There are many signs the long-running US-China trade war is rapidly turning into a cold war between the two largest economies. If it continues, this will result in repercussions for the already exhausted global economy caused by the disastrous effect of the COVID-19 pandemic.
The nature of the new conflict differs from the earlier cold war between the US and the Soviet Union, as this time the economic factor takes precedence rather than ideologies.
But how did it all come to this? The answer lies in the reasons that are now leading to the heating up of the cold war.
Just over three decades ago, China’s economy was mainly dependent on agriculture with modest industrial and technical infrastructure and a total output of barely $1 trillion.
A transformation like no other
But thereafter, China followed an approach of economic openness and taking full advantage of its cheap and trained workforce, which helped attract huge foreign investments, especially from the US and EU. Thousands of factories moved from those countries into China driven by the desire to maximize profits without looking at any other strategic considerations.
This resulted in an overnight miracle for China, pushing its economy from 10th globally to second in the world with a GDP of $13.4 trillion in 2018. It is expected to outpace the US economy in the coming years, while China already occupies first spot in terms of export volumes.
It is obvious that such a rapid development was not surprising to the West, and the US in particular, but their strategy was built on the basis that it is possible to transfer traditional industries to China and retain those that are built on advanced technologies, such as communications, software and artificial intelligence.
However, the lure of easy profits led to the transfer of the latest telecommunications industries to China.
Creating mega clones
This means things did not go as planned, and unexpectedly China turned the tables on the West. Similar to Amazon, China established Alibaba in 1999, and to compete with Apple, Huawei was launched, and so on.
Thanks to such an aggressive policy, China emerged an equal competitor in the internet-driven economy and posed a real challenge to US hegemony. Washington is now trying to stop China’s growth through threats and sanctions, especially with respect to less expensive Huawei 5G services and technologies.
It will result in economic, security and strategic challenges that will tip the scales in favor of the China, considering that the Asian powerhouse will not stand by. It means entering a cold war between the two giant powers.
The first to pay attention to this imbalance was US President Donald Trump, who is making great efforts in two directions. First, by encouraging the return of American companies from China and repositioning them in the US, he sought to create millions of jobs for Americans.
The second was trying to crack down on Chinese goods and technologies competing with the US, using various means and regardless of its potential consequences. However, things will depend on the results of the US presidential elections in November.
We believe this transformation was largely caused by the savage capitalist obsession to maximize profits at the expense of cheap Chinese labor before the magic turned on the magician.
Certainly, the Chinese economy will achieve growth in all cases, but not as quickly when it was based on Western technologies, which accelerated the transformation.
It is a fact that the Cold War will do harm to the global economy, which requires seeking a middle ground and compromises. And accepting the Chinese dragon as a competitor while preserving the common interests of Uncle Sam.
China’s transformation has already taken place and as the proverb says, “One who cooks poison, tastes it.”