and influence operations into an art form, sowing discord in democratic societies and co-opting sympathetic or naive elites while cocooning his own people inside thickening walls of repression and control. This is classic asymmetric warfare because it plays to China’s strengths in political mobilisation and domestic control while exploiting the West’s relative openness.”

Dupont refers to the theories of two Chinese colonels, Qaio Liang and Wang Xiangsui, that the battlefield had changed, saying: “It was no longer a place where militaries met and fought. Instead, society itself was now the battlefield. Future wars would inevitably encompass attacks on all elements of society without limits, using military force, coercion, pressure and both lethal and nonlethal means to compel an enemy to accept one’s interests. The barrier between soldiers and civilians would be erased because the battle would be everywhere. The number of new battlefields would be ‘virtually infinite’ and could encompass environmental, financial, trade, cultural and legal warfare among others.”

Trump is fundamental to the tenor and nature of the emerging cold war. Dupont told Inquirer: “Many people have underestimated Trump’s ability to understand better than his predecessors the nature of the China challenge. Trump decided the US had to push back on all fronts against China otherwise it would be relegated to the status of a second-order power. It is an existential challenge for the US and I believe Trump realised that. In my view his core position is correct.”

The problem, however, is Trump’s pushback strategy. Dupont says: “It has been completely self-interested and alienated many other countries who are sympathetic to what Trump seeks to achieve vis a vis China, and that includes Australia. He has alienated the people who would be his normal supporters, the European democracies and democracies in Asia. His leadership qualities are poor and leadership is needed now more than ever. His shortcomings have been illuminated by his inchoate response to the coronavirus crisis. The more complex this becomes the more Trump’s lack of leadership and self-interest will be exposed.”

Rudd offers a savage indictment of both Xi and Trump. He predicts China’s economic growth this year will be zero, the worst since the Cultural Revolution. Its debt to GDP ratio is 310 per cent. The pandemic makes impossible the leadership’s goal of doubling GDP across a decade. “Contrary to the common trope, China’s national power has taken a hit from this crisis on multiple levels,” Rudd says.

As for the US, Rudd says Trump has given a demonstration of what “America First” means in practice — “Don’t look to the US for help in a genuine global crisis because it can’t even look after itself.” He says the US political establishment is more fractured by the crisis and the US economy is likely to shrink between 6 per cent and 14 per cent this year.

“The crisis appears to have shredded much of what was left of the US-Chinese relationship,” Rudd says. “In Washington any return to a pre-2017 world of ‘strategic engagement’ with Beijing is no longer politically tenable. A second Trump term will mean greater decoupling and possibly attempted containment, driven by Trump’s base and widespread national anger over the origins of the virus.”

Rudd says the Democratic nominee, Joe Biden, if successful, would pursue strategic competition and decoupling in some areas while leaving open some scope for co-operation in climate, finance and pandemics. China would prefer Trump because of his tendency to fracture alliances and withdraw from multilateral leadership, leaving opportunities for Beijing. Rudd says: “Strategic rivalry will now define the entire spectrum of the US-Chinese relationship — military, economic, financial, technological, ideological — and increasingly shape Beijing’s and Washington’s relationship with third countries.” Trump’s delegitimising of multilateral institutions means “an increasingly dysfunctional and chaotic world”.

A warning of Trump’s folly has been issued by Bob Zoellick, a former World Bank president, US special trade representative under president George W. Bush and friend of Australia, who has highlighted the immense benefits the US obtained from its previous generation-long co-operation with China.

‘Contest for supremacy’: Xi Jinping and Donald Trump. Picture: AFP

Warning against Cold War warriors who seek containment of China, Zoellick says that cannot work. Writing in The Wall Street Journal, Zoellick says the US cannot break the regime; it can impose costs on China “but to what end and at what price to Americans?”.

Zoellick says elsewhere that decoupling from China won’t stop its disruptive behaviour but only guarantee Beijing “will be less concerned” with the norms pushed by the US. “I’m not trying to say we’ll return to the 1930s but if you have an economic downturn exacerbated by pandemic risks and moves towards economic autarky, it can get pretty nasty,” he says.

Zoellick recalls the days of rational US Republican policy on China when Beijing cut its current account surplus from 10 per cent of GDP to near zero, when during the GFC it launched the largest stimulus to avert global depression, and from 2000 to 2018 when US diplomacy prodded China to support 182 of the 190 UN Security Council resolutions that imposed sanctions on states.

The ultimate question Zoellick poses is about results: what results is Trump getting for the US, for the American people and the world? “It is flat wrong to suggest that working with China has not served US interests,” Zoellick says. The reality is that the US and China don’t need a cold war — but the nations led by Xi and Trump are moving relentlessly to that destiny.

Reviewing the transformation in trade policy, Dupont says: “The use of tariffs and other forms of trade discrimination for geopolitical purposes — what Walter Russell Mead calls the ‘Trumpification of world politics’ — is fast becoming a tool of first resort in the national strategies of the larger economies.” This is the precise instrument Beijing now deploys against Australia.

Dupont goes to a critical point: “Trump has made matters worse by failing to build an international consensus for action, needlessly alienating friends and perversely allowing China to portray itself as the defender of the rules-based system developed and nurtured by every other US president since World War II.” China, in fact, uses its trade and financial power to pressure other nations towards compliance — The Philippines, Canada, South Korea and Australia have all felt its sting.

There has never been a greater chasm between Australia and the US on trade policy for a half-century. Instead of gathering a global coalition to pressure China on its trade tactics, Trump has gone solo on massive retaliation. While Trump sabotages the World Trade Organisation, the Morrison government has launched initiatives to try to salvage it. While Trump pulled the US from the Trans-Pacific Partnership, the Turnbull government, working with Japan and others, kept the TPP alive.

WTO economists expect global merchandise trade to decline by between 13 per cent and 32 per cent this year. But the trade war has widened into a tech war, a battleground central to military capability. China’s plan defined in its Made in China 2025 report is to dominate the advanced industries of the future. In his groundbreaking October 2018 speech, US Vice-President Mike Pence hit back — pledging that US power would be mobilised to combat China on a scale not seen since the first Cold War. Dupont says Pence’s speech is redolent of Churchill’s March 1946 “Iron Curtain” declaration. He warns that Beijing accepts there is no chance of reaching a settlement with the US for the foreseeable future. The rivalry “is more likely to escalate than de-escalate”.

“In the short term I am a pessimist because it is too late to reverse the trends,” Dupont says. “But we must look at ways of mitigating this cold war even if we cannot prevent it.” He makes nine recommendations designed to reduce tensions, resurrect the trade system, strengthen middle powers, manage conflict risk and better integrate economic and security policy. Rudd warns much depends on the leaders — the right decisions “could pull us back from the abyss”.